Companies: 10,575     total market cap: A$193.805 T
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Starwood Property Trust
STWD
#2551
Rank
A$9.62 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
A$25.33
Share price
-0.33%
Change (1 day)
-17.70%
Change (1 year)
๐Ÿ  Real estate๐Ÿ’ฐ Investment ๐Ÿ˜๏ธ REITs
Categories
  1. Starwood Property Trust
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q3

Starwood Property Trust - 10-Q quarterly report FY2022 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34436
__________________________________________________
Starwood Property Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-0247747
(State or Other Jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification No.)
591 West Putnam Avenue
Greenwich, Connecticut
06830
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code:
(203) 422-7700
___________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareSTWDNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 4, 2022 was 309,584,298.
1

Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements, including without limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are developed by combining currently available information with our beliefs and assumptions and are generally identified by the words “believe,” “expect,” “anticipate” and other similar expressions. Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.
These forward-looking statements are based largely on our current beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors that may cause actual results to vary from our forward-looking statements include, but are not limited to:
•factors described in our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q, including those set forth under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
•the severity and duration of the pandemic of the novel strain of coronavirus (“COVID-19”), actions that may be taken by governmental authorities, businesses and others to contain the COVID-19 pandemic, including variants and resurgences, or to treat its impact and the adverse impacts that the COVID-19 pandemic has had, and will likely continue to have, on the global economy, on the borrowers underlying our real estate-related assets and infrastructure loans and tenants of our owned properties, including their ability to make payments on their loans or to pay rent, as the case may be, and on our operations and financial performance;
•defaults by borrowers in paying debt service on outstanding indebtedness;
•impairment in the value of real estate property securing our loans or in which we invest;
•availability of mortgage origination and acquisition opportunities acceptable to us;
•potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;
•our ability to achieve the benefits that we anticipate from the prior acquisition of the project finance origination, underwriting and capital markets business of GE Capital Global Holdings, LLC;
•national and local economic and business conditions, including continued disruption from the COVID-19 pandemic;
•the occurrence of certain geo-political events (such as wars, terrorist attacks and tensions between states) that affect the normal and peaceful course of international relations (such as the Russian invasion of Ukraine);
•general and local commercial and residential real estate property conditions;
•changes in federal government policies;
•changes in federal, state and local governmental laws and regulations;
•increased competition from entities engaged in mortgage lending and securities investing activities;
•changes in interest rates; and
•the availability of, and costs associated with, sources of liquidity.
In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. Except to the extent required by applicable law or regulation, we undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.
2

TABLE OF CONTENTS
Page
Item 1.
4
Condensed Consolidated Balance Sheets
4
Condensed Consolidated Statements of Operations
5
Condensed Consolidated Statements of Comprehensive Income
6
Condensed Consolidated Statements of Equity
7
Condensed Consolidated Statements of Cash Flows
9
Notes to Condensed Consolidated Financial Statements
11
Note 1 Business and Organization
11
Note 2 Summary of Significant Accounting Policies
12
Note 3 Acquisitions and Divestitures
18
Note 4 Loans
19
Note 5 Investment Securities
24
Note 6 Properties
27
Note 7 Investments of Consolidated Affordable Housing Fund
29
Note 8 Investments in Unconsolidated Entities
30
Note 9 Goodwill and Intangibles
31
Note 10 Secured Borrowings
33
Note 11 Unsecured Senior Notes
37
Note 12 Loan Securitization/Sale Activities
39
Note 13 Derivatives and Hedging Activity
40
Note 14 Offsetting Assets and Liabilities
42
Note 15 Variable Interest Entities
42
Note 16 Related-Party Transactions
44
Note 17 Stockholders’ Equity and Non-Controlling Interests
46
Note 18 Earnings per Share
48
Note 19 Accumulated Other Comprehensive Income
49
Note 20 Fair Value
50
Note 21 Income Taxes
58
Note 22 Commitments and Contingencies
59
Note 23 Segment Data
60
Note 24 Subsequent Events
66
Item 2.
67
Item 3.
102
Item 4.
104
Item 1.
105
Item 1A.
105
Item 2.
105
Item 3.
105
Item 4.
105
Item 5.
Other Information
105
Item 6.
106
3

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands, except share data)
As of September 30,
As of December 31,
2022
2021
Assets:
Cash and cash equivalents$339,710 $217,362 
Restricted cash121,570 104,552 
Loans held-for-investment, net of credit loss allowances of $92,611 and $67,270 ($53,176 and $59,225 held at fair value)
18,103,822 15,536,849 
Loans held-for-sale, at fair value2,205,684 2,876,800 
Investment securities, net of credit loss allowances of $3,928 and $8,610 ($146,572 and $177,848 held at fair value)
890,128 860,984 
Properties, net1,217,426 1,166,387 
Investments of consolidated affordable housing fund, at fair value
1,669,265 1,040,309 
Investments in unconsolidated entities83,164 90,097 
Goodwill259,846 259,846 
Intangible assets ($18,014 and $16,780 held at fair value)
73,096 63,564 
Derivative assets251,171 48,216 
Accrued interest receivable154,148 116,262 
Other assets418,458 188,626 
Variable interest entity (“VIE”) assets, at fair value54,215,370 61,280,543 
Total Assets$80,002,858 $83,850,397 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$562,461 $189,696 
Related-party payable26,146 76,371 
Dividends payable150,196 147,624 
Derivative liabilities82,766 13,421 
Secured financing agreements, net13,495,902 12,576,850 
Collateralized loan obligations and single asset securitization, net3,690,996 2,616,116 
Unsecured senior notes, net2,326,988 1,828,590 
VIE liabilities, at fair value52,501,845 59,752,922 
Total Liabilities72,837,300 77,201,590 
Commitments and contingencies (Note 22)
Temporary Equity: Redeemable non-controlling interests
344,373 214,915 
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Preferred stock, $0.01 per share, 100,000,000 shares authorized, no shares issued and outstanding
— — 
Common stock, $0.01 per share, 500,000,000 shares authorized, 317,032,314 issued and 309,583,623 outstanding as of September 30, 2022 and 312,268,944 issued and 304,820,253 outstanding as of December 31, 2021
3,170 3,123 
Additional paid-in capital5,779,687 5,673,376 
Treasury stock (7,448,691 shares)
(138,022)(138,022)
Retained earnings 779,188 493,106 
Accumulated other comprehensive income22,776 40,953 
Total Starwood Property Trust, Inc. Stockholders’ Equity6,446,799 6,072,536 
Non-controlling interests in consolidated subsidiaries374,386 361,356 
Total Permanent Equity6,821,185 6,433,892 
Total Liabilities and Equity$80,002,858 $83,850,397 
________________________________________________________
Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 include assets of $4.5 billion and $3.1 billion, respectively, and liabilities of $3.7 billion and $2.6 billion, respectively, related to consolidated collateralized loan obligations (“CLOs”) and a single asset securitization (“SASB”), which are considered to be VIEs. The CLOs’ and SASB’s assets can only be used to settle obligations of the CLOs and SASB, and the CLOs’ and SASB’s liabilities do not have recourse to Starwood Property Trust, Inc. Refer to Note 15 for additional discussion of VIEs.

See notes to condensed consolidated financial statements.
4

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except per share data)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022202120222021
Revenues:
Interest income from loans$328,354 $203,252 $823,123 $583,099 
Interest income from investment securities19,019 10,697 48,308 32,955 
Servicing fees8,427 10,473 30,972 29,739 
Rental income32,932 77,512 96,036 230,969 
Other revenues1,809 352 11,680 3,621 
Total revenues390,541 302,286 1,010,119 880,383 
Costs and expenses:
Management fees27,356 23,727 114,275 91,713 
Interest expense222,423 115,531 501,492 328,558 
General and administrative45,495 38,864 134,821 122,765 
Acquisition and investment pursuit costs1,213 214 2,152 806 
Costs of rental operations12,206 31,516 32,094 90,992 
Depreciation and amortization12,611 22,041 36,498 66,992 
Credit loss provision (reversal), net15,343 (563)20,123 (12,363)
Other expense— 23 1,313 708 
Total costs and expenses336,647 231,353 842,768 690,171 
Other income (loss):
Change in net assets related to consolidated VIEs37,146 28,049 72,268 80,303 
Change in fair value of servicing rights515 2,237 1,234 2,740 
Change in fair value of investment securities, net(83)(299)(1,683)903 
Change in fair value of mortgage loans, net(87,474)31,727 (326,737)68,116 
Income from affordable housing fund investments117,527 — 658,733 — 
(Loss) earnings from unconsolidated entities(2,044)2,042 911 6,002 
Gain (loss) on sale of investments and other assets, net13,453 (47)112,059 26,377 
Gain on derivative financial instruments, net206,070 41,812 461,921 65,792 
Foreign currency loss, net(107,318)(27,003)(213,201)(36,057)
Loss on extinguishment of debt(212)(499)(1,035)(2,197)
Other loss, net(56,391)(964)(90,963)(6,416)
Total other income121,189 77,055 673,507 205,563 
Income before income taxes175,083 147,988 840,858 395,775 
Income tax benefit (provision) 48,755 (7,501)48,999 (6,378)
Net income223,838 140,487 889,857 389,397 
Net income attributable to non-controlling interests(29,276)(11,885)(158,409)(33,107)
Net income attributable to Starwood Property Trust, Inc.$194,562 $128,602 $731,448 $356,290 
Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic$0.62 $0.44 $2.35 $1.23 
Diluted$0.61 $0.44 $2.30 $1.22 
See notes to condensed consolidated financial statements.
5

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, amounts in thousands)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022202120222021
Net income$223,838 $140,487 $889,857 $389,397 
Other comprehensive income (loss) (net change by component):
Available-for-sale securities(6,194)(824)(18,177)(3,571)
Foreign currency translation— — — 64 
Other comprehensive loss(6,194)(824)(18,177)(3,507)
Comprehensive income217,644 139,663 871,680 385,890 
Less: Comprehensive income attributable to non-controlling interests(29,276)(11,885)(158,409)(33,107)
Comprehensive income attributable to Starwood Property Trust, Inc.
$188,368 $127,778 $713,271 $352,783 
See notes to condensed consolidated financial statements.
6

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
For the Three Months Ended September 30, 2022 and 2021
(Unaudited, amounts in thousands, except share data)
Temporary EquityCommon stockAdditional
Paid-in
Capital		Treasury StockRetained Earnings
(Accumulated
Deficit)		Accumulated
Other
Comprehensive
Income		Total
Starwood Property
Trust, Inc.
Stockholders’
Equity		Non-
Controlling
Interests		Total Permanent
Equity
SharesPar
Value		SharesAmount
Balance, June 30, 2022
$322,753 316,660,535 $3,167 $5,766,533 7,448,691 $(138,022)$733,348 $28,970 $6,393,996 $380,391 $6,774,387 
Proceeds from DRIP Plan— 10,568 — 235 — — — — 235 — 235 
Proceeds from employee stock purchase plan— 34,625 — 625 — — — — 625 — 625 
Share-based compensation— 218,212 2 9,701 — — — — 9,703 — 9,703 
Manager fees paid in stock— 108,374 1 2,593 — — — — 2,594 — 2,594 
Net income23,795 — — — — — 194,562 — 194,562 5,481 200,043 
Dividends declared, $0.48 per share
— — — — — — (148,722)— (148,722)— (148,722)
Other comprehensive loss, net— — — — — — — (6,194)(6,194)— (6,194)
Distributions to non-controlling interests(2,175)— — — — — — — — (11,486)(11,486)
Balance, September 30, 2022$344,373 317,032,314 $3,170 $5,779,687 7,448,691 $(138,022)$779,188 $22,776 $6,446,799 $374,386 $6,821,185 
Balance, June 30, 2021
$— 295,257,898 $2,952 $5,248,490 7,448,691 $(138,022)$(677,375)$41,310 $4,477,355 $374,345 $4,851,700 
Proceeds from DRIP Plan— 8,161 — 209 — — — — 209 — 209 
Redemption of Class A Units— 465,679 5 9,617 — — — — 9,622 (9,622)— 
Equity offering costs— — — (5)— — — — (5)— (5)
Share-based compensation— 243,201 3 9,449 — — — — 9,452 — 9,452 
Manager fees paid in stock— 97,151 1 2,505 — — — — 2,506 — 2,506 
Net income— — — — — — 128,602 — 128,602 11,885 140,487 
Dividends declared, $0.48 per share
— — — — — — (139,207)— (139,207)— (139,207)
Other comprehensive loss, net— — — — — — — (824)(824)— (824)
Contributions from non-controlling interests — — — — — — — — — 52 52 
Distributions to non-controlling interests— — — — — — — — — (17,258)(17,258)
Balance, September 30, 2021$— 296,072,090 $2,961 $5,270,265 7,448,691 $(138,022)$(687,980)$40,486 $4,487,710 $359,402 $4,847,112 
See notes to condensed consolidated financial statements.
7

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity (Continued)
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited, amounts in thousands, except share data)
Temporary EquityCommon stockAdditional
Paid-in
Capital		Treasury StockRetained Earnings (Accumulated
Deficit)		Accumulated
Other
Comprehensive
Income		Total Starwood
Property
Trust, Inc.
Stockholders’
Equity		Non-
Controlling
Interests		Total Permanent
Equity
SharesPar
Value		SharesAmount
Balance, December 31, 2021$214,915 312,268,944 $3,123 $5,673,376 7,448,691 $(138,022)$493,106 $40,953 $6,072,536 $361,356 $6,433,892 
Proceeds from ATM Agreement— 1,415,564 14 33,307 — — — — 33,321 — 33,321 
Proceeds from DRIP Plan— 33,037 — 770 — — — — 770 — 770 
Proceeds from employee stock purchase plan— 34,625 — 625 — — — — 625 — 625 
Equity offering costs— — — (756)— — — — (756)— (756)
Share-based compensation— 1,455,814 15 29,688 — — — — 29,703 — 29,703 
Manager fees paid in stock— 1,824,330 18 42,677 — — — — 42,695 — 42,695 
Net income134,298 — — — — — 731,448 — 731,448 24,111 755,559 
Dividends declared, $1.44 per share
— — — — — — (445,366)— (445,366)— (445,366)
Other comprehensive loss, net— — — — — — — (18,177)(18,177)— (18,177)
Contributions from non-controlling interests— — — — — — — — — 21,926 21,926 
Distributions to non-controlling interests(4,840)— — — — — — — — (33,007)(33,007)
Balance, September 30, 2022$344,373 317,032,314 $3,170 $5,779,687 7,448,691 $(138,022)$779,188 $22,776 $6,446,799 $374,386 $6,821,185 
Balance, December 31, 2020$— 292,091,601 $2,921 $5,209,739 7,448,691 $(138,022)$(629,733)$43,993 $4,488,898 $373,678 $4,862,576 
Cumulative effect of convertible notes accounting standard update adopted January 1, 2021— — — (3,755)— — 2,219 — (1,536)— (1,536)
Proceeds from DRIP Plan— 29,331 — 697 — — — — 697 — 697 
Redemption of Class A Units— 853,681 9 17,729 — — — — 17,738 (17,738)— 
Equity offering costs— — — (27)— — — — (27)— (27)
Share-based compensation— 2,400,946 24 29,335 — — — — 29,359 — 29,359 
Manager fees paid in stock— 696,531 7 16,547 — — — — 16,554 — 16,554 
Net income— — — — — — 356,290 — 356,290 33,107 389,397 
Dividends declared, $1.44 per share
— — — — — — (416,756)— (416,756)— (416,756)
Other comprehensive loss, net— — — — — — — (3,507)(3,507)— (3,507)
Contributions from non-controlling interests— — — — — — — — — 5,590 5,590 
Distributions to non-controlling interests— — — — — — — — — (35,235)(35,235)
Balance, September 30, 2021$— 296,072,090 $2,961 $5,270,265 7,448,691 $(138,022)$(687,980)$40,486 $4,487,710 $359,402 $4,847,112 
See notes to condensed consolidated financial statements.
8

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)
For the Nine Months Ended
September 30,
20222021
Cash Flows from Operating Activities:
Net income$889,857 $389,397 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings34,705 32,141 
Amortization of discounts and deferred financing costs on unsecured senior notes6,560 5,387 
Accretion of net discount on investment securities(9,725)(10,090)
Accretion of net deferred loan fees and discounts(47,468)(44,523)
Share-based compensation29,703 29,359 
Manager fees paid in stock42,695 16,554 
Change in fair value of investment securities1,683 (903)
Change in fair value of consolidated VIEs39,138 26,990 
Change in fair value of servicing rights(1,234)(2,740)
Change in fair value of loans326,737 (68,116)
Change in fair value of affordable housing fund investments (628,956)— 
Change in fair value of derivatives(465,986)(70,661)
Foreign currency loss, net213,201 36,057 
Gain on sale of investments and other assets(112,059)(26,377)
Impairment charges on properties and related intangibles55 — 
Credit loss provision (reversal), net20,123 (12,363)
Depreciation and amortization39,911 67,653 
Earnings from unconsolidated entities(911)(6,002)
Distributions of earnings from unconsolidated entities4,935 1,623 
Loss on extinguishment of debt837 2,197 
Origination and purchase of loans held-for-sale, net of principal collections(3,641,067)(3,027,235)
Proceeds from sale of loans held-for-sale3,992,896 2,333,767 
Changes in operating assets and liabilities:
Related-party payable(50,225)(15,792)
Accrued and capitalized interest receivable, less purchased interest(131,678)(105,039)
Other assets(200,496)(27,236)
Accounts payable, accrued expenses and other liabilities491,503 14,199 
Net cash provided by (used in) operating activities
844,734 (461,753)
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment(5,007,398)(5,635,707)
Proceeds from principal collections on loans1,840,317 3,173,764 
Proceeds from loans sold71,008 267,349 
Purchase and funding of investment securities(86,058)— 
Proceeds from principal collections on investment securities19,431 77,855 
Proceeds from sales of real estate166,424 60,969 
Purchases and additions to properties and other assets(17,295)(17,259)
Investments in unconsolidated entities(461)— 
Distribution of capital from unconsolidated entities3,375 25,555 
Cash resulting from initial consolidation of entities617 — 
Payments for purchase or termination of derivatives(14,965)(14,699)
Proceeds from termination of derivatives168,607 44,742 
Net cash used in investing activities
(2,856,398)$(2,017,431)
See notes to condensed consolidated financial statements.
9

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited, amounts in thousands)
For the Nine Months Ended
September 30,
20222021
Cash Flows from Financing Activities:
Proceeds from borrowings$11,603,576 $11,654,848 
Principal repayments on and repurchases of borrowings(8,751,730)(8,566,856)
Payment of deferred financing costs(48,847)(46,196)
Proceeds from common stock issuances34,716 697 
Payment of equity offering costs(756)(27)
Payment of dividends(442,794)(414,977)
Contributions from non-controlling interests21,926 5,590 
Distributions to non-controlling interests(37,847)(35,235)
Issuance of debt of consolidated VIEs— 69,399 
Repayment of debt of consolidated VIEs(290,132)(608,435)
Distributions of cash from consolidated VIEs64,555 83,785 
Net cash provided by financing activities
2,152,667 2,142,593 
Net increase (decrease) in cash, cash equivalents and restricted cash
141,003 (336,591)
Cash, cash equivalents and restricted cash, beginning of period321,914 722,162 
Effect of exchange rate changes on cash(1,637)(1,783)
Cash, cash equivalents and restricted cash, end of period$461,280 $383,788 
Supplemental disclosure of cash flow information:
Cash paid for interest$423,326 $276,783 
Income taxes (refunded) paid, net(8,613)7,036 
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid$150,942 $140,465 
Consolidation of VIEs (VIE asset/liability additions)4,361,325 4,427,479 
Deconsolidation of VIEs (VIE asset/liability reductions)730,012 935,855 
Net assets acquired through foreclosure, control or conversion to equity interest:
Assets acquired, less cash145,330 36,308 
Liabilities assumed95,796 — 
Lease liabilities arising from obtaining right-of-use assets29,821 — 
Loan principal collections temporarily held at master servicer3,061 119,925 
Reclassification of loans held-for-investment to loans held-for-sale63,962 237,132 
Reclassification of loans held-for-sale to loans held-for-investment— 124,932 
Transfer of loans from VIE assets to residential loans upon redemption of consolidated RMBS trusts— 432,926 
Redemption of Class A Units for common stock— 17,738 
Unsettled derivative transactions— 4,047 
See notes to condensed consolidated financial statements.
10

Starwood Property Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As of September 30, 2022
(Unaudited)
1. Business and Organization
Starwood Property Trust, Inc. (“STWD” and, together with its subsidiaries, “we” or the “Company”) is a Maryland corporation that commenced operations in August 2009, upon the completion of our initial public offering. We are focused primarily on originating, acquiring, financing and managing mortgage loans and other real estate investments in the United States (“U.S.”), Europe and Australia. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.
We have four reportable business segments as of September 30, 2022 and we refer to the investments within these segments as our target assets:
•Real estate commercial and residential lending (the “Commercial and Residential Lending Segment”)—engages primarily in originating, acquiring, financing and managing commercial first mortgages, non-agency residential mortgages (“residential loans”), subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”) and other real estate and real estate-related debt investments in the U.S., Europe and Australia (including distressed or non-performing loans). Our residential loans are secured by a first mortgage lien on residential property and primarily consist of non-agency residential loans that are not guaranteed by any U.S. Government agency or federally chartered corporation.
•Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments.
•Real estate property (the “Property Segment”)—engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, that are held for investment.
•Real estate investing and servicing (the “Investing and Servicing Segment”)—includes (i) a servicing business in the U.S. that manages and works out problem assets, (ii) an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions, (iii) a mortgage loan business which originates conduit loans for the primary purpose of selling these loans into securitization transactions and (iv) an investment business that selectively acquires commercial real estate assets, including properties acquired from CMBS trusts.
Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).
We are organized and conduct our operations to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). As such, we will generally not be subject to U.S. federal corporate income tax on that portion of our net income that is distributed to stockholders if we distribute at least 90% of our taxable income to our stockholders by prescribed dates and comply with various other requirements.
We are organized as a holding company and conduct our business primarily through our various wholly-owned subsidiaries. We are externally managed and advised by SPT Management, LLC (our “Manager”) pursuant to the terms of a management agreement. Our Manager is controlled by Barry Sternlicht, our Chairman and Chief Executive Officer. Our Manager is an affiliate of Starwood Capital Group Global L.P., a privately-held private equity firm founded by Mr. Sternlicht.
11

2. Summary of Significant Accounting Policies
Balance Sheet Presentation of Securitization Variable Interest Entities
We operate investment businesses that acquire unrated, investment grade and non-investment grade rated CMBS and RMBS. These securities represent interests in securitization structures (commonly referred to as special purpose entities, or “SPEs”). These SPEs are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. Under accounting principles generally accepted in the United States of America (“GAAP”), SPEs typically qualify as VIEs. These are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
Because we often serve as the special servicer or servicing administrator of the trusts in which we invest, or we have the ability to remove and replace the special servicer without cause, consolidation of these structures is required pursuant to GAAP as outlined in detail below. This results in a consolidated balance sheet which presents the gross assets and liabilities of the VIEs. The assets and other instruments held by these VIEs are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the VIEs do not have any recourse to the general credit of any other consolidated entities, nor to us as the consolidator of these VIEs.
The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, a portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.
Refer to the segment data in Note 23 for a presentation of our business segments without consolidation of these VIEs.
Basis of Accounting and Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries and VIEs. Intercompany amounts have been eliminated in consolidation. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows have been included.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full year.
Refer to our Form 10-K for a description of our recurring accounting policies. We have included disclosure in this Note 2 regarding principles of consolidation and other accounting policies that (i) are required to be disclosed quarterly, (ii) we view as critical, (iii) became significant since December 31, 2021 due to a corporate action or increase in the significance of the underlying business activity or (iv) changed upon adoption of an Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).
Variable Interest Entities
In addition to the securitization VIEs, we have financed pools of our loans through collateralized loan obligations (“CLOs”) and a single asset securitization (“SASB”), which are considered VIEs. We also hold interests in certain other entities which are considered VIEs as the limited partners of those entities with equity at risk do not collectively possess (i) the right to remove the general partner or dissolve the partnership without cause or (ii) the right to participate in significant decisions made by the partnership.
We evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Accounting Standards Codification (“ASC”) 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. We
12

consider our variable interests as well as any variable interests of our related parties in making this determination. Where both of these factors are present, we are deemed to be the primary beneficiary and we consolidate the VIE. Where either one of these factors is not present, we are not the primary beneficiary and do not consolidate the VIE.
To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all facts and circumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes: (i) identifying the activities that most significantly impact the VIE’s economic performance; and (ii) identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE. The right to remove the decision maker in a VIE must be exercisable without cause for the decision maker to not be deemed the party that has the power to direct the activities of a VIE.
To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, we consider all of our economic interests, including debt and equity investments, servicing fees and other arrangements deemed to be variable interests in the VIE. This assessment requires that we apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by us.
Our purchased investment securities include unrated and non-investment grade rated securities issued by securitization trusts. In certain cases, we may contract to provide special servicing activities for these trusts, or, as holder of the controlling class, we may have the right to name and remove the special servicer for these trusts. In our role as special servicer, we provide services on defaulted loans within the trusts, such as foreclosure or work-out procedures, as permitted by the underlying contractual agreements. In exchange for these services, we receive a fee. These rights give us the ability to direct activities that could significantly impact the trust’s economic performance. However, in those instances where an unrelated third party has the right to unilaterally remove us as special servicer without cause, we do not have the power to direct activities that most significantly impact the trust’s economic performance. We evaluated all of our positions in such investments for consolidation.
For securitization VIEs in which we are determined to be the primary beneficiary, all of the underlying assets, liabilities and equity of the structures are recorded on our books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these structures, as well as the fees paid by these trusts to us in our capacity as special servicer, are eliminated in consolidation. Further, a portion of the identified servicing intangible asset associated with the servicing fee streams, and the corresponding amortization or change in fair value of the servicing intangible asset, are also eliminated in consolidation.
We perform ongoing reassessments of: (i) whether any entities previously evaluated under the majority voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and (ii) whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion regarding the VIE to change.
We elect the fair value option for initial and subsequent recognition of the assets and liabilities of our consolidated securitization VIEs. Interest income and interest expense associated with these VIEs are no longer relevant on a standalone basis because these amounts are already reflected in the fair value changes. We have elected to present these items in a single line on our condensed consolidated statements of operations. The residual difference shown on our condensed consolidated statements of operations in the line item “Change in net assets related to consolidated VIEs” represents our beneficial interest in the VIEs.
We separately present the assets and liabilities of our consolidated securitization VIEs as individual line items on our condensed consolidated balance sheets. The liabilities of our consolidated securitization VIEs consist solely of obligations to the bondholders of the related trusts, and are thus presented as a single line item entitled “VIE liabilities.” The assets of our consolidated securitization VIEs consist principally of loans, but at times, also include foreclosed loans which have been temporarily converted into real estate owned (“REO”). These assets in the aggregate are likewise presented as a single line item entitled “VIE assets.”
Loans comprise the vast majority of our securitization VIE assets and are carried at fair value due to the election of the fair value option. When an asset becomes REO, it is due to non-performance of the loan. Because the loan is already at fair value, the carrying value of an REO asset is also initially at fair value. Furthermore, when we consolidate a trust, any existing
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REO would be consolidated at fair value. Once an asset becomes REO, its disposition time is relatively short. As a result, the carrying value of an REO generally approximates fair value under GAAP.
In addition to sharing a similar measurement method as the loans in a trust, the securitization VIE assets as a whole can only be used to settle the obligations of the consolidated VIE. The assets of our securitization VIEs are not individually accessible by the bondholders, which creates inherent limitations from a valuation perspective. Also creating limitations from a valuation perspective is our role as special servicer, which provides us very limited visibility, if any, into the performing loans of a trust.
REO assets generally represent a very small percentage of the overall asset pool of a trust. In new issue trusts there are no REO assets. We estimate that REO assets constitute approximately 1% of our consolidated securitization VIE assets, with the remaining 99% representing loans. However, it is important to note that the fair value of our securitization VIE assets is determined by reference to our securitization VIE liabilities as permitted under ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. In other words, our VIE liabilities are more reliably measurable than the VIE assets, resulting in our current measurement methodology which utilizes this value to determine the fair value of our securitization VIE assets as a whole. As a result, these percentages are not necessarily indicative of the relative fair values of each of these asset categories if the assets were to be valued individually.
Due to our accounting policy election under ASU 2014-13, separately presenting two different asset categories would result in an arbitrary assignment of value to each, with one asset category representing a residual amount, as opposed to its fair value. However, as a pool, the fair value of the assets in total is equal to the fair value of the liabilities.
For these reasons, the assets of our securitization VIEs are presented in the aggregate.
Fair Value Option
The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.
We have elected the fair value option for certain eligible financial assets and liabilities of our consolidated securitization VIEs, residential loans held-for-investment, loans held-for-sale originated or acquired for future securitization and purchased CMBS issued by VIEs we could consolidate in the future. The fair value elections for VIE and securitization related items were made in order to mitigate accounting mismatches between the carrying value of the instruments and the related assets and liabilities that we consolidate at fair value. The fair value elections for residential loans held-for-investment were made in order to maintain consistency across all our residential loans. The fair value elections for mortgage loans held-for-sale were made due to the expected short-term holding period of these instruments.
Fair Value Measurements
We measure our mortgage-backed securities, investments of consolidated affordable housing fund, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
As discussed above, we measure the assets and liabilities of consolidated securitization VIEs at fair value pursuant to our election of the fair value option. The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets and liabilities of the securitization VIEs, we maximize the use of observable inputs over unobservable inputs. Refer to Note 20 for further discussion regarding our fair value measurements.
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Loans Held-for-Investment
Loans that are held for investment (“HFI”) are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable, and net of credit loss allowances as discussed below, unless the loans are credit deteriorated or we have elected to apply the fair value option at purchase.
Loans Held-For-Sale
Our loans that we intend to sell or liquidate in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value, unless we have elected to apply the fair value option at origination or purchase.
Investment Securities
We designate our debt investment securities as held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading depending on our investment strategy and ability to hold such securities to maturity. HTM debt securities where we have not elected to apply the fair value option are stated at cost plus any premiums or discounts, which are amortized or accreted through the condensed consolidated statements of operations using the effective interest method. Debt securities we (i) do not hold for the purpose of selling in the near-term, or (ii) may dispose of prior to maturity, are classified as AFS and are carried at fair value in the accompanying financial statements. Unrealized gains or losses on AFS debt securities where we have not elected the fair value option are reported as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity. Our HTM and AFS debt securities are also subject to credit loss allowances as discussed below.
Our only equity investment security is carried at fair value, with unrealized holding gains and losses recorded in earnings.
Credit Losses
Loans and Debt Securities Measured at Amortized Cost
ASC 326, Financial Instruments – Credit Losses, became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our HFI loans and our HTM debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities. However, as permitted by ASC 326, we have elected not to measure an allowance for credit losses on accrued interest receivable (which is classified separately on our condensed consolidated balance sheets), but rather write off in a timely manner by reversing interest income and/or cease accruing interest that would likely be uncollectible.
As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. See Note 4 for further discussion of our methodologies.
We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.
Available-for-Sale Debt Securities
Separate provisions of ASC 326 apply to our AFS debt securities, which are carried at fair value with unrealized gains and losses reported as a component of AOCI. We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration (“PCD”) by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis.
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Subsequently, cumulative adverse changes in expected cash flows on our AFS debt securities are recognized currently as an increase to the allowance for credit losses. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.
Investments of Consolidated Affordable Housing Fund
On November 5, 2021, we established Woodstar Portfolio Holdings, LLC (the “Woodstar Fund”), an investment fund which holds our Woodstar multifamily affordable housing portfolios consisting of 59 properties with 15,057 units located in Central and South Florida. As managing member of the Woodstar Fund, we manage interests purchased by third party investors seeking capital appreciation and an ongoing return, for which we earn (i) a management fee based on each investor’s share of total Woodstar Fund equity; and (ii) an incentive distribution if the Woodstar Fund’s returns exceed an established threshold. In connection with the establishment of the Woodstar Fund, we entered into subscription and other related agreements with certain third party institutional investors to sell, through a feeder fund structure, an aggregate 20.6% interest in the Woodstar Fund for an initial aggregate subscription price of $216.0 million, which was adjusted to $214.2 million post-closing. The Woodstar Fund has an initial term of eight years.

Effective with the third party interest sale, the Woodstar Fund has the characteristics of an investment company under ASC 946, Financial Services – Investment Companies. Accordingly, the Woodstar Fund is required to carry the investments in its properties at fair value, with a cumulative effect adjustment between the fair value and previous carrying value of its investments recognized in stockholders’ equity as of November 5, 2021, the date of the Woodstar Fund’s change in status to an investment company. Because we are the primary beneficiary of the Woodstar Fund, which is a VIE (as discussed in Note 15), we consolidate the accounts of the Woodstar Fund into our consolidated financial statements, retaining the fair value basis of accounting for its investments. Realized and unrealized changes in the fair value of the Woodstar Fund’s property investments, and distributions thereon, are recognized in the “Income from affordable housing fund investments” caption within the other income (loss) section of our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. See Note 7 for further details regarding the Woodstar Fund’s investments and related income and Note 17 with respect to its contingently redeemable non-controlling interests which are classified as “Temporary Equity” in our condensed consolidated balance sheets.
Revenue Recognition
Interest Income
Interest income on performing loans and financial instruments is accrued based on the outstanding principal amount and contractual terms of the instrument. For loans where we do not elect the fair value option, origination fees and direct loan origination costs are also recognized in interest income over the loan term as a yield adjustment using the effective interest method. When we elect the fair value option, origination fees and direct loan costs are recorded directly in income and are not deferred. Discounts or premiums associated with the purchase of non-performing loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on expected cash flows through the expected maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to our cash flow projections.
We cease accruing interest on non-performing loans at the earlier of (i) the loan becoming significantly past due or (ii) management concluding that a full recovery of all interest and principal is doubtful. Interest income on non-accrual loans in which management expects a full recovery of the loan’s outstanding principal balance is only recognized when received in cash. If a full recovery of principal is doubtful, the cost recovery method is applied whereby any cash received is applied to the outstanding principal balance of the loan. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and management believes all future principal and interest will be received according to the contractual loan terms.
For loans acquired with deteriorated credit quality, interest income is only recognized to the extent that our estimate of undiscounted expected principal and interest exceeds our investment in the loan. Such excess, if any, is recognized as interest income on a level-yield basis over the life of the loan.
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Upon the sale of loans or securities which are not accounted for pursuant to the fair value option, the excess (or deficiency) of net proceeds over the net carrying value of such loans or securities is recognized as a realized gain (loss).
Servicing Fees
We typically seek to be the special servicer on CMBS transactions in which we invest. When we are appointed to serve in this capacity, we earn special servicing fees from the related activities performed, which consist primarily of overseeing the workout of under-performing and non-performing loans underlying the CMBS transactions. These fees are recognized in income in the period in which the services are performed and the revenue recognition criteria have been met.
Rental Income
Rental income is recognized when earned from tenants. For leases that provide rent concessions or fixed escalations over the lease term, rental income is recognized on a straight-line basis over the noncancelable term of the lease. In net lease arrangements, costs reimbursable from tenants are recognized in rental income in the period in which the related expenses are incurred as we are generally the primary obligor with respect to purchasing goods and services for property operations. In instances where the tenant is responsible for property maintenance and repairs and contracts and settles such costs directly with third party service providers, we do not reflect those expenses in our consolidated statement of operations as the tenant is the primary obligor.
Foreign Currency Translation
Our assets and liabilities denominated in foreign currencies are translated into U.S. dollars using foreign currency exchange rates at the end of the reporting period. Income and expenses are translated at the average exchange rates for each reporting period. The effects of translating the assets, liabilities and income of our foreign investments held by entities with a U.S. dollar functional currency are included in foreign currency gain (loss) in the consolidated statements of operations or other comprehensive income (“OCI”) for debt securities available-for-sale for which the fair value option has not been elected. The effects of translating the assets, liabilities and income of our foreign investments held by entities with functional currencies other than the U.S. dollar are included in OCI. Realized foreign currency gains and losses and changes in the value of foreign currency denominated monetary assets and liabilities are included in the determination of net income and are reported as foreign currency gain (loss) in our condensed consolidated statements of operations.

Earnings Per Share
We present both basic and diluted earnings per share (“EPS”) amounts in our financial statements. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from (i) our share-based compensation, consisting of unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), (ii) shares contingently issuable to our Manager, (iii) the conversion options associated with our senior convertible notes (the “Convertible Notes”) (see Notes 11 and 18) and (iv) non-controlling interests that are redeemable with our common stock (see Note 17). Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

Nearly all of the Company’s unvested RSUs and RSAs contain rights to receive non-forfeitable dividends and thus are participating securities. In addition, the non-controlling interests that are redeemable with our common stock are considered participating securities because they earn a preferred return indexed to the dividend rate on our common stock (see Note 17). Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities. For the three and nine months ended September 30, 2022 and 2021, the two-class method resulted in the most dilutive EPS calculation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. The most significant and subjective estimate that we make is the projection of cash flows we expect to receive on our investments, which has a significant impact on the amount of income that we record and/or disclose. The fair value of assets and liabilities that are estimated using a discounted cash flows method is significantly impacted by the rates at which we estimate market participants
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would discount the expected cash flows. Amounts ultimately realized from our investments may vary significantly from the fair values presented.
We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2022. Actual results may ultimately differ from those estimates.
Recent Accounting Developments
On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and on January 11, 2021, issued ASU 2021-01, Reference Rate Reform (Topic 848) – Scope, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. These ASUs are effective through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through September 30, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
On March 31, 2022, the FASB issued ASU 2022-2, Troubled Debt Restructurings and Vintage Disclosures (Topic 326). ASU 2022-2 eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The ASU is effective for the Company beginning January 1, 2023 and is generally to be applied prospectively. Early adoption is permitted. We do not expect the application of this ASU to materially impact our consolidated financial statements as our operating practice is generally not to enter into TDRs for troubled loans.
3. Acquisitions and Divestitures
Investing and Servicing Segment Property Portfolio ("REIS Equity Portfolio")

During the three months ended September 30, 2022, we sold an operating property for $19.5 million. In connection with this sale, we recognized a total gain of $13.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. During the nine months ended September 30, 2022, we sold two operating properties for $54.0 million. In connection with these sales, we recognized a total gain of $25.4 million within gain on sale of investments and other assets in our condensed consolidated statement of operations, of which $0.6 million was attributable to non-controlling interests. During the nine months ended September 30, 2021, we sold an operating property for $30.9 million. In connection with this sale, we recognized a gain of $9.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

Commercial and Residential Lending Segment
During the nine months ended September 30, 2022, we sold a distribution facility located in Orlando, Florida that was previously acquired in April 2019 through foreclosure of a loan with a carrying value of $18.5 million. The property was sold for $114.8 million and we recognized a gain of $86.6 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. During the nine months ended September 30, 2021, we sold an operating property relating to a grocery distribution facility located in Montgomery, Alabama that was previously acquired in March 2019 through foreclosure of a loan with a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount) at the foreclosure date. The operating property was sold for $31.2 million and we recognized a gain of $17.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the three and nine months ended September 30, 2022 and 2021, we had no significant acquisitions of properties or businesses.


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4. Loans
Our loans held-for-investment are accounted for at amortized cost and our loans held-for-sale are accounted for at the lower of cost or fair value, unless we have elected the fair value option for either. The following tables summarize our investments in mortgages and loans as of September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022Carrying
Value		Face
Amount		Weighted
Average
Coupon (1)		Weighted
Average Life
(“WAL”)
(years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3)$15,174,120 $15,263,633 6.8 %1.9
Subordinated mortgages (4)69,793 70,966 12.5 %2.0
Mezzanine loans (3)438,457 435,818 11.6 %1.0
Other58,694 59,850 8.2 %1.6
Total commercial loans15,741,064 15,830,267 
Infrastructure first priority loans 2,402,193 2,433,586 7.7 %4.0
Residential loans, fair value option (5)53,176 54,569 5.8 %N/A(6)
Total loans held-for-investment18,196,433 18,318,422 
Loans held-for-sale:
Residential, fair value option (5)2,125,827 2,340,929 4.7 %N/A(6)
Commercial, fair value option79,857 82,223 4.2 %7.3
Total loans held-for-sale2,205,684 2,423,152 
Total gross loans20,402,117 $20,741,574 
Credit loss allowances:
Commercial loans held-for-investment(64,862)
Infrastructure loans held-for-investment(27,749)
Total allowances(92,611)
Total net loans$20,309,506 
December 31, 2021
Loans held-for-investment:
Commercial loans:
First mortgages (3)$12,991,099 $13,067,524 4.5 %1.9
Subordinated mortgages (4)70,771 72,371 10.0 %2.8
Mezzanine loans (3)417,504 415,155 9.4 %1.4
Other17,424 19,029 8.2 %2.1
Total commercial loans13,496,798 13,574,079 
Infrastructure first priority loans2,048,096 2,071,912 4.4 %4.3
Residential loans, fair value option 59,225 60,133 6.0 %N/A(6)
Total loans held-for-investment15,604,119 15,706,124 
Loans held-for-sale:
Residential, fair value option 2,590,005 2,525,910 4.2 %N/A(6)
Commercial, fair value option286,795 289,761 4.0 %9.0
Total loans held-for-sale2,876,800 2,815,671 
Total gross loans18,480,919 $18,521,795 
Credit loss allowances:
Commercial loans held-for-investment(46,600)
Infrastructure loans held-for-investment(20,670)
Total allowances(67,270)
Total net loans$18,413,649 
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______________________________________________________________________________________________________________________
(1)Calculated using applicable index rates as of September 30, 2022 and December 31, 2021 for variable rate loans and excludes loans for which interest income is not recognized.
(2)Represents the WAL of each respective group of loans, excluding loans for which interest income is not recognized, as of the respective balance sheet date. The WAL of each individual loan is calculated using amounts and timing of future principal payments, as projected at origination or acquisition.
(3)First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of $1.2 billion and $1.4 billion being classified as first mortgages as of September 30, 2022 and December 31, 2021, respectively.
(4)Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.
(5)During the nine months ended September 30, 2022, $0.3 million of residential loans held-for-investment were reclassified into loans held-for-sale.
(6)Residential loans have a weighted average remaining contractual life of 29.1 years and 29.4 years as of September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022, our variable rate loans held-for-investment, excluding loans for which interest income is not recognized, were as follows (dollars in thousands):
September 30, 2022Carrying
Value		Weighted-average
Spread Above Index
Commercial loans$15,006,961 4.0 %
Infrastructure loans2,402,193 3.9 %
Total variable rate loans held-for-investment$17,409,154 3.9 %

Credit Loss Allowances
As discussed in Note 2, we do not have a history of realized credit losses on our HFI loans and HTM securities, so we have subscribed to third party database services to provide us with industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios.
For our commercial loans, we utilize a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading CMBS data analytics provider. It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We provide specific loan-level inputs which include loan-to-stabilized-value (“LTV”) and debt service coverage ratio (DSCR) metrics, as well as principal balances, property type, location, coupon, origination year, term, subordination, expected repayment dates and future fundings. We also select from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends. We categorize the results by LTV range, which we consider the most significant indicator of credit quality for our commercial loans, as set forth in the credit quality indicator table below. A lower LTV ratio typically indicates a lower credit loss risk.
The macroeconomic forecasts do not differentiate among property types or asset classes. Instead, these forecasts reference general macroeconomic growth factors which apply broadly across all assets. For instance, although the office sector has been adversely affected by the increase in remote working arrangements, the broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to office properties in determining our credit loss allowance.
For our infrastructure loans, we utilize a database of historical infrastructure loan performance that is shared among a consortium of banks and other lenders and compiled by a major bond credit rating agency. The database is representative of industry-wide project finance activity dating back to 1983. We derive historical loss rates from the database filtered by industry, sub-industry, term and construction status for each of our infrastructure loans. Those historical loss rates reflect global
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economic cycles over a long period of time as well as average recovery rates. We categorize the results between the power and oil and gas industries, which we consider the most significant indicator of credit quality for our infrastructure loans, as set forth in the credit quality indicator table below.
As discussed in Note 2, we use a discounted cash flow or collateral value approach, rather than the industry loan loss approach described above, to determine credit loss allowances for any credit deteriorated loans.
We regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, as well as the financial and operating capability of the borrower. Specifically, the collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the collateral’s liquidation value. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the collateral. In addition, we consider the overall economic environment, real estate or industry sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.
The significant credit quality indicators for our loans measured at amortized cost, which excludes loans held-for-sale, were as follows as of September 30, 2022 (dollars in thousands):
Term Loans
Amortized Cost Basis by Origination Year		Revolving Loans
Amortized Cost
Total		Total
Amortized
Cost Basis		Credit
Loss
Allowance
As of September 30, 202220222021202020192018Prior
Commercial loans:
Credit quality indicator:
LTV < 60%$1,697,121 $2,540,666 $459,943 $892,348 $373,102 $680,512 $— $6,643,692 $5,272 
LTV 60% - 70%1,694,971 3,805,828 238,557 1,096,130 457,696 68,455 — 7,361,637 19,204 
LTV > 70%100,444 333,874 228,133 429,098 313,469 267,098 — 1,672,116 35,461 
Credit deteriorated— — — — — 4,925 — 4,925 4,925 
Defeased and other42,138 — — — — 16,556 — 58,694 — 
Total commercial$3,534,674 $6,680,368 $926,633 $2,417,576 $1,144,267 $1,037,546 $— $15,741,064 $64,862 
Infrastructure loans:
Credit quality indicator:
Power$93,258 $222,453 $81,611 $288,355 $387,126 $409,170 $5,488 $1,487,461 $5,695 
Oil and gas87,946 359,963 10,284 286,506 84,587 50,189 1,969 881,444 5,553 
Credit deteriorated— — — — — 33,288 — 33,288 16,501 
Total infrastructure$181,204 $582,416 $91,895 $574,861 $471,713 $492,647 $7,457 $2,402,193 $27,749 
Residential loans held-for-investment, fair value option53,176 — 
Loans held-for-sale2,205,684 — 
Total gross loans$20,402,117 $92,611 

Non-Credit Deteriorated Loans
As of September 30, 2022, we had the following loans with a combined amortized cost basis of $505.4 million that were 90 days or greater past due at September 30, 2022: (i) a $204.3 million senior loan on a retail and entertainment project in New Jersey, of which $7.3 million was converted into equity interests (see Note 8); (ii) a $222.8 million senior loan on an office building in California; (iii) a $37.8 million leasehold mortgage loan on a luxury resort in California destroyed by wildfire; (iv) $31.3 million of residential loans; and (v) a $9.2 million loan on a hospitality asset in New York that our Investing and Servicing Segment acquired as nonperforming in October 2021. Loans on nonaccrual as of September 30, 2022 include (i) - (iv) above. None of these loans are considered credit deteriorated as we presently expect to recover all amounts due.
Credit Deteriorated Loans
As of September 30, 2022, we had the following loans with a combined amortized cost basis of $38.2 million which were deemed credit deteriorated and are on nonaccrual status: (i) a $33.3 million senior loan participation secured by a natural gas-fired power plant in Massachusetts, for which interest collections were current as of September 30, 2022 but for which we
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recorded a credit loss allowance of $16.5 million ($6.4 million during the three and nine months ended September 30, 2022 and $10.1 million in 2021) based on our share of the estimated fair value of the asset; and (ii) a $4.9 million subordinated loan secured by a department store in Chicago which is fully reserved.
Foreclosures and Equity Control
In May 2022, we obtained control over the pledged equity interests of a mezzanine borrower entity related to an office building located in Texas, which resulted in our consolidating the mezzanine borrower entity including the underlying property collateral and related debt. The net carrying value of our loans related to this property totaled $50.2 million and consisted of first mortgage and mezzanine loans which are now eliminated in consolidation. In connection with the consolidation of the mezzanine borrower entity, we recorded properties of $110.8 million, lease intangible assets of $15.4 million, net working capital of $11.8 million and third-party first mortgage debt of $87.8 million in accordance with the asset acquisition provisions of ASC 805, Business Combinations.
The following tables present the activity in our credit loss allowance for funded loans and unfunded commitments (amounts in thousands):
Funded Commitments Credit Loss Allowance
Loans Held-for-InvestmentTotal
Funded Loans
Nine Months Ended September 30, 2022
CommercialInfrastructure
Credit loss allowance at December 31, 2021$46,600 $20,670 $67,270 
Credit loss provision, net18,262 7,079 25,341 
Credit loss allowance at September 30, 2022$64,862 $27,749 $92,611 
Unfunded Commitments Credit Loss Allowance (1)
Loans Held-for-Investment
Nine Months Ended September 30, 2022
CommercialInfrastructureCMBS (2)Total
Credit loss allowance at December 31, 2021$6,692 $145 $— $6,837 
Credit loss (reversal) provision, net(431)(145)40 (536)
Credit loss allowance at September 30, 2022$6,261 $— $40 $6,301 
Memo: Unfunded commitments as of September 30, 2022 (3)
$2,463,418 $— $32,494 $2,495,912 
______________________________________________________________________________________________________________________
(1)Included in accounts payable, accrued expenses and other liabilities in our consolidated balance sheets.
(2)See Note 5 for further details.
(3)Represents amounts expected to be funded (see Note 22).
Loan Portfolio Activity
The activity in our loan portfolio was as follows (amounts in thousands):
Held-for-Investment Loans
Nine Months Ended September 30, 2022
CommercialInfrastructureResidentialHeld-for-Sale LoansTotal Loans
Balance at December 31, 2021$13,450,198 $2,027,426 $59,225 $2,876,800 $18,413,649 
Acquisitions/originations/additional funding4,410,306 597,092 — 3,793,467 8,800,865 
Capitalized interest (1)85,454 373 1,445 402 87,674 
Basis of loans sold (2)(6,330)— — (4,056,511)(4,062,841)
Loan maturities/principal repayments(1,558,907)(246,127)(6,663)(146,184)(1,957,881)
Discount accretion/premium amortization40,179 7,289 — — 47,468 
Changes in fair value— — (485)(326,252)(326,737)
Foreign currency translation gain/(loss), net(612,669)(4,530)— — (617,199)
Credit loss provision, net(18,262)(7,079)— — (25,341)
Transfer to/from other asset classifications or between segments(113,767)— (346)63,962 (50,151)(3)
Balance at September 30, 2022$15,676,202 $2,374,444 $53,176 $2,205,684 $20,309,506 
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Held-for-Investment Loans
Nine Months Ended September 30, 2021
CommercialInfrastructureResidentialHeld-for-Sale LoansTotal Loans
Balance at December 31, 2020$9,583,949 $1,412,440 $90,684 $1,052,835 $12,139,908 
Acquisitions/originations/additional funding5,242,378 393,329 — 3,151,361 8,787,068 
Capitalized interest (1)89,830 — 2,068 2,062 93,960 
Basis of loans sold (2)(243,378)— — (2,358,790)(2,602,168)
Loan maturities/principal repayments(2,897,747)(211,695)(26,341)(250,662)(3,386,445)
Discount accretion/premium amortization40,367 3,652 — 504 44,523 
Changes in fair value— — 1,837 66,279 68,116 
Foreign currency translation loss, net(75,094)(840)— — (75,934)
Credit loss reversal (provision), net13,238 (1,124)— — 12,114 
Loan foreclosure and conversion to equity interest(36,308)— — — (36,308)(4)
Transfer to/from other asset classifications or between segments(204,583)93,085 23,251 519,930 431,683 (5)
Balance at September 30, 2021$11,512,652 $1,688,847 $91,499 $2,183,519 $15,476,517 
______________________________________________________________________________________________________________________
(1)Represents accrued interest income on loans whose terms do not require current payment of interest.
(2)See Note 12 for additional disclosure on these transactions.
(3)Represents the net carrying value of first mortgage and contiguous mezzanine loans related to an office building in Texas that is eliminated as a result of consolidating the net assets of the mezzanine borrower entity upon obtaining control over its pledged equity interests in May 2022 (see discussion above).
(4)Includes (i) a $29.0 million credit deteriorated loan related to a residential conversion project which was foreclosed in April 2021 and (ii) $7.3 million of a commercial loan that was converted to equity interests in March 2021 (see Note 8) pursuant to a consensual transfer under pre-existing equity pledges of additional collateral.
(5)Net transfers represent residential loans transferred from VIE assets upon redemption of two consolidated RMBS trusts.
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5. Investment Securities
Investment securities were comprised of the following as of September 30, 2022 and December 31, 2021 (amounts in thousands):
Carrying Value as of
September 30, 2022December 31, 2021
RMBS, available-for-sale$116,577 $143,980 
RMBS, fair value option (1)418,480 250,424 
CMBS, fair value option (1), (2)1,280,975 1,263,606 
HTM debt securities, amortized cost net of credit loss allowance of $3,928 and $8,610
743,556 683,136 
Equity security, fair value9,343 11,624 
Subtotal—Investment securities
2,568,931 2,352,770 
VIE eliminations (1)(1,678,803)(1,491,786)
Total investment securities$890,128 $860,984 
______________________________________________________________________________________________________________________
(1)Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.
(2)Includes $200.0 million and $182.6 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of September 30, 2022 and December 31, 2021, respectively.
Purchases, sales, principal collections and redemptions for all investment securities were as follows (amounts in thousands):
RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Securitization
VIEs (1)		Total
Three Months Ended September 30, 2022
Purchases/fundings$— $— $— $— $— $— 
Sales— — — — — — 
Principal collections3,412 16,914 5,118 609 (21,802)4,251 
Three Months Ended September 30, 2021
Purchases$— $33,009 $8,383 $— $(41,392)$— 
Sales— — 27,111 (27,111)— 
Principal collections7,881 14,204 706 752 (14,555)8,988 
Redemptions— 26,753 — — (26,753)— 


RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Securitization
VIEs (1)		Total
Nine Months Ended September 30, 2022
Purchases/fundings$— $226,152 $63,681 $86,058 $(289,833)$86,058 
Sales— — — — — — 
Principal collections16,200 58,843 6,394 2,549 (64,555)19,431 
Nine Months Ended September 30, 2021
Purchases$— $112,693 $62,465 $— $(175,158)$— 
Sales— 30,684 38,715 (69,399)— 
Principal collections22,995 42,235 4,429 53,321 (45,125)77,855 
Redemptions— 38,729 — — (38,729)— 

______________________________________________________________________________________________________________________
(1)Represents RMBS and CMBS, fair value option amounts eliminated due to our consolidation of securitization VIEs. These amounts are reflected as issuance or repayment of debt of, or distributions from, consolidated VIEs in our consolidated statements of cash flows.
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RMBS, Available-for-Sale
The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of September 30, 2022 and December 31, 2021. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).
The tables below summarize various attributes of our investments in available-for-sale RMBS as of September 30, 2022 and December 31, 2021 (amounts in thousands):
Unrealized Gains or (Losses)
Recognized in AOCI
Amortized
Cost		Credit
Loss
Allowance		Net
Basis		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Net
Fair Value
Adjustment		Fair Value
September 30, 2022
RMBS$93,801 $— $93,801 $23,314 $(538)$22,776 $116,577 
December 31, 2021
RMBS$103,027 $— $103,027 $41,052 $(99)$40,953 $143,980 
Weighted Average Coupon (1)WAL 
(Years) (2)
September 30, 2022
RMBS3.7 %7.2
______________________________________________________________________________________________________________________
(1)Calculated using the September 30, 2022 one-month LIBOR rate of 3.143% for floating rate securities.
(2)Represents the remaining WAL of each respective group of securities as of the balance sheet date. The WAL of each individual security is calculated using projected amounts and projected timing of future principal payments.
As of September 30, 2022, approximately $102.6 million, or 88%, of RMBS were variable rate. We purchased all of the RMBS at a discount, a portion of which is accreted into income over the expected remaining life of the security. The majority of the income from this strategy is earned from the accretion of this accretable discount.
We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was $0.2 million and $0.3 million for the three months ended September 30, 2022 and 2021, and $0.8 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively, recorded as management fees in the accompanying condensed consolidated statements of operations.
The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of September 30, 2022 and December 31, 2021, and for which an allowance for credit losses has not been recorded (amounts in thousands):
Estimated Fair ValueUnrealized Losses
Securities with a
loss less than
12 months		Securities with a
loss greater than
12 months		Securities with a
loss less than
12 months		Securities with a
loss greater than
12 months
As of September 30, 2022
RMBS$8,544 $— $(538)$— 
As of December 31, 2021
RMBS$2,478 $— $(99)$— 
As of September 30, 2022 and December 31, 2021, there were nine securities and one security, respectively, with unrealized losses reflected in the table above. After evaluating the securities, we concluded that the unrealized losses reflected above were noncredit-related and would be recovered from the securities’ estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering our amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover our cost. Credit losses, if any, are calculated by comparing (i) the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) our net amortized cost basis. Significant judgment is used in projecting cash flows for our non-agency RMBS. As a result, actual income and/or credit losses could be materially different from what is currently projected and/or reported.
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CMBS and RMBS, Fair Value Option
As discussed in the “Fair Value Option” section of Note 2 herein, we elect the fair value option for certain CMBS and RMBS in an effort to eliminate accounting mismatches resulting from the current or potential consolidation of securitization VIEs. As of September 30, 2022, the fair value and unpaid principal balance of CMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $1.3 billion and $2.9 billion, respectively. As of September 30, 2022, the fair value and unpaid principal balance of RMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $418.5 million and $326.3 million, respectively. The $1.7 billion total fair value balance of CMBS and RMBS represents our economic interests in these assets. However, as a result of our consolidation of securitization VIEs, the vast majority of this fair value (all except $20.7 million at September 30, 2022) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.
As of September 30, 2022, $97.1 million of our CMBS were variable rate and none of our RMBS were variable rate.
HTM Debt Securities, Amortized Cost
The table below summarizes our investments in HTM debt securities as of September 30, 2022 and December 31, 2021 (amounts in thousands):
Amortized
Cost Basis		Credit Loss
Allowance		Net Carrying
Amount		Gross Unrealized
Holding Gains		Gross Unrealized
Holding Losses		Fair Value
September 30, 2022
CMBS$556,989 $(109)$556,880 $54 $(30,800)$526,134 
Preferred interests120,696 (748)119,948 125 (7,607)112,466 
Infrastructure bonds69,799 (3,071)66,728 588 (1,631)65,685 
Total$747,484 $(3,928)$743,556 $767 $(40,038)$704,285 
December 31, 2021
CMBS$538,506 $(3,140)$535,366 $195 $(25,029)$510,532 
Preferred interests118,409 (2,562)115,847 450 (2,449)113,848 
Infrastructure bonds34,831 (2,908)31,923 561 — 32,484 
Total$691,746 $(8,610)$683,136 $1,206 $(27,478)$656,864 
The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):
CMBSPreferred
Interests		Infrastructure
Bonds		Total HTM
Credit Loss
Allowance
Nine Months Ended September 30, 2022
Credit loss allowance at December 31, 2021$3,140 $2,562 $2,908 $8,610 
Credit loss (reversal) provision, net(3,031)(1,814)163 (4,682)
Credit loss allowance at September 30, 2022$109 $748 $3,071 $3,928 

The table below summarizes the maturities of our HTM debt securities by type as of September 30, 2022 (amounts in thousands):
CMBSPreferred
Interests		Infrastructure
Bonds		Total
Less than one year$314,060 $90,822 $— $404,882 
One to three years25,323 29,126 — 54,449 
Three to five years217,497 — 37,881 255,378 
Thereafter— — 28,847 28,847 
Total$556,880 $119,948 $66,728 $743,556 
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Equity Security, Fair Value
During 2012, we acquired 9,140,000 ordinary shares from a related-party in Starwood European Real Estate Finance Limited (“SEREF”), a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange. The fair value of the investment remeasured in USD was $9.3 million and $11.6 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, our shares represent an approximate 2% interest in SEREF.
6. Properties
Our properties are held within the following portfolios:
Medical Office Portfolio
The Medical Office Portfolio is comprised of 34 medical office buildings acquired during the year ended December 31, 2016. These properties, which collectively comprise 1.9 million square feet, are geographically dispersed throughout the U.S. and primarily affiliated with major hospitals or located on or adjacent to major hospital campuses. The Medical Office Portfolio includes total gross properties and lease intangibles of $764.8 million and debt of $595.9 million as of September 30, 2022.
Master Lease Portfolio
The Master Lease Portfolio is comprised of 16 retail properties geographically dispersed throughout the U.S., with more than 50% of the portfolio, by carrying value, located in Florida, Texas and Minnesota. These properties, which we acquired in September 2017, collectively comprise 1.9 million square feet and were leased back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. The Master Lease Portfolio includes total gross properties of $343.8 million and debt of $193.3 million as of September 30, 2022.
Investing and Servicing Segment Property Portfolio
The REIS Equity Portfolio is comprised of 11 commercial real estate properties and one equity interest in an unconsolidated commercial real estate property which were acquired from CMBS trusts during the previous six years. The REIS Equity Portfolio includes total gross properties and lease intangibles of $199.3 million and debt of $144.1 million as of September 30, 2022.
Commercial and Residential Lending Segment Property Portfolio
The Commercial and Residential Lending Segment Portfolio represents properties acquired through loan foreclosure or exercise of control over a mezzanine loan borrower’s pledged equity interests. This portfolio includes total gross properties and lease intangibles of $231.4 million and debt of $87.8 million as of September 30, 2022.
Woodstar Portfolios
Refer to Note 7 for a discussion of our Woodstar I and Woodstar II Portfolios which are not included in the table below.
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The table below summarizes our properties held as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Depreciable LifeSeptember 30, 2022December 31, 2021
Property Segment
Land and land improvements
0 - 15 years
$175,856 $175,810 
Buildings and building improvements
0 - 45 years
853,238 851,274 
Furniture & fixtures
3 - 5 years
375 260 
Investing and Servicing Segment
Land and land improvements
0 - 15 years
35,313 41,771 
Buildings and building improvements
3 - 40 years
134,036 149,399 
Furniture & fixtures
2 - 5 years
3,253 3,143 
Commercial and Residential Lending Segment
Land and land improvements
N/A
33,680 9,691 
Buildings and building improvements
0 - 24 years
77,938 12,408 
Construction in progress
N/A
105,039 104,088 
Properties, cost1,418,728 1,347,844 
Less: accumulated depreciation(201,302)(181,457)
Properties, net$1,217,426 $1,166,387 
______________________________________________________________________________________________________________________

During the three months ended September 30, 2022, we sold an operating property for $19.5 million. In connection with this sale, we recognized a total gain of $13.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. During the nine months ended September 30, 2022, we sold two operating properties within the REIS Equity Portfolio for $54.0 million and recognized a total gain of $25.4 million within gain on sale of investments and other assets in our consolidated statement of operations, of which $0.6 million was attributable to non-controlling interests. During the nine months ended September 30, 2021, we sold an operating property within the REIS Equity Portfolio for $30.9 million and recognized a gain of $9.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the nine months ended September 30, 2022, we sold an operating property within the Commercial and Residential Lending Segment for $114.8 million and recognized a gain of $86.6 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. During the nine months ended September 30, 2021, we sold an operating property within the Commercial and Residential Lending Segment for $31.2 million and recognized a gain of $17.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. Refer to Note 3 for further discussion.

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

Woodstar I Portfolio
The Woodstar I Portfolio is comprised of 32 affordable housing communities with 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach metropolitan areas. During the year ended December 31, 2015, we acquired 18 of the 32 affordable housing communities of the Woodstar I Portfolio, with the final 14 communities acquired during the year ended December 31, 2016. The Woodstar I Portfolio includes properties at fair value of $1.5 billion and debt at fair value of $710.6 million as of September 30, 2022.
Woodstar II Portfolio
The Woodstar II Portfolio is comprised of 27 affordable housing communities with 6,109 units concentrated primarily in Central and South Florida. We acquired eight of the 27 affordable housing communities in December 2017, with the final 19 communities acquired during the year ended December 31, 2018. The Woodstar II Portfolio includes properties at fair value of $1.3 billion and debt at fair value of $479.0 million as of September 30, 2022.
Income from the Woodstar Fund’s investments reflects the following components for the three and nine months ended September 30, 2022 (in thousands):

For the Three Months Ended September 30, 2022
For the Nine Months Ended September 30, 2022
Distributions from affordable housing fund investments
$7,112 $29,777 
Unrealized change in fair value of investments (1)
110,415 628,956 
Income from affordable housing fund investments
$117,527 $658,733 
______________________________________________________________________________________________________________________
(1)The fair value of the Woodstar Fund’s investments are dependent upon the real estate and capital markets, which are cyclical in nature. Property and investment values are affected by, among other things, capitalization rates, the availability of capital, occupancy, rental rates and interest and inflation rates.
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8. Investments in Unconsolidated Entities
The table below summarizes our investments in unconsolidated entities as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Participation /
Ownership % (1)		Carrying value as of
September 30, 2022December 31, 2021
Equity method investments:
Equity interest in a natural gas power plant10%$28,886 $26,255 
Investor entity which owns equity in an online real estate company50%5,365 5,206 
Equity interest in and advances to a residential mortgage originator (2)N/A10,999 20,327 
Various
25% - 50%
14,923 12,528 
60,173 64,316 
Other equity investments:
Equity interest in a servicing and advisory business2%12,955 12,955 
Investment funds which own equity in a loan servicer and other real estate assets (3)
4% - 6%
940 4,194 
Investor entities which own equity interests in two entertainment and retail centers (4)15%7,320 7,320 
Various
1% - 3%
1,776 1,312 
22,991 25,781 
$83,164 $90,097 
______________________________________________________________________________________________________________________
(1)None of these investments are publicly traded and therefore quoted market prices are not available.
(2)Included a $4.5 million subordinated loan as of December 31, 2021, which was converted to an equity interest on July 1, 2022.
(3)During the nine months ended September 30, 2022, we received distributions of $7.3 million, of which $3.3 million were considered returns of capital which reduced the carrying value of two of our investments.
(4)In March 2021, we obtained equity interests in two investor entities that own interests in two entertainment and retail centers in satisfaction of $7.3 million principal amount of a commercial loan. The interests were obtained in order to facilitate repayment of a portion of that loan for which these interests represented underlying collateral. The interests are entitled to preferred treatment in the distribution waterfall and are intended to repay us the $7.3 million principal amount of the loan plus interest. See further discussion in Note 4.
There were no differences between the carrying value of our equity method investments and the underlying equity in the net assets of the investees as of September 30, 2022.
During the three and nine months ended September 30, 2022, we did not become aware of (i) any observable price changes in our other equity investments accounted for under the fair value practicability election or (ii) any indicators of impairment.
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9. Goodwill and Intangibles
Goodwill
Goodwill is tested for impairment annually in the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Infrastructure Lending Segment
The Infrastructure Lending Segment’s goodwill of $119.4 million at both September 30, 2022 and December 31, 2021 represents the excess of consideration transferred over the fair value of net assets acquired on September 19, 2018 and October 15, 2018. The goodwill recognized is attributable to value embedded in the acquired Infrastructure Lending Segment’s lending platform.
LNR Property LLC (“LNR”)
The Investing and Servicing Segment’s goodwill of $140.4 million at both September 30, 2022 and December 31, 2021 represents the excess of consideration transferred over the fair value of net assets of LNR acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes a network of commercial real estate asset managers, work-out specialists, underwriters and administrative support professionals as well as proprietary historical performance data on commercial real estate assets.
Intangible Assets
Servicing Rights Intangibles
In connection with the LNR acquisition, we identified domestic servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. As of September 30, 2022 and December 31, 2021, the balance of the domestic servicing intangible was net of $41.6 million and $42.1 million, respectively, which was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of September 30, 2022 and December 31, 2021, the domestic servicing intangible had a balance of $59.6 million and $58.9 million, respectively, which represents our economic interest in this asset.
Lease Intangibles
In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain non-cancelable operating leases of the acquired properties.
The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of September 30, 2022 and December 31, 2021 (amounts in thousands):
As of September 30, 2022As of December 31, 2021
Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value
Domestic servicing rights, at fair value$18,014 $— $18,014 $16,780 $— $16,780 
In-place lease intangible assets100,450 (62,442)38,008 94,712 (62,721)31,991 
Favorable lease intangible assets26,649 (9,575)17,074 23,746 (8,953)14,793 
Total net intangible assets$145,113 $(72,017)$73,096 $135,238 $(71,674)$63,564 
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The following table summarizes the activity within intangible assets for the nine months ended September 30, 2022 (amounts in thousands):
Domestic
Servicing
Rights		In-place Lease
Intangible
Assets		Favorable Lease
Intangible
Assets		Total
Balance as of January 1, 2022$16,780 $31,991 $14,793 $63,564 
Acquisition (1) — 11,910 3,520 15,430 
Amortization— (5,327)(1,197)(6,524)
Impairment (2)— (43)(4)(47)
Sales— (523)(38)(561)
Changes in fair value due to changes in inputs and assumptions1,234 — — 1,234 
Balance as of September 30, 2022$18,014 $38,008 $17,074 $73,096 
_________________________________________________
(1)    Represents lease intangibles related to an office building in Texas that are consolidated upon exercising control over a mezzanine loan borrower’s pledged equity interests in May 2022 (see Note 4).
(2)     Impairment of intangible lease assets is recognized within other expense in our condensed consolidated statement of operations.
The following table sets forth the estimated aggregate amortization of our in-place lease intangible assets and favorable lease intangible assets for the next five years and thereafter (amounts in thousands):
2022 (remainder of)$2,390 
20238,629 
20246,932 
20255,827 
20264,301 
Thereafter27,003 
Total$55,082 


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10. Secured Borrowings
Secured Financing Agreements
The following table is a summary of our secured financing agreements in place as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Outstanding Balance at
Current
Maturity		   
Extended
Maturity (a)
   Weighted Average
Pricing		Pledged Asset
Carrying Value		Maximum
Facility Size		   September 30, 2022December 31, 2021
Repurchase Agreements:
Commercial LoansJun 2023 to Jun 2027
(b)
Sep 2025 to Dec 2030
(b)
Index + 2.09%
(c)
$10,854,556 $12,291,964 
(d)
$7,971,502 $6,556,438 
Residential LoansMay 2023 to Dec 2023May 2023 to Dec 2024
Index + 2.10%
1,633,554 2,502,614 1,407,163 1,744,225 
Infrastructure LoansSep 2024Sep 2026
SOFR + 2.07%
379,346 650,000 316,737 379,095 
Conduit LoansFeb 2023 to Jun 2025Feb 2024 to Jun 2026
SOFR + 2.28%
79,857 350,000 60,941 174,130 
CMBS/RMBSJun 2023 to Apr 2032
(e)
Jun 2023 to Oct 2032
(e)
(f)1,485,618 1,113,025 787,020 
(g)
688,146 
Total Repurchase Agreements14,432,931 16,907,603 10,543,363 9,542,034 
Other Secured Financing:
Borrowing Base FacilityNov 2024Oct 2026
SOFR + 2.11%
23,226 750,000 
(h)
2,000 213,478 
Commercial Financing FacilitiesDec 2023 to Aug 2025Aug 2027 to Dec 2030
Index + 1.77%
348,619 445,295 
(i)
271,918 167,476 
Residential Financing FacilityMar 2024Mar 2027
SOFR + 2.45%
545,450 500,000 179,418 102,018 
Infrastructure Financing FacilitiesJun 2025 to Oct 2025Jun 2027 to Jul 2032
Index + 2.16%
1,002,010 1,550,000 790,995 855,646 
Property Mortgages - Fixed rateNov 2024 to Sep 2029
(j)
N/A4.48%381,440 275,800 275,800 272,522 
Property Mortgages - Variable rateNov 2022 to Mar 2025N/A(k)767,293 733,750 730,315 712,493 
Term Loan and Revolver(l)N/A(l) N/A
(l)
932,763 782,763 788,753 
Total Other Secured Financing3,068,038 5,187,608 3,033,209 3,112,386 
$17,500,969 $22,095,211 13,576,572 12,654,420 
Unamortized net discount(13,281)(13,350)
Unamortized deferred financing costs(67,389)(64,220)
$13,495,902 $12,576,850 
______________________________________________________________________________________________________________________
(a)Subject to certain conditions as defined in the respective facility agreement.
(b)For certain facilities, borrowings collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified conditions.
(c)Certain facilities with an outstanding balance of $2.7 billion as of September 30, 2022 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to USD LIBOR or SOFR.
(d)Certain facilities with an aggregate initial maximum facility size of $11.7 billion may be increased to $12.3 billion, subject to certain conditions. The $12.3 billion amount includes such upsizes.
(e)Certain facilities with an outstanding balance of $368.9 million as of September 30, 2022 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender’s consent. These facilities carry no maximum facility size.
(f)A facility with an outstanding balance of $263.9 million as of September 30, 2022 has a weighted average fixed annual interest rate of 3.27%. All other facilities are variable rate with a weighted average rate of Index + 1.96%.
(g)Includes: (i) $263.9 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $43.2 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 15).
(h)The maximum facility size as of September 30, 2022 of $650.0 million is scheduled to decline to $450.0 million as of December 31, 2022 and may be increased to $750.0 million, subject to certain conditions.
(i)Certain facilities with an aggregate initial maximum facility size of $345.3 million may be increased to $445.3 million, subject to certain conditions. The $445.3 million amount includes such upsizes.
(j)The weighted average maturity is 4.8 years as of September 30, 2022.
(k)Includes a $600.0 million first mortgage and mezzanine loan secured by our Medical Office Portfolio. This debt has a weighted average interest rate of LIBOR + 2.07% that we swapped to a fixed rate of 3.34%. The remainder have a weighted average rate of Index + 2.26%.
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(l)Consists of: (i) a $782.8 million term loan facility that matures in July 2026, of which $388.0 million has an annual interest rate of LIBOR + 2.50% and $394.8 million has an annual interest rate of LIBOR + 3.25%, subject to a 0.75% LIBOR floor, and (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50%. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.0 billion as of September 30, 2022.

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

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

In March 2022, we amended a Residential Loans credit facility to increase the available borrowings to $500.0 million from $250.0 million and extend the initial maturity for 18 months to March 2024 with a three-year extension option. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.

In June 2022, we entered into a credit facility to finance loans within the Infrastructure Lending Segment. The maximum facility size is $500.0 million and carries a three-year revolving period with two one-year extension options. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.

During the nine months ended September 30, 2022, we entered into commercial credit facilities of $1.4 billion. In addition, we amended several commercial credit facilities resulting in an aggregate net upsize of $974.7 million.

Our secured financing agreements contain certain financial tests and covenants. As of September 30, 2022, we were in compliance with all such covenants.

We seek to mitigate risks associated with our repurchase agreements by managing risk related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value. The margin call provisions under the majority of our repurchase facilities, consisting of 71% of these agreements, do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks generally determined on a commercially reasonable basis. To monitor credit risk associated with the performance and value of our loans and investments, our asset management team regularly reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary. For the 29% of repurchase agreements which do permit valuation adjustments based on capital market events, approximately 7% of these pertain to our loans held-for-sale, for which we manage credit risk through the purchase of credit instruments. We further seek to manage risks associated with our repurchase agreements by matching the maturities and interest rate characteristics of our loans with the related repurchase agreement.
For the three and nine months ended September 30, 2022, approximately $9.5 million and $28.3 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2021, approximately $8.6 million and $26.9 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations.

As of September 30, 2022, Morgan Stanley Bank, N.A. held collateral sold under certain of our repurchase agreements with carrying values that exceeded the respective repurchase obligations by $694.6 million. The weighted average extended maturity of those repurchase agreements is 3.8 years.


34

Collateralized Loan Obligations and Single Asset Securitization

Commercial and Residential Lending Segment

In February 2022, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2022-FL3. On the closing date, the CLO issued $1.0 billion of notes and preferred shares, of which $842.5 million of notes were purchased by third party investors. We retained $82.5 million of notes along with preferred shares with a liquidation preference of $75.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO for a period of two years. During the three and nine months ended September 30, 2022, we utilized the reinvestment feature, contributing $72.0 million of additional interests into the CLO.

In July 2021, we contributed into a single asset securitization, STWD 2021-HTS, a previously originated $230.0 million first mortgage and mezzanine loan on a portfolio of 41 extended stay hotels with $210.1 million of third party financing.

In May 2021, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2021-FL2. On the closing date, the CLO issued $1.3 billion of notes and preferred shares, of which $1.1 billion of notes was purchased by third party investors. We retained $70.1 million of notes, along with preferred shares with a liquidation preference of $127.5 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2022, we utilized the reinvestment feature, contributing $241.2 million of additional interests into the CLO.

In August 2019, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2019-FL1. On the closing date, the CLO issued $1.1 billion of notes and preferred shares, of which $936.4 million of notes was purchased by third party investors. We retained $86.6 million of notes, along with preferred shares with a liquidation preference of $77.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2022, the reinvestment period expired, and we repaid CLO debt in the amount of $180.9 million.

Infrastructure Lending Segment

In January 2022, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF2. On the closing date, the CLO issued $500.0 million of notes and preferred shares, of which $410.0 million of notes were purchased by third party investors. We retained preferred shares with a liquidation preference of $90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO for a period of three years. During the nine months ended September 30, 2022, we utilized the reinvestment feature, contributing $101.4 million of additional interests into the CLO.

In April 2021, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF1. On the closing date, the CLO issued $500.0 million of notes and preferred shares, of which $410.0 million of notes were purchased by third party investors. We retained preferred shares with a liquidation preference of $90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2022, we utilized the reinvestment feature, contributing $76.3 million of additional interests into the CLO.

35

The following table is a summary of our CLOs and our SASB as of September 30, 2022 and December 31, 2021 (amounts in thousands):
September 30, 2022CountFace
Amount		Carrying
Value		Weighted
Average Spread		Maturity
STWD 2022-FL3
Collateral assets46$992,000 $1,010,268 
Index + 3.55%
(a)February 2026(b)
Financing1842,500 843,028 
SOFR + 1.91%
(c)November 2038(d)
STWD 2021-HTS
Collateral assets1230,000 230,923 
LIBOR + 3.84%
(a)April 2026(b)
Financing1210,091 208,735 
LIBOR + 2.69%
(c)April 2034(d)
STWD 2021-FL2
Collateral assets261,276,650 1,282,627 
Index + 4.11%
(a)May 2025(b)
Financing11,077,375 1,071,725 
LIBOR + 1.78%
(c)April 2038(d)
STWD 2019-FL1
Collateral assets16919,107 921,634 
Index + 3.76%
(a)December 2024(b)
Financing1755,482 754,079 
SOFR + 1.65%
(c)July 2038(d)
STWD 2021-SIF2
Collateral assets31492,805 508,186 
Index + 3.72%
(a)March 2027(b)
Financing1410,000 407,034 
SOFR + 2.11%
(c)January 2033(d)
STWD 2021-SIF1
Collateral assets31493,066 508,667 
Index + 3.73%
(a)September 2026(b)
Financing1410,000 406,395 
LIBOR + 2.15%
(c)April 2032(d)
Total
Collateral assets$4,403,628 $4,462,305 
Financing$3,705,448 $3,690,996 
December 31, 2021CountFace
Amount		Carrying
Value		Weighted
Average Spread		Maturity
STWD 2021-HTS
Collateral assets1$230,000 $230,587 
LIBOR + 4.12%
(a)April 2026(b)
Financing1210,091 208,057 
LIBOR + 2.48%
(c)April 2034(d)
STWD 2021-FL2
Collateral assets251,272,133 1,279,678 
LIBOR + 4.22%
(a)February 2025(b)
Financing11,077,375 1,069,691 
LIBOR + 1.78%
(c)April 2038(d)
STWD 2019-FL1
Collateral assets241,092,887 1,103,513 
LIBOR + 4.19%
(a)November 2024(b)
Financing1936,375 933,049 
SOFR + 1.63%
(c)July 2038(d)
STWD 2021-SIF1
Collateral assets31491,299 506,666 
LIBOR + 3.91%
(a)March 2026(b)
Financing1410,000 405,319 
LIBOR + 2.15%
(c)April 2032(d)
Total
Collateral assets$3,086,319 $3,120,444 
Financing$2,633,841 $2,616,116 
______________________________________________________________________________________________________________________________
(a)Represents the weighted-average coupon earned on variable rate loans during the respective year-to-date period. Of the loans financed by the STWD 2021-FL2 CLO as of September 30, 2022, 7% earned fixed-rate weighted average interest of 7.42%. Of the investments financed by the STWD 2021-SIF2 CLO as of September 30, 2022, 5% earned fixed-rate weighted average interest of 7.75%. Of the investments financed by the STWD 2021-SIF1 CLO as of September 30, 2022, 3% earned fixed-rate weighted average interest of 6.01%.
(b)Represents the weighted-average maturity, assuming the extended contractual maturity of the collateral assets.
(c)Represents the weighted-average cost of financing incurred during the respective year-to-date period, inclusive of deferred issuance costs.
(d)Repayments of the CLOs and SASB are tied to timing of the related collateral asset repayments. The term of the CLOs and SASB financing obligations represents the legal final maturity date.
We incurred $37.9 million of issuance costs in connection with the CLOs and SASB, which are amortized on an effective yield basis over the estimated life of the CLOs and SASB. For the three and nine months ended September 30, 2022, approximately $2.7 million and $7.8 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2021,
36

approximately $1.8 million and $3.9 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, our unamortized issuance costs were $21.0 million and $17.7 million, respectively.
The CLOs and SASB are considered VIEs, for which we are deemed the primary beneficiary. We therefore consolidate the CLOs and SASB. Refer to Note 15 for further discussion.
Maturities
Our credit facilities generally require principal to be paid down prior to the facilities’ respective maturities if and when we receive principal payments on, or sell, the investment collateral that we have pledged. The following table sets forth our principal repayments schedule for secured financings based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):
Repurchase
Agreements		Other Secured
Financing		CLOs and SASB (a)Total
2022 (remainder of)$267,383 $7,646 $106,346 $381,375 
20232,095,210 730,849 675,675 3,501,734 
20241,041,311 124,602 432,055 1,597,968 
20251,960,316 274,879 741,493 2,976,688 
20262,832,539 995,455 1,588,716 5,416,710 
Thereafter2,346,604 899,778 161,163 3,407,545 
Total$10,543,363 $3,033,209 $3,705,448 $17,282,020 
______________________________________________________________________________________________________________________
(a)For the CLOs, the above does not assume utilization of their reinvestment features. The SASB does not have a reinvestment feature.
11. Unsecured Senior Notes
The following table is a summary of our unsecured senior notes outstanding as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Coupon
Rate		Effective
Rate (1)		Maturity
Date		Remaining
Period of
Amortization		Carrying Value at
September 30, 2022December 31, 2021
2023 Senior Notes5.50 %5.71 %11/1/20231.1 years300,000 300,000 
2023 Convertible Notes4.38 %4.57 %4/1/20230.5 years250,000 250,000 
2024 Senior Notes3.75 %3.94 %12/31/20242.3 years400,000 400,000 
2025 Senior Notes4.75 %(2)5.04 %3/15/20252.5 years500,000 500,000 
2026 Senior Notes3.63 %3.77 %7/15/20263.8 years400,000 400,000 
2027 Senior Notes4.38 %(3)4.49 %1/15/20274.3 years500,000 — 
Total principal amount2,350,000 1,850,000 
Unamortized discount—Convertible Notes(235)(578)
Unamortized discount—Senior Notes(9,954)(10,067)
Unamortized deferred financing costs(12,823)(10,765)
Total carrying amount$2,326,988 $1,828,590 
______________________________________________________________________________________________________________________
(1)Effective rate includes the effects of underwriter purchase discount.
(2)The coupon on the 2025 Senior Notes is 4.75%.  At closing, we swapped $470.0 million of the notes to a floating rate of LIBOR + 2.53%.
(3)The coupon on the 2027 Senior Notes is 4.375%.  At closing, we swapped the notes to a floating rate of SOFR + 2.95%.
37

Our unsecured senior notes contain certain financial tests and covenants. As of September 30, 2022, we were in compliance with all such covenants.
Senior Notes
On January 25, 2022, we issued $500.0 million of 4.375% Senior Notes due 2027 (the “2027 Senior Notes”). The 2027 Senior Notes mature on January 15, 2027. Prior to July 15, 2026, we may redeem some or all of the 2027 Senior Notes at a price equal to 100% of the principal amount thereof, plus the applicable “make-whole” premium as of the applicable date of redemption. On and after July 15, 2026, we may redeem some or all of the 2027 Senior Notes at a price equal to 100% of the principal amount thereof. In addition, prior to July 15, 2025, we may redeem up to 40% of the 2027 Senior Notes at the applicable redemption price using the proceeds of certain equity offerings.
Convertible Senior Notes
On March 29, 2017, we issued $250.0 million of 4.375% Convertible Senior Notes due 2023 (the “2023 Convertible Notes”) which remain outstanding at September 30, 2022 and mature on April 1, 2023.
We recognized interest expense of $2.9 million and $8.7 million, respectively, during the three and nine months ended September 30, 2022 and 2021 from our Convertible Notes.
The following table details the conversion attributes of our Convertible Notes outstanding as of September 30, 2022 (amounts in thousands, except rates):
September 30, 2022
ConversionConversion
Rate (1)Price (2)
2023 Convertible Notes38.5959$25.91
______________________________________________________________________________________________________________________
(1)The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount of 2023 Convertible Notes converted, as adjusted in accordance with the indenture governing the 2023 Convertible Notes (including the applicable supplemental indenture).
(2)As of September 30, 2022, the market price of the Company’s common stock was $18.22.
The if-converted value of the 2023 Convertible Notes was less than their principal amount by $74.2 million at September 30, 2022 as the closing market price of the Company’s common stock of $18.22 was less than the implicit conversion price of $25.91 per share. The if-converted value of the principal amount of the 2023 Convertible Notes was $175.8 million as of September 30, 2022. As of September 30, 2022, the net carrying amount and fair value of the 2023 Convertible Notes was $249.7 million and $245.0 million, respectively.
Upon conversion of the 2023 Convertible Notes, settlement may be made in common stock, cash or a combination of both, at the option of the Company.
Conditions for Conversion
Prior to October 1, 2022, the 2023 Convertible Notes did not satisfy any of the specified conditions for conversion. On or after October 1, 2022, holders of the 2023 Convertible Notes may convert each of their notes at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.
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12. Loan Securitization/Sale Activities
As described below, we regularly sell loans and notes under various strategies. We evaluate such sales as to whether they meet the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transfer of control.
Loan Securitizations
Within the Investing and Servicing Segment, we originate commercial mortgage loans with the intent to sell these mortgage loans to VIEs for the purposes of securitization. These VIEs then issue CMBS that are collateralized in part by these assets, as well as other assets transferred to the VIE by third parties. Within the Commercial and Residential Lending Segment, we acquire residential loans with the intent to sell these mortgage loans to VIEs for the purpose of securitization. These VIEs then issue RMBS that are collateralized by these assets.
In certain instances, we retain an interest in the CMBS or RMBS VIE and serve as special servicer or servicing administrator for the VIE. In these circumstances, we generally consolidate the VIE into which the loans were sold. The securitizations are subject to optional redemption after a certain period of time or when the pool balance falls below a specified threshold.
The following summarizes the face amount and proceeds of commercial and residential loans securitized for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):
Commercial LoansResidential Loans
Face AmountProceedsFace AmountProceeds
For the Three Months Ended September 30,
2022$33,000 $30,957 $— $— 
2021349,225 364,287 469,663 491,901 
For the Nine Months Ended September 30,
2022$1,038,889 $1,022,754 $1,905,829 $1,913,459 
2021738,866 775,374 1,417,641 1,465,576 
The securitization of these commercial and residential loans does not result in a discrete gain or loss since they are carried under the fair value option.
Our securitizations have each been structured as bankruptcy-remote entities whose assets are not intended to be available to the creditors of any other party.
Commercial and Residential Loan Sales
Within the Commercial and Residential Lending Segment, we originate or acquire commercial mortgage loans, subsequently selling all or a portion thereof. Typically, our motivation for entering into these transactions is to effectively create leverage on the subordinated position that we will retain and hold for investment. We also may sell certain of our previously-acquired residential loans to third parties outside a securitization. The following table summarizes our loans sold by the Commercial and Residential Lending Segment, net of expenses (amounts in thousands):
Loan Transfers Accounted for as Sales
Commercial LoansResidential Loans
For the Three Months Ended September 30,Face amount (1)Proceeds (1)Face Amount (2)Proceeds (2)
2022$63,656 $64,539 $1,152 $1,141 
202135,700 35,356 — — 
For the Nine Months Ended September 30,
2022$70,636 $71,008 $1,057,013 $1,056,683 
2021268,370 264,846 89,801 92,817 
______________________________________________________________________________________________________________________
(1)During the three and nine months ended September 30, 2022, we sold $63.7 million of whole loan interests for proceeds of $64.5 million. During the nine months ended September 30, 2022, we also sold $7.0 million of senior interests in a first mortgage loan for proceeds of $6.5 million. During the three months ended September 30, 2021, we sold $35.7 million of senior interests in first mortgage loans for proceeds of $35.4 million. During the nine months
39

ended September 30, 2021, we sold $245.8 million of senior interests in first mortgage loans and $22.6 million of whole loan interests for proceeds of $243.3 million and $21.5 million, respectively.
(2)In February 2022, we sold $745.0 million of agency-eligible residential loans at face amount which was subject to a post-closing contingent sales price adjustment based on the gain or loss to the purchaser/securitization underwriter, less underwriting costs, if those loans were sold into a future securitization. Given spread widening which occurred in the residential markets since the initial sale, in lieu of the buyer executing a securitization or sale of the loans, we entered into a forward settlement agreement to acquire the remaining balance of these loans at par in June 2022. The loan purchase was subject to a financing contingency, whereby the seller was to provide us financing under a mutually agreed repurchase agreement within 120 days. If such mutually agreed financing was not completed, we would not be obligated to complete the forward settlement, and the previous post-closing contingency referenced above would have been reinstated. In October 2022, the seller provided us financing under a mutually agreed repurchase agreement and the forward settlement was completed. As of September 30, 2022, we estimated the amount of the future securitization contingency to be $88.4 million based on the fair market value of the loans at this date. As a result, we recorded a contingency loss of $55.7 million and $88.4 million within other loss, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively.

During the three and nine months ended September 30, 2022, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $0.3 million and $0.1 million, respectively. During the nine months ended September 30, 2021, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $1.1 million. During the three months ended September 30, 2021, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were not material.
Infrastructure Loan Sales
There were no sales of loans by the Infrastructure Lending Segment during the three and nine months ended September 30, 2022. During the nine months ended September 30, 2021, the Infrastructure Lending Segment sold loans held-for-sale with an aggregate face amount of $2.5 million, for proceeds of $2.5 million, recognizing immaterial gains. There were no sales of loans by the Infrastructure Lending Segment during the three months ended September 30, 2021.
13. Derivatives and Hedging Activity
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions. Refer to Note 14 to the consolidated financial statements included in our Form 10-K for further discussion of our risk management objectives and policies.
Designated Hedges
The Company does not generally elect to apply the hedge accounting designation to its hedging instruments. As of September 30, 2022 and December 31, 2021, the Company did not have any designated hedges.
Non-designated Hedges and Derivatives
We have entered into the following types of non-designated hedges and derivatives:
•Foreign exchange (“Fx”) forwards whereby we agree to buy or sell a specified amount of foreign currency for a specified amount of USD at a future date, economically fixing the USD amounts of foreign denominated cash flows we expect to receive or pay related to certain foreign denominated loan investments;
•Interest rate contracts which hedge a portion of our exposure to changes in interest rates;
•Credit instruments which hedge a portion of our exposure to the credit risk of our commercial loans held-for-sale; and
•Interest rate swap guarantees whereby we guarantee the interest rate swap obligations of certain Infrastructure Lending borrowers. Our interest rate swap guarantees were assumed in connection with the acquisition of the Infrastructure Lending Segment.
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The following table summarizes our non-designated derivatives as of September 30, 2022 (notional amounts in thousands):

Type of DerivativeNumber of ContractsAggregate Notional AmountNotional CurrencyMaturity
Fx contracts – Buy Euros ("EUR")1765,538 EUROctober 2022 - June 2023
Fx contracts – Buy Pounds Sterling ("GBP")646,517 GBPOctober 2022 - October 2024
Fx contracts – Buy Australian dollar ("AUD")35,008 AUDOctober 2022 - August 2023
Fx contracts – Sell EUR226655,523 EUROctober 2022 - April 2026
Fx contracts – Sell GBP208621,465 GBPOctober 2022 - April 2027
Fx contracts – Sell AUD94672,142 AUDOctober 2022 - January 2026
Fx contracts – Sell Swiss Franc ("CHF")2715,128 CHFOctober 2022 - November 2025
Interest rate swaps – Paying fixed rates403,505,347 USDApril 2024 - June 2032
Interest rate swaps – Receiving fixed rates2970,000 USDMarch 2025 - January 2027
Interest rate caps6758,000 USDNovember 2022 - April 2025
Interest rate caps161,000 GBPApril 2024
Credit instruments349,000 USDSeptember 2058 - August 2061
Interest rate swap guarantees4267,162 USDOctober 2022 - June 2025
Total637
The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 (amounts in thousands):
Fair Value of Derivatives
in an Asset Position (1) as of		Fair Value of Derivatives
in a Liability Position (2) as of
September 30,
2022
December 31, 2021
September 30,
2022
December 31, 2021
Interest rate contracts$7,888 $17,728 $73,600 $16 
Interest rate swap guarantees— — — 260 
Foreign exchange contracts242,398 30,478 9,166 12,870 
Credit instruments885 10 — 275 
Total derivatives$251,171 $48,216 $82,766 $13,421 
___________________________________________________
(1)Classified as derivative assets in our condensed consolidated balance sheets.
(2)Classified as derivative liabilities in our condensed consolidated balance sheets.
The table below presents the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

Derivatives Not Designated
as Hedging Instruments		Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss)
Recognized in Income for the
Three Months Ended September 30,
Amount of Gain (Loss)
Recognized in Income for the
Nine Months Ended September 30,
2022202120222021
Interest rate contractsGain (loss) on derivative financial instruments$78,508 $7,993 $218,698 $20,808 
Interest rate swap guaranteesGain (loss) on derivative financial instruments— (65)260 431 
Foreign exchange contractsGain (loss) on derivative financial instruments127,358 33,796 242,042 44,857 
Credit instrumentsGain (loss) on derivative financial instruments204 88 921 (304)
$206,070 $41,812 $461,921 $65,792 
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14. Offsetting Assets and Liabilities
The following tables present the potential effects of netting arrangements on our financial position for financial assets and liabilities within the scope of ASC 210-20, Balance Sheet—Offsetting, which for us are derivative assets and liabilities as well as repurchase agreement liabilities (amounts in thousands):
(ii)  
Gross Amounts
Offset in the
Statement of
Financial Position		(iii) = (i) - (ii)
Net Amounts
Presented in
the Statement of
Financial Position		(iv)
Gross Amounts Not
Offset in the Statement
of Financial Position
(i)
Gross Amounts
Recognized		Financial
Instruments		Cash Collateral
Received / Pledged		(v) = (iii) - (iv)
Net Amount
As of September 30, 2022
Derivative assets$251,171 $— $251,171 $82,766 $52,317 $116,088 
Derivative liabilities$82,766 $— $82,766 $82,766 $— $— 
Repurchase agreements10,543,363 — 10,543,363 10,543,363 — — 
$10,626,129 $— $10,626,129 $10,626,129 $— $— 
As of December 31, 2021
Derivative assets$48,216 $— $48,216 $12,870 $21,290 $14,056 
Derivative liabilities$13,421 $— $13,421 $12,870 $291 $260 
Repurchase agreements9,542,034 — 9,542,034 9,542,034 — — 
$9,555,455 $— $9,555,455 $9,554,904 $291 $260 
15. Variable Interest Entities
Investment Securities
As discussed in Note 2, we evaluate all of our investments and other interests in entities for consolidation, including our investments in CMBS, RMBS and our retained interests in securitization transactions we initiated, all of which are generally considered to be variable interests in VIEs.
Securitization VIEs consolidated in accordance with ASC 810 are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. The assets and other instruments held by these securitization entities are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the securitization entities do not have any recourse to the general credit of any other consolidated entities, nor to us as the primary beneficiary. The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, a portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.
VIEs in which we are the Primary Beneficiary
The inclusion of the assets and liabilities of securitization VIEs in which we are deemed the primary beneficiary has no economic effect on us. Our exposure to the obligations of securitization VIEs is generally limited to our investment in these entities. We are not obligated to provide, nor have we provided, any financial support for any of these consolidated structures.
As discussed in Note 10, we have refinanced various pools of our commercial and infrastructure loans held-for-investment through five CLOs and one SASB, which are considered to be VIEs. We are the primary beneficiary of, and therefore consolidate, the CLOs and SASB in our financial statements as we have both (i) the power to direct the activities in our role as collateral manager, collateral advisor, or controlling class representative that most significantly impact the CLOs’ and SASB's economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the CLOs and SASB that could be potentially significant through the subordinate interests we own.
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The following table details the assets and liabilities of our consolidated CLOs and SASB as of September 30, 2022 and December 31, 2021 (amounts in thousands):
September 30, 2022December 31, 2021
Assets:
Cash and cash equivalents$39,924 $15,297 
Loans held-for-investment4,369,537 3,073,572 
Investment securities36,934 11,426 
Accrued interest receivable15,848 8,936 
Other assets62 11,213 
Total Assets$4,462,305 $3,120,444 
Liabilities
Accounts payable, accrued expenses and other liabilities$13,153 $3,335 
Collateralized loan obligations and single asset securitization, net3,690,996 2,616,116 
Total Liabilities$3,704,149 $2,619,451 
Assets held by the CLOs and SASB are restricted and can be used only to settle obligations of the CLOs and SASB, including the subordinate interests owned by us. The liabilities of the CLOs and SASB are non-recourse to us and can only be satisfied from the assets of the CLOs and SASB.
We also hold controlling interests in other non-securitization entities that are considered VIEs. The Woodstar Fund, Woodstar Feeder Fund, L.P. and one of the Woodstar Fund’s indirect investees, SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which holds the Woodstar II Portfolio, are each VIEs because the third party interest holders do not carry kick-out rights or substantive participating rights. We were deemed to be the primary beneficiary of those VIEs because we possess both the power to direct the activities of the VIEs that most significantly impact their economic performance and a significant economic interest in each entity. The Woodstar Fund had total assets of $1.7 billion, including its indirect investment in SPT Dolphin, and no significant liabilities as of September 30, 2022. As of September 30, 2022, Woodstar Feeder Fund, L.P. and its consolidated subsidiary which is also considered a VIE, Woodstar Feeder REIT, LLC, had a $0.5 billion investment in the Woodstar Fund, had no significant liabilities and had temporary equity of $0.3 billion consisting of the contingently redeemable non-controlling interests of the third party investors (see Note 17).
We also hold a 51% controlling interest in a joint venture (the “CMBS JV”) within our Investing and Servicing Segment, which is considered a VIE because the third party interest holder does not carry kick-out rights or substantive participating rights. We are deemed the primary beneficiary of the CMBS JV. This VIE had total assets of $369.5 million and liabilities of $89.0 million as of September 30, 2022. Refer to Note 17 for further discussion.
In addition to the above non-securitization entities, we have smaller VIEs with total assets of $76.6 million and liabilities of $34.4 million as of September 30, 2022.
VIEs in which we are not the Primary Beneficiary
In certain instances, we hold a variable interest in a VIE in the form of CMBS, but either (i) we are not appointed, or do not serve as, special servicer or servicing administrator or (ii) an unrelated third party has the rights to unilaterally remove us as special servicer without cause. In these instances, we do not have the power to direct activities that most significantly impact the VIE’s economic performance. In other cases, the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant. For these structures, we are not deemed to be the primary beneficiary of the VIE, and we do not consolidate these VIEs.
As noted above, we are not obligated to provide, nor have we provided, any financial support for any of our securitization VIEs, whether or not we are deemed to be the primary beneficiary. As such, the risk associated with our involvement in these VIEs is limited to the carrying value of our investment in the entity. As of September 30, 2022, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $20.7 million on a fair value basis.
As of September 30, 2022, the securitization VIEs which we do not consolidate had debt obligations to beneficial interest holders with unpaid principal balances, excluding the notional value of interest-only securities, of $4.7 billion. The
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corresponding assets are comprised primarily of commercial mortgage loans with unpaid principal balances corresponding to the amounts of the outstanding debt obligations.
We also hold passive non-controlling interests in certain unconsolidated entities that are considered VIEs. We are not the primary beneficiaries of these VIEs as we do not possess the power to direct the activities of the VIEs that most significantly impact their economic performance and therefore report our interests, which totaled $11.9 million as of September 30, 2022, within investments in unconsolidated entities on our consolidated balance sheet. Our maximum risk of loss is limited to our carrying value of the investments.
16. Related-Party Transactions
Management Agreement
We are party to a management agreement (the “Management Agreement”) with our Manager. Under the Management Agreement, our Manager, subject to the oversight of our board of directors, is required to manage our day to day activities, for which our Manager receives a base management fee and is eligible for an incentive fee and stock awards. Our Manager’s personnel perform certain due diligence, legal, management and other services that outside professionals or consultants would otherwise perform. As such, in accordance with the terms of our Management Agreement, our Manager is paid or reimbursed for the documented costs of performing such tasks, provided that such costs and reimbursements are in amounts no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of this agreement.
Base Management Fee. For the three months ended September 30, 2022 and 2021, approximately $21.7 million and $19.2 million, respectively, was incurred for base management fees. For the nine months ended September 30, 2022 and 2021, approximately $64.9 million and $57.5 million, respectively, was incurred for base management fees. As of September 30, 2022 and December 31, 2021, there were $21.7 million and $20.3 million, respectively, of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.
Incentive Fee. For the three months ended September 30, 2022 and 2021, approximately $0.9 million and $1.0 million, respectively, was incurred for incentive fees. For the nine months ended September 30, 2022 and 2021, approximately $35.1 million and $19.1 million, respectively, was incurred for incentive fees. As of September 30, 2022 and December 31, 2021, there were $0.9 million and $51.2 million of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.
Expense Reimbursement. For the three months ended September 30, 2022 and 2021, approximately $2.8 million and $1.8 million, respectively, was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2022 and 2021, approximately $6.4 million and $4.8 million, respectively, was incurred for executive compensation and other reimbursable expenses. As of September 30, 2022 and December 31, 2021, there were $3.5 million and $4.9 million, respectively, of unpaid reimbursable executive compensation and other expenses included in related-party payable in our condensed consolidated balance sheets.
Equity Awards. In certain instances, we issue RSAs to certain employees of affiliates of our Manager who perform services for us. During the nine months ended September 30, 2022 and 2021, we granted 200,972 and 981,951 RSAs, respectively, at a grant date fair value of $4.8 million and $19.6 million, respectively. There were no RSAs granted during the three months ended September 30, 2022 and 2021. Expenses related to the vesting of awards to employees of affiliates of our Manager were $1.9 million and $2.2 million during the three months ended September 30, 2022 and 2021, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. Expenses related to the vesting of awards to employees of affiliates of our Manager were $6.8 million and $6.7 million during the nine months ended September 30, 2022 and 2021, respectively. These shares generally vest over a three-year period. Compensation expense related to the Starwood Property Trust, Inc. Employee Stock Purchase Plan (refer to Note 17) for employees of affiliates of our Manager were not material during the three and nine months ended September 30, 2022, and are reflected in general and administrative expenses in our condensed consolidated statements of operations.
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Manager Equity Plan
In April 2022, the Company’s shareholders approved the Starwood Property Trust, Inc. 2022 Manager Equity Plan (the “2022 Manager Equity Plan”) which replaces the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”). In November 2020, we granted 1,800,000 RSUs to our Manager under the 2017 Manager Equity Plan. In September 2019, we granted 1,200,000 RSUs to our Manager under the 2017 Manager Equity Plan. In April 2018, we granted 775,000 RSUs to our Manager under the 2017 Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $4.5 million within management fees in our condensed consolidated statements of operations for both the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022 and 2021, we recognized $13.5 million and $14.9 million, respectively, related to these awards. Refer to Note 17 for further discussion.
Investments in Loans and Securities
In March 2022, we originated a new loan on the development and recapitalization of luxury rental cabins with a total commitment of $200.0 million, of which $120.4 million was outstanding as of September 30, 2022. The loan bears interest at SOFR + 6.50% plus fees and has a term of 24 months with three one-year extension options. The proceeds were partially used to repay an existing $99.0 million first mortgage loan that we originated in February 2020. Certain members of our executive team and board of directors own equity interests in the borrower.
During the three and nine months ended September 30, 2022, the Company acquired $118.9 million and $1.1 billion, respectively, of loans from a residential mortgage originator in which it holds an equity interest. Additionally, as of September 30, 2022, the Company had outstanding residential mortgage loan purchase commitments of $51.6 million to this residential mortgage originator. Refer to Note 8 for further discussion. During the nine months ended September 30, 2022, the Company received proceeds of $4.4 million from the sale of loans to the residential mortgage originator. No proceeds were received from the sale of loans to the residential mortgage originator during the three months ended September 30, 2022.
Lease Arrangements
In March 2020, we entered into an office lease agreement with an entity which is controlled by our Chairman and CEO through majority equity ownership of the entity. The leased premises serve as our new Miami Beach office following the expiration of our former lease in Miami Beach. The lease, as amended in September 2022, is for 64,424 square feet of office space, commenced July 1, 2022 and has an initial term of 15 years from the monthly lease payment commencement date of November 1, 2022. The lease payments are based on an annual base rate of $52.00 per square foot that increases by 3% each anniversary following commencement, plus our pro rata share of building operating expenses. Prior to the execution of this lease, we engaged an independent third party leasing firm and external counsel to advise the independent directors of our board of directors on market terms for the lease.  The terms of the lease and subsequent amendment were approved by our independent directors. In April 2020, we provided a $1.9 million cash security deposit to the landlord. During the three and nine months ended September 30, 2022, we made payments to the landlord of $1.0 million and $2.9 million, respectively, for reimbursements relating to tenant improvements under the terms of the lease. During the three and nine months ended September 30, 2022, we recognized $1.0 million of rent expense with respect to this lease within general and administrative expenses in our condensed consolidated statements of operations. Upon the July 1, 2022 commencement of the lease, we recorded a $29.8 million right-of-use asset and corresponding lease liability within “Other assets” and “Accounts payable, accrued expenses and other liabilities,” respectively, on our condensed consolidated balance sheet representing the present value of the minimum required lease payments over the term of the lease.
Other Related-Party Arrangements
Highmark Residential (“Highmark”), an affiliate of our Manager, provides property management services for properties within our Woodstar I and Woodstar II Portfolios. Fees paid to Highmark are calculated as a percentage of gross receipts and are at market terms. During the three months ended September 30, 2022 and 2021, property management fees to Highmark of $1.4 million and $1.3 million, respectively, were recognized within our Woodstar Portfolios. During the nine months ended September 30, 2022 and 2021, property management fees to Highmark were $4.1 million and $2.8 million, respectively.

Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.
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17. Stockholders’ Equity and Non-Controlling Interests
During the nine months ended September 30, 2022, our board of directors declared the following dividends:

Declaration DateRecord DateEx-Dividend DatePayment DateAmountFrequency
9/16/229/30/229/29/2210/14/22$0.48 Quarterly
6/15/226/30/226/29/227/15/220.48 Quarterly
3/14/223/31/223/30/224/15/220.48 Quarterly
ATM Agreement
In May 2022, we entered into a Starwood Property Trust, Inc. Common Stock Sales Agreement (the “ATM Agreement”) with a syndicate of financial institutions to sell shares of the Company’s common stock of up to $500.0 million from time to time, through an “at the market” equity offering program. Sales of shares under the ATM Agreement are made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale or at negotiated prices. The ATM Agreement replaces a similar agreement previously entered into in May 2014 with Merrill Lynch, Pierce, Fenner and Smith Incorporated. During the nine months ended September 30, 2022, we issued 1,415,564 shares of common stock under our ATM Agreement for gross proceeds of $33.3 million at an average share price of $23.54 and paid related commission costs of $0.7 million. There were no shares issued under the ATM Agreement during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, there were no shares issued under our previous ATM agreement.
Dividend Reinvestment and Direct Stock Purchase Plan
During the nine months ended September 30, 2022 and 2021, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.
Employee Stock Purchase Plan
In April 2022, the Company’s shareholders approved the Starwood Property Trust, Inc. Employee Stock Purchase Plan (the “ESPP”) which allows eligible employees to purchase common stock of the Company at a discounted purchase price. The discounted purchase price of a share of the Company's common stock is 85% of the fair market value (closing market price) at the lower of the beginning or the end of the quarterly offering period. Participants may purchase shares not exceeding an aggregate fair market value of $25,000 in any calendar year. The maximum aggregate number of shares subject to issuance in accordance with the ESPP is 2,000,000 shares.
During the three and nine months ended September 30, 2022, 34,625 shares of common stock were purchased by participants at a discounted purchase price of $18.04 per share. The Company recognized $0.1 million of compensation expense related to its ESPP during such periods based on the estimated fair value of the discounted purchase options granted to the participants as of the beginning of the quarterly offering period determined using the Black-Scholes option pricing model.
As of September 30, 2022, there were 2.0 million shares of common stock available for future issuance through the ESPP.


Equity Plans
In April 2022, the Company’s shareholders approved the 2022 Manager Equity Plan and the Starwood Property Trust, Inc. 2022 Equity Plan (the “2022 Equity Plan”), which allow for the issuance of up to 18,700,000 stock options, stock appreciation rights, RSAs, RSUs or other equity-based awards or any combination thereof to the Manager, directors, employees, consultants or any other party providing services to the Company. The 2022 Manager Equity Plan succeeds and replaces the 2017 Manager Equity Plan and the 2022 Equity Plan succeeds and replaces the Starwood Property Trust, Inc. 2017 Equity Plan (the “2017 Equity Plan”).
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The table below summarizes our share awards granted or vested under the 2017 Manager Equity Plan (none under the 2022 Manager Equity Plan) during the nine months ended September 30, 2022 and 2021 (dollar amounts in thousands):
Grant DateTypeAmount GrantedGrant Date Fair ValueVesting Period
November 2020RSU1,800,000 $30,078 3 years
September 2019RSU1,200,000 29,484 (1)
April 2018RSU775,000 16,329 3 years
______________________________________________________________________________________________________________________
(1)Of the amount granted, 218,898 vested immediately on the grant date and the remaining amount vests over a three-year period.
Schedule of Non-Vested Shares and Share Equivalents (1)
2022
Equity Plan		2022
Manager
Equity Plan		TotalWeighted Average
Grant Date Fair
Value (per share)
Balance as of January 1, 20222,406,730 1,295,277 3,702,007 $18.90 
Granted829,805 — 829,805 23.54 
Vested(646,771)(695,277)(1,342,048)18.55 
Forfeited(69,268)— (69,268)19.49 
Balance as of September 30, 20222,520,496 600,000 3,120,496 20.27 
(1)    Equity-based award activity for awards granted under the 2017 Equity Plan is reflected within the 2022 Equity Plan column, and for awards granted under the 2017 Manager Equity Plan, within the 2022 Manager Equity Plan column.
As of September 30, 2022, there were 18.7 million shares of common stock available for future grants under the 2022 Manager Equity Plan and the 2022 Equity Plan.
Non-Controlling Interests in Consolidated Subsidiaries
As discussed in Note 2, on November 5, 2021 we sold a 20.6% non-controlling interest in the Woodstar Fund to third party investors for net cash proceeds of $214.2 million. Under the Woodstar Fund operating agreement, such interests are contingently redeemable by us, at the option of the interest holder, for cash at liquidation fair value if any assets remain upon termination of the Woodstar Fund. The Woodstar Fund operating agreement specifies an eight-year term with two one-year extension options, the first at our option and the second subject to consent of an advisory committee representing the non-controlling interest holders. Accordingly, these contingently redeemable non-controlling interests have been classified as “Temporary Equity” in our condensed consolidated balance sheets and represent the fair value of the Woodstar Fund’s net assets allocable to those interests. During the three and nine months ended September 30, 2022, net income attributable to these non-controlling interests was $23.8 million and $134.3 million, respectively.
In connection with our Woodstar II Portfolio acquisitions, we issued 10.2 million Class A Units in our subsidiary, SPT Dolphin, and rights to receive an additional 1.9 million Class A Units if certain contingent events occur. As of September 30, 2022, all of the 1.9 million contingent Class A Units were issued. The Class A Units are redeemable for consideration equal to the current share price of the Company’s common stock on a one-for-one basis, with the consideration paid in either cash or the Company’s common stock, at the determination of the Company. There were 9.8 million Class A Units outstanding as of September 30, 2022. The outstanding Class A Units are reflected as non-controlling interests in consolidated subsidiaries on our consolidated balance sheets, the balance of which was $208.5 million as of September 30, 2022 and December 31, 2021.
To the extent SPT Dolphin has sufficient cash available, the Class A Units earn a preferred return indexed to the dividend rate of the Company’s common stock. Any distributions made pursuant to this waterfall are recognized within net income attributable to non-controlling interests in our condensed consolidated statements of operations. During the three and nine months ended September 30, 2022, we recognized net income attributable to non-controlling interests of $4.7 million and $14.1 million, respectively, associated with these Class A Units. During the three and nine months ended September 30, 2021, we recognized net income attributable to non-controlling interests of $4.7 million and $14.7 million, respectively, associated with these Class A Units.
As discussed in Note 15, we hold a 51% controlling interest in the CMBS JV within our Investing and Servicing Segment. Because the CMBS JV is deemed a VIE for which we are the primary beneficiary, the 49% interest of our joint venture partner is reflected as a non-controlling interest in consolidated subsidiaries on our condensed consolidated balance sheets, and any net income attributable to this 49% joint venture interest is reflected within net income attributable to non-
47

controlling interests in our condensed consolidated statement of operations. The non-controlling interests in the CMBS JV were $146.6 million and $131.9 million as of September 30, 2022 and December 31, 2021, respectively. During the three and nine months ended September 30, 2022, net (loss) income attributable to these non-controlling interests was $(0.4) million and $4.5 million, respectively. During the three and nine months ended September 30, 2021, net income attributable to these non-controlling interests was $6.7 million and $16.7 million, respectively.
18. Earnings per Share
The following table provides a reconciliation of net income and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):
For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
2022202120222021
Basic Earnings
Income attributable to STWD common stockholders$194,562 $128,602 $731,448 $356,290 
Less: Income attributable to participating shares not already deducted as non-controlling interests(2,929)(1,635)(15,673)(5,351)
Basic earnings$191,633 $126,967 $715,775 $350,939 
Diluted Earnings
Income attributable to STWD common stockholders$194,562 $128,602 $731,448 $356,290 
Less: Income attributable to participating shares not already deducted as non-controlling interests(2,929)(1,635)(15,673)(5,351)
Add: Interest expense on Convertible Notes2,906 2,901 8,724 8,717 
Add: Undistributed earnings to participating shares1,818 — 11,629 — 
Less: Undistributed earnings reallocated to participating shares(1,763)— (11,280)— 
Diluted earnings$194,594 $129,868 $724,848 $359,656 
Number of Shares:
Basic — Average shares outstanding306,704 285,676 304,908 284,577 
Effect of dilutive securities — Convertible Notes9,649 9,649 9,649 9,649 
Effect of dilutive securities — Contingently issuable shares23 19 23 19 
Effect of dilutive securities — Unvested non-participating shares199 104 161 148 
Diluted — Average shares outstanding316,575 295,448 314,741 294,393 
Earnings Per Share Attributable to STWD Common Stockholders:
Basic$0.62 $0.44 $2.35 $1.23 
Diluted$0.61 $0.44 $2.30 $1.22 
As of September 30, 2022 and 2021, participating shares of 12.4 million and 13.3 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above. Such participating shares at both September 30, 2022 and 2021 included 9.8 million potential shares of our common stock issuable upon redemption of the Class A Units in SPT Dolphin, as discussed in Note 17.
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19. Accumulated Other Comprehensive Income
The changes in AOCI by component are as follows (amounts in thousands):
Cumulative
Unrealized Gain
(Loss) on
Available-for-
Sale Securities		Foreign
Currency
Translation		Total
Three Months Ended September 30, 2022
Balance at July 1, 2022$28,970 $— $28,970 
OCI before reclassifications(6,194)— (6,194)
Amounts reclassified from AOCI— — — 
Net period OCI(6,194)— (6,194)
Balance at September 30, 2022$22,776 $— $22,776 
Three Months Ended September 30, 2021
Balance at July 1, 2021$41,310 $— $41,310 
OCI before reclassifications(822)— (822)
Amounts reclassified from AOCI(2)— (2)
Net period OCI(824)— (824)
Balance at September 30, 2021$40,486 $— $40,486 
Nine Months Ended September 30, 2022
Balance at January 1, 2022$40,953 $— $40,953 
OCI before reclassifications(18,177)— (18,177)
Amounts reclassified from AOCI— — — 
Net period OCI(18,177)— (18,177)
Balance at September 30, 2022$22,776 $— $22,776 
Nine Months Ended September 30, 2021
Balance at January 1, 2021$44,057 $(64)$43,993 
OCI before reclassifications(3,569)— (3,569)
Amounts reclassified from AOCI(2)64 62 
Net period OCI(3,571)64 (3,507)
Balance at September 30, 2021$40,486 $— $40,486 


49

20. Fair Value
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Valuation Process
We have valuation control processes in place to validate the fair value of the Company’s financial assets and liabilities measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
Pricing Verification—We use recently executed transactions, other observable market data such as exchange data, broker/dealer quotes, third party pricing vendors and aggregation services for validating the fair values generated using valuation models. Pricing data provided by approved external sources is evaluated using a number of approaches; for example, by corroborating the external sources’ prices to executed trades, analyzing the methodology and assumptions used by the external source to generate a price and/or by evaluating how active the third party pricing source (or originating sources used by the third party pricing source) is in the market.
Unobservable Inputs—Where inputs are not observable, we review the appropriateness of the proposed valuation methodology to ensure it is consistent with how a market participant would arrive at the unobservable input. The valuation methodologies utilized in the absence of observable inputs may include extrapolation techniques and the use of comparable observable inputs.
Any changes to the valuation methodology will be reviewed by our management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate of fair value at the reporting date.
Fair Value on a Recurring Basis
We determine the fair value of our financial assets and liabilities measured at fair value on a recurring basis as follows:
Loans held-for-sale, commercial
We measure the fair value of our commercial mortgage loans held-for-sale using a discounted cash flow analysis unless observable market data (i.e., securitized pricing) is available. A discounted cash flow analysis requires management to make estimates regarding future interest rates and credit spreads. The most significant of these inputs relates to credit spreads and is unobservable. Thus, we have determined that the fair values of mortgage loans valued using a discounted cash flow analysis should be classified in Level III of the fair value hierarchy, while mortgage loans valued using securitized pricing should be classified in Level II of the fair value hierarchy. Mortgage loans classified in Level III are transferred to Level II if securitized pricing becomes available.
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Loans held-for-sale and loans held-for-investment, residential
We measure the fair value of our residential loans held-for-sale and held-for-investment based on the net present value of expected future cash flows using a combination of observable and unobservable inputs. Observable market participant assumptions include pricing related to trades of residential loans with similar characteristics. Unobservable inputs include the expectation of future cash flows, which involves judgments about the underlying collateral, the creditworthiness of the borrower, estimated prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements and certain other factors. At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs, these loans have been classified within Level III.
RMBS
RMBS are valued utilizing observable and unobservable market inputs. The observable market inputs include recent transactions, broker quotes and vendor prices (“market data”). However, given the implied price dispersion amongst the market data, the fair value determination for RMBS has also utilized significant unobservable inputs in discounted cash flow models including prepayments, default and severity estimates based on the recent performance of the collateral, the underlying collateral characteristics, industry trends, as well as expectations of macroeconomic events (e.g., housing price curves, interest rate curves, etc.). At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs these securities have been classified within Level III.
CMBS
CMBS are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar securities and the spreads used in the prior valuation. We obtain current market spread information where available and use this information in evaluating and validating the market price of all CMBS. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are classified in either Level II or Level III of the fair value hierarchy. CMBS may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the CMBS become or cease to be observable.
Equity security
The equity security is publicly registered and traded in the U.S. and its market price is listed on the London Stock Exchange. The security has been classified within Level I.
Woodstar Fund Investments
The fair value of investments held by the Woodstar Fund is determined based on observable and unobservable market inputs. The initial fair value of the Woodstar Fund's investments at its November 5, 2021 establishment date was determined by reference to the purchase price paid by third party investors, which was consistent with both a recent external appraisal as well as our extensive marketing efforts to sell interests in the Woodstar Fund, plus working capital.

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

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

Internal valuations at interim quarter ends are prepared by management. The valuation of properties is based on a direct income capitalization approach, whereby a direct capitalization market rate is applied to annualized in-place net operating income at the portfolio level. The direct capitalization rate is initially calibrated to the implied rate from the latest appraisal and
51

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

Given the significance of the unobservable inputs used in the respective valuations, the Woodstar Fund’s investments have been classified within Level III of the fair value hierarchy.
Domestic servicing rights
The fair value of this intangible is determined using discounted cash flow modeling techniques which require management to make estimates regarding future net servicing cash flows, including forecasted loan defeasance, control migration, delinquency and anticipated maturity defaults which are calculated assuming a debt yield at which default occurs. Since the most significant of these inputs are unobservable, we have determined that the fair values of this intangible in its entirety should be classified in Level III of the fair value hierarchy.
Derivatives
The valuation of derivative contracts are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market based inputs, including interest rate curves, spot and market forward points and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
The valuation of over the counter derivatives are determined using discounted cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Uncollateralized or partially collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk. For credit instruments, fair value is determined based on changes in the relevant indices from the date of initiation of the instrument to the reporting date, as these changes determine the amount of any future cash settlement between us and the counterparty. These indices are considered Level II inputs as they are directly observable.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level II of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level III inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2022 and December 31, 2021, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level II of the fair value hierarchy.
Liabilities of consolidated VIEs
Our consolidated VIE liabilities generally represent bonds that are not owned by us. The majority of these are either traded in the marketplace or can be analogized to similar securities that are traded in the marketplace. For these liabilities, pricing is considered to be Level II, where the valuation is based upon quoted prices for similar instruments traded in active markets. We generally utilize third party pricing service providers for valuing these liabilities. In order to determine whether to utilize the valuations provided by third parties, we conduct an ongoing evaluation of their valuation methodologies and processes, as well as a review of the individual valuations themselves. In evaluating third party pricing for reasonableness, we consider a variety of factors, including market transaction information for the particular bond, market transaction information for bonds within the same trust, market transaction information for similar bonds, the bond’s ratings and the bond’s subordination levels.
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For the minority portion of our consolidated VIE liabilities which consist of unrated or non-investment grade bonds that are not owned by us, pricing may be either Level II or Level III. If independent third party pricing similar to that noted above is available, we consider the valuation to be Level II. If such third party pricing is not available, the valuation is generated from model-based techniques that use significant unobservable assumptions, and we consider the valuation to be Level III. For VIE liabilities classified as Level III, valuation is determined based on discounted expected future cash flows which take into consideration expected duration and yields based on market transaction information, ratings, subordination levels, vintage and current market spread. VIE liabilities may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the VIE liabilities become or cease to be observable.
Assets of consolidated VIEs
The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets of the VIE, we maximize the use of observable inputs over unobservable inputs. The individual assets of a VIE are inherently incapable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Because our methodology for valuing these assets does not value the individual assets of a VIE, but rather uses the value of the VIE liabilities as an indicator of the fair value of VIE assets as a whole, we have determined that our valuations of VIE assets in their entirety should be classified in Level III of the fair value hierarchy.
Fair Value Only Disclosed
We determine the fair value of our financial instruments and assets where fair value is disclosed as follows:
Loans held-for-investment
We estimate the fair values of our loans not carried at fair value on a recurring basis by discounting their expected cash flows at a rate we estimate would be demanded by the market participants that are most likely to buy our loans. The expected cash flows used are generally the same as those used to calculate our level yield income in the financial statements. Since these inputs are unobservable, we have determined that the fair value of these loans in their entirety would be classified in Level III of the fair value hierarchy.
HTM debt securities
We estimate the fair value of our mandatorily redeemable preferred equity interests in commercial real estate companies and infrastructure bonds using the same methodology described for our loans held-for-investment. We estimate the fair value of our HTM CMBS using the same methodology described for our CMBS carried at fair value on a recurring basis.
Secured financing agreements, CLOs and SASB
The fair value of the secured financing agreements, CLOs and SASB are determined by discounting the contractual cash flows at the interest rate we estimate such arrangements would bear if executed in the current market. We have determined that our valuation of these instruments should be classified in Level III of the fair value hierarchy.
Unsecured senior notes
The fair value of our unsecured senior notes is determined based on the last available bid price for the respective notes in the current market. As these prices represent observable market data, we have determined that the fair value of these instruments would be classified in Level II of the fair value hierarchy.
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Fair Value Disclosures
The following tables present our financial assets and liabilities carried at fair value on a recurring basis in the consolidated balance sheets by their level in the fair value hierarchy as of September 30, 2022 and December 31, 2021 (amounts in thousands):
September 30, 2022
TotalLevel ILevel IILevel III
Financial Assets:
Loans under fair value option$2,258,860 $— $70,389 $2,188,471 
RMBS116,577 — — 116,577 
CMBS20,652 — — 20,652 
Equity security9,343 9,343 — — 
Woodstar Fund investments1,669,265 — — 1,669,265 
Domestic servicing rights18,014 — — 18,014 
Derivative assets251,171 — 251,171 — 
VIE assets54,215,370 — — 54,215,370 
Total$58,559,252 $9,343 $321,560 $58,228,349 
Financial Liabilities:
Derivative liabilities$82,766 $— $82,766 $— 
VIE liabilities52,501,845 — 47,008,848 5,492,997 
Total$52,584,611 $— $47,091,614 $5,492,997 

December 31, 2021
TotalLevel ILevel IILevel III
Financial Assets:
Loans under fair value option$2,936,025 $— $— $2,936,025 
RMBS143,980 — — 143,980 
CMBS22,244 — — 22,244 
Equity security11,624 11,624 — — 
Woodstar Fund investments1,040,309 — — 1,040,309 
Domestic servicing rights16,780 — — 16,780 
Derivative assets48,216 — 48,216 — 
VIE assets61,280,543 — — 61,280,543 
Total$65,499,721 $11,624 $48,216 $65,439,881 
Financial Liabilities:
Derivative liabilities$13,421 $— $13,421 $— 
VIE liabilities59,752,922 — 54,972,701 4,780,221 
Total$59,766,343 $— $54,986,122 $4,780,221 


54

The changes in financial assets and liabilities classified as Level III are as follows for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

Three Months Ended September 30, 2022
Loans at
Fair Value		RMBSCMBSWoodstar
Fund Investments		Domestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
July 1, 2022 balance
$2,197,501 $124,439 $20,965 $1,558,850 $17,499 $57,993,563 $(5,980,634)$55,932,183 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale(87,474)— (84)110,415 515 (3,778,193)824,214 (2,930,607)
Net accretion— 1,744 — — — — — 1,744 
Included in OCI— (6,194)— — — — — (6,194)
Purchases / Originations186,397 — — — — — — 186,397 
Sales(1,266)— — — — — — (1,266)
Issuances— — — — — — — — 
Cash repayments / receipts(37,998)(3,412)(229)— — — (4,887)(46,526)
Transfers into Level III1,700 — — — — — (573,303)(571,603)
Transfers out of Level III(70,389)— — — — — 241,613 171,224 
Transfers within Level III— — — — — — — — 
Consolidation of VIEs— — — — — — — — 
Deconsolidation of VIEs— — — — — — — — 
September 30, 2022 balance
$2,188,471 $116,577 $20,652 $1,669,265 $18,014 $54,215,370 $(5,492,997)$52,735,352 
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2022:
Included in earnings$(92,162)$1,744 $(84)$110,415 $515 $(3,778,193)$824,214 $(2,933,551)
Included in OCI$— $(6,194)$— $— $— $— $— $(6,194)
Three Months Ended September 30, 2021
Loans at
Fair Value		RMBSCMBSWoodstar Fund InvestmentsDomestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
July 1, 2021 balance
$767,821 $154,704 $18,965 $— $13,705 $63,493,796 $(4,836,192)$59,612,799 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale31,727 — (790)— 2,237 (1,601,734)580,581 (987,979)
Net accretion— 2,584 — — — — — 2,584 
Included in OCI— (824)— — — — — (824)
Purchases / Originations1,783,772 — — — — — — 1,783,772 
Sales(856,187)— — — — — — (856,187)
Issuances— — — — — — (27,112)(27,112)
Cash repayments / receipts(50,395)(7,881)(356)— — — (351)(58,983)
Transfers into Level III4,414 — — — — — (112,562)(108,148)
Transfers out of Level III(133,863)— — — — — 349,922 216,059 
Transfers within Level III258,927 — — (258,927)— — 
Consolidation of VIEs— — — — — 1,649,200 (520,325)1,128,875 
Deconsolidation of VIEs— — 5,684 — — (935,855)35,450 (894,721)
September 30, 2021 balance
$1,806,216 $148,583 $23,503 $— $15,942 $62,346,480 $(4,530,589)$59,810,135 
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2021:
Included in earnings$12,571 $2,582 $409 $— $2,237 $(1,601,734)$580,581 $(1,003,354)
Included in OCI$— $(822)$— $— $— $— $— $(822)
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Nine Months Ended September 30, 2022
Loans at
Fair Value		RMBSCMBSWoodstar Fund InvestmentsDomestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
January 1, 2022 balance
$2,936,025 $143,980 $22,244 $1,040,309 $16,780 $61,280,543 $(4,780,221)$60,659,660 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale(326,737)— (1,441)628,956 1,234 (10,696,486)1,746,436 (8,648,038)
Net accretion— 6,974 — — — — — 6,974 
Included in OCI— (18,177)— — — — — (18,177)
Purchases / Originations3,793,467 — — — — — — 3,793,467 
Sales(3,588,953)— — — — — — (3,588,953)
Issuances— — — — — — — — 
Cash repayments / receipts(152,847)(16,200)(681)— — — (5,712)(175,440)
Transfers into Level III1,847 — — — — — (1,203,420)(1,201,573)
Transfers out of Level III(474,331)— — — — — 559,062 84,731 
Transfers within Level III— — — — — — — — 
Consolidation of VIEs— — — — — 4,361,325 (1,810,101)2,551,224 
Deconsolidation of VIEs— — 530 — — (730,012)959 (728,523)
September 30, 2022 balance
$2,188,471 $116,577 $20,652 $1,669,265 $18,014 $54,215,370 $(5,492,997)$52,735,352 
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2022:
Included in earnings$(258,652)$6,641 $(911)$628,956 $1,234 $(10,696,486)$1,746,436 $(8,572,782)
Included in OCI$— $(17,771)$— $— $— $— $— $(17,771)
Nine Months Ended September 30, 2021
Loans at
Fair Value		RMBSCMBSWoodstar Fund InvestmentsDomestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
January 1, 2021 balance
$1,022,979 $167,349 $19,457 $— $13,202 $64,238,328 $(2,019,876)$63,441,439 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale68,116 — (98)— 2,740 (4,952,071)647,555 (4,233,758)
Net accretion— 7,800 — — — — — 7,800 
Included in OCI— (3,571)— — — — — (3,571)
Purchases / Originations3,151,346 — — — — — — 3,151,346 
Sales(2,333,767)— — — — — — (2,333,767)
Issuances— — — — — — (38,715)(38,715)
Cash repayments / receipts(153,723)(22,995)(1,540)— — — (2,889)(181,147)
Transfers into Level III4,413 — — — — — (2,953,709)(2,949,296)
Transfers out of Level III(384,549)— — — — — 864,153 479,604 
Transfers within Level III431,401 — — — — (431,401)— — 
Consolidation of VIEs— — — — — 4,427,479 (1,062,558)3,364,921 
Deconsolidation of VIEs— — 5,684 — — (935,855)35,450 (894,721)
September 30, 2021 balance
$1,806,216 $148,583 $23,503 $— $15,942 $62,346,480 $(4,530,589)$59,810,135 
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2021:
Included in earnings$13,234 $7,793 $1,102 $— $2,740 $(4,952,071)$647,555 $(4,279,647)
Included in OCI$— $(3,563)$— $— $— $— $— $(3,563)
Amounts were transferred from Level II to Level III due to a decrease in the observable relevant market activity and amounts were transferred from Level III to Level II due to an increase in the observable relevant market activity.
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The following table presents the fair values of our financial instruments not carried at fair value on the consolidated balance sheets (amounts in thousands):
September 30, 2022December 31, 2021
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Financial assets not carried at fair value:
Loans$18,050,646 $17,843,579 $15,477,624 $15,526,235 
HTM debt securities743,556 704,285 683,136 656,864 
Financial liabilities not carried at fair value:
Secured financing agreements, CLOs and SASB$17,186,898 $16,953,413 $15,192,966 $15,266,440 
Unsecured senior notes2,326,988 2,119,427 1,828,590 1,893,065 
The following is quantitative information about significant unobservable inputs in our Level III measurements for those assets and liabilities measured at fair value on a recurring basis (dollars in thousands):
Carrying Value at
September 30, 2022
Valuation
Technique		Unobservable
Input		Range (Weighted Average) as of (1)
September 30, 2022December 31, 2021
Loans under fair value option$2,188,471 Discounted cash flow, market pricingCoupon (d)
2.8% - 9.3% (4.7%)
2.6% - 9.2% (4.2%)
Remaining contractual term (d)
5.5 - 39.8 years (29.0 years)
6.3 - 39.9 years (27.4 years)
FICO score (a)
585 - 900 (745)
582 - 829 (748)
LTV (b)
5% - 93% (68%)
1% - 94% (66%)
Purchase price (d)
80.0% - 108.6% (101.8%)
80.0% - 108.6% (102.3%)
RMBS116,577 Discounted cash flowConstant prepayment rate (a)
3.0% - 13.0% (5.9%)
4.8% - 19.2% (9.9%)
Constant default rate (b)
1.3% - 4.4% (2.0%)
0.8% - 6.0% (2.1%)
Loss severity (b)
0% - 98% (18%) (f)
0% - 86% (26%) (f)
Delinquency rate (c)
7% - 29% (16%)
10.4% - 35% (19%)
Servicer advances (a)
29% - 78% (54%)
19% - 83% (52%)
Annual coupon deterioration (b)
0% - 3.2% (0.1%)
0% - 1.7% (0.1%)
Putback amount per projected total collateral loss (e)
0% - 8% (0.6%)
0% - 8% (0.5%)
CMBS20,652 Discounted cash flowYield (b)
0% - 186.7% (9.0%)
0% - 613.6% (9.3%)
Duration (c)
0 - 8.0 years (3.0 years)
0 - 7.2 years (5.2 years)
Woodstar Fund investments1,669,265 Discounted cash flowDiscount rate - properties (b)N/A
5.8% - 6.3% (6.0%)
Discount rate - debt (a)
5.3% - 6.6% (5.7%)
2.6% - 3.3% (2.9%)
Terminal capitalization rate (b)
N/A
4.8% - 5.3% (4.9%)
Direct capitalization rate (b)
4.2% (4.2%)
4.1% - 4.2% (4.2%) (Implied)
Domestic servicing rights18,014 Discounted cash flowDebt yield (a)
8.00% (8.00%)
7.30% (7.30%)
Discount rate (b)
15% (15%)
15% (15%)
VIE assets54,215,370 Discounted cash flowYield (b)
0% - 486.8% (14.8%)
0% - 615.3% (13.0%)
Duration (c)
0 - 11.0 years (2.9 years)
0 - 11.0 years (3.2 years)
VIE liabilities5,492,997 Discounted cash flowYield (b)
0% - 486.8% (9.2%)
0% - 615.3% (6.4%)
Duration (c)
0 - 11.0 years (2.0 years)
0 - 11.0 years (2.3 years)
______________________________________________________________________________________________________________________
(1)Unobservable inputs were weighted by the relative carrying value of the instruments as of September 30, 2022 and December 31, 2021.
Information about Uncertainty of Fair Value Measurements
(a)Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement.
(b)Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement.
57

(c)Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (higher or lower) fair value measurement depending on the structural features of the security in question.
(d)This unobservable input is not subject to variability as of the respective reporting dates.
(e)Any delay in the putback recovery date leads to a decrease in fair value for the majority of securities in our RMBS portfolio.
(f)3% and 18% of the portfolio falls within a range of 45% - 80% as of September 30, 2022 and December 31, 2021, respectively.
21. Income Taxes
Certain of our domestic subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.
Our TRSs engage in various real estate-related operations, including special servicing of commercial real estate, originating and securitizing mortgage loans, and investing in entities which engage in real estate-related operations. As of September 30, 2022 and December 31, 2021, approximately $2.7 billion and $3.2 billion, respectively, of assets were owned by TRS entities. Our TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.
The following table is a reconciliation of our U.S. federal income tax provision determined using our statutory federal tax rate to our reported income tax provision (benefit) for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Federal statutory tax rate$36,768 21.0 %$31,078 21.0 %$176,580 21.0 %$83,113 21.0 %
REIT and other non-taxable income(75,642)(43.1)%(24,527)(16.6)%(213,073)(25.3)%(73,046)(18.5)%
State income taxes(12,772)(7.3)%2,153 1.5 %(11,990)(1.4)%3,308 0.8 %
Federal benefit of state tax deduction2,682 1.5 %(452)(0.3)%2,518 0.3 %(695)(0.2)%
Intra-entity transfers— — %(312)(0.2)%(3,868)(0.5)%(6,364)(1.5)%
Other209 0.1 %(439)(0.3)%834 0.1 %62 — %
Effective tax rate$(48,755)(27.8)%$7,501 5.1 %$(48,999)(5.8)%$6,378 1.6 %

For the three and nine months ended September 30, 2022, we have utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, “Income Taxes—Interim Reporting,” to calculate our interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that due to market dislocation and volatility, particularly with respect to the Company's residential assets that are housed in TRSs, the use of the discrete method is more appropriate at this time than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pretax earnings.
58

22. Commitments and Contingencies
As of September 30, 2022, our Commercial and Residential Lending Segment had future commercial loan funding commitments totaling $2.8 billion, of which we expect to fund $2.5 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Additionally, as of September 30, 2022, our Commercial and Residential Lending Segment had outstanding residential loan purchase commitments of $51.6 million.
As discussed in Note 12, in February 2022, our Commercial and Residential Lending Segment sold $745.0 million of agency-eligible residential loans at face amount which was subject to a post-closing contingent sales price adjustment based on the gain or loss to the purchaser/securitization underwriter, less underwriting costs, if those loans were sold into a future securitization. Given spread widening which occurred in the residential markets since the initial sale, in lieu of the buyer executing a securitization or sale of the loans, we entered into a forward settlement agreement to acquire the remaining balance of these loans at par in June 2022. The loan purchase was subject to a financing contingency, whereby the seller was to provide us financing under a mutually agreed repurchase agreement within 120 days. If such mutually agreed financing was not completed, we would not be obligated to complete the forward settlement, and the previous post-closing contingency referenced above would have been reinstated. In October 2022, the seller provided us financing under a mutually agreed repurchase agreement and the forward settlement was completed. As of September 30, 2022, we estimated the amount of the future securitization contingency to be $88.4 million based on the fair market value of the loans at this date. As a result, we recorded a contingency loss of $55.7 million and $88.4 million within other loss, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively.
As of September 30, 2022, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $138.6 million under revolvers and letters of credit (“LCs”). As of September 30, 2022, $8.8 million of revolvers and LCs were outstanding. Additionally, as of September 30, 2022, our Infrastructure Lending Segment had outstanding loan purchase commitments of $18.2 million.
In connection with the Infrastructure Lending Segment acquisition, we assumed guarantees of certain borrowers’ performance under existing interest rate swaps. As of September 30, 2022, we had four outstanding guarantees on interest rate swaps maturing between October 2022 and June 2025. Refer to Note 13 for further discussion.
Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios or executions of new leases before advances are made to the borrower.
Management is not aware of any other contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.










59

23. Segment Data
In its operation of the business, management, including our chief operating decision maker, who is our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis prior to the impact of consolidating securitization VIEs under ASC 810. The segment information within this Note is reported on that basis.
The table below presents our results of operations for the three months ended September 30, 2022 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Revenues:
Interest income from loans$284,197 $43,018 $— $1,139 $— $328,354 $— $328,354 
Interest income from investment securities28,560 1,204 — 27,585 — 57,349 (38,330)19,019 
Servicing fees142 — — 11,830 — 11,972 (3,545)8,427 
Rental income1,944 — 22,886 8,102 — 32,932 — 32,932 
Other revenues138 129 54 1,491 — 1,812 (3)1,809 
Total revenues314,981 44,351 22,940 50,147 — 432,419 (41,878)390,541 
Costs and expenses:
Management fees227 — — — 27,129 27,356 — 27,356 
Interest expense145,107 22,500 9,266 6,601 39,166 222,640 (217)222,423 
General and administrative16,458 3,588 933 20,046 4,384 45,409 86 45,495 
Acquisition and investment pursuit costs1,164 2 — 47 — 1,213 — 1,213 
Costs of rental operations2,633 — 5,793 3,780 — 12,206 — 12,206 
Depreciation and amortization1,629 101 8,161 2,720 — 12,611 — 12,611 
Credit loss provision, net8,401 6,942 — — — 15,343 — 15,343 
Total costs and expenses175,619 33,133 24,153 33,194 70,679 336,778 (131)336,647 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 37,146 37,146 
Change in fair value of servicing rights— — — 357 — 357 158 515 
Change in fair value of investment securities, net16,398 — — (21,412)— (5,014)4,931 (83)
Change in fair value of mortgage loans, net(90,159)— — 2,685 — (87,474)— (87,474)
Income from affordable housing fund investments— — 117,527 — — 117,527 — 117,527 
(Loss) earnings from unconsolidated entities(4,044)1,892 — 602 — (1,550)(494)(2,044)
(Loss) gain on sale of investments and other assets, net(288)— — 13,741 — 13,453 — 13,453 
Gain (loss) on derivative financial instruments, net220,296 331 10,262 6,849 (31,668)206,070 — 206,070 
Foreign currency (loss) gain, net(107,087)(253)22 — — (107,318)— (107,318)
Loss on extinguishment of debt— — — (212)— (212)— (212)
Other loss, net(56,391)— — — — (56,391)— (56,391)
Total other income (loss)(21,275)1,970 127,811 2,610 (31,668)79,448 41,741 121,189 
Income (loss) before income taxes118,087 13,188 126,598 19,563 (102,347)175,089 (6)175,083 
Income tax benefit (provision)53,099 2 — (4,346)— 48,755 — 48,755 
Net income (loss)171,186 13,190 126,598 15,217 (102,347)223,844 (6)223,838 
Net income attributable to non-controlling interests(3)— (28,486)(793)— (29,282)6 (29,276)
Net income (loss) attributable to Starwood Property Trust, Inc.
$171,183 $13,190 $98,112 $14,424 $(102,347)$194,562 $— $194,562 
60


The table below presents our results of operations for the three months ended September 30, 2021 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Revenues:
Interest income from loans$179,486 $21,566 $— $2,200 $— $203,252 $— $203,252 
Interest income from investment securities16,043 540 — 25,140 — 41,723 (31,026)10,697 
Servicing fees99 — — 15,447 — 15,546 (5,073)10,473 
Rental income1,358 — 66,673 9,481 — 77,512 — 77,512 
Other revenues59 66 54 173 — 352 — 352 
Total revenues197,045 22,172 66,727 52,441 — 338,385 (36,099)302,286 
Costs and expenses:
Management fees286 — — (1,239)24,680 23,727 — 23,727 
Interest expense52,066 9,381 17,002 5,652 31,651 115,752 (221)115,531 
General and administrative9,178 3,307 913 21,022 4,372 38,792 72 38,864 
Acquisition and investment pursuit costs158 — — 56 — 214 — 214 
Costs of rental operations438 — 26,634 4,444 — 31,516 — 31,516 
Depreciation and amortization312 101 17,882 3,746 — 22,041 — 22,041 
Credit loss provision (reversal), net19 (582)— — — (563)— (563)
Other expense— — — 23 — 23 — 23 
Total costs and expenses62,457 12,207 62,431 33,704 60,703 231,502 (149)231,353 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 28,049 28,049 
Change in fair value of servicing rights— — — (410)— (410)2,647 2,237 
Change in fair value of investment securities, net(8,682)— — 2,870 — (5,812)5,513 (299)
Change in fair value of mortgage loans, net22,464 — — 9,263 — 31,727 — 31,727 
Earnings (loss) from unconsolidated entities1,666 399 — 153 — 2,218 (176)2,042 
Loss on sale of investments and other assets, net(47)— — — — (47)— (47)
Gain (loss) on derivative financial instruments, net38,016 87 (318)3,992 35 41,812 — 41,812 
Foreign currency (loss) gain, net(26,820)(168)(16)1 — (27,003)— (27,003)
Loss on extinguishment of debt— (18)— — (481)(499)— (499)
Other loss, net(964)— — — — (964)— (964)
Total other income (loss)25,633 300 (334)15,869 (446)41,022 36,033 77,055 
Income (loss) before income taxes160,221 10,265 3,962 34,606 (61,149)147,905 83 147,988 
Income tax (provision) benefit (5,652)488 — (2,337)— (7,501)— (7,501)
Net income (loss)154,569 10,753 3,962 32,269 (61,149)140,404 83 140,487 
Net income attributable to non-controlling interests(3)— (4,691)(7,108)— (11,802)(83)(11,885)
Net income (loss) attributable to Starwood Property Trust, Inc.
$154,566 $10,753 $(729)$25,161 $(61,149)$128,602 $— $128,602 




61

The table below presents our results of operations for the nine months ended September 30, 2022 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Revenues:
Interest income from loans$714,222 $100,097 $— $8,804 $— $823,123 $— $823,123 
Interest income from investment securities71,987 3,124 — 75,964 — 151,075 (102,767)48,308 
Servicing fees420 — — 41,517 — 41,937 (10,965)30,972 
Rental income4,674 — 67,879 23,483 — 96,036 — 96,036 
Other revenues251 287 152 10,999 3 11,692 (12)11,680 
Total revenues791,554 103,508 68,031 160,767 3 1,123,863 (113,744)1,010,119 
Costs and expenses:
Management fees758 — — — 113,517 114,275 — 114,275 
Interest expense301,935 49,431 22,421 19,202 109,150 502,139 (647)501,492 
General and administrative39,905 10,730 2,964 66,603 14,354 134,556 265 134,821 
Acquisition and investment pursuit costs2,401 3 7 (259)— 2,152 — 2,152 
Costs of rental operations4,978 — 16,010 11,106 — 32,094 — 32,094 
Depreciation and amortization3,106 310 24,559 8,523 — 36,498 — 36,498 
Credit loss provision, net13,027 7,096 — — — 20,123 — 20,123 
Other expense1,251 — 55 7 — 1,313 — 1,313 
Total costs and expenses367,361 67,570 66,016 105,182 237,021 843,150 (382)842,768 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 72,268 72,268 
Change in fair value of servicing rights— — — 683 — 683 551 1,234 
Change in fair value of investment securities, net(5,019)— — (38,853)— (43,872)42,189 (1,683)
Change in fair value of mortgage loans, net(327,743)— — 1,006 — (326,737)— (326,737)
Income from affordable housing fund investments— — 658,733 — — 658,733 — 658,733 
(Loss) earnings from unconsolidated entities(2,598)2,631 — 2,501 — 2,534 (1,623)911 
Gain on sale of investments and other assets, net86,460 — — 25,599 — 112,059 — 112,059 
Gain (loss) on derivative financial instruments, net465,831 1,228 33,162 43,719 (82,019)461,921 — 461,921 
Foreign currency (loss) gain, net(212,672)(570)41 — — (213,201)— (213,201)
Loss on extinguishment of debt(206)(469)— (360)— (1,035)— (1,035)
Other (loss) income, net(90,988)— — — — (90,988)25 (90,963)
Total other income (loss)(86,935)2,820 691,936 34,295 (82,019)560,097 113,410 673,507 
Income (loss) before income taxes337,258 38,758 693,951 89,880 (319,037)840,810 48 840,858 
Income tax benefit (provision)57,682 7 — (8,690)— 48,999 — 48,999 
Net income (loss)394,940 38,765 693,951 81,190 (319,037)889,809 48 889,857 
Net income attributable to non-controlling interests(10)— (148,379)(9,972)— (158,361)(48)(158,409)
Net income (loss) attributable to Starwood Property Trust, Inc.
$394,930 $38,765 $545,572 $71,218 $(319,037)$731,448 $— $731,448 



62

The table below presents our results of operations for the nine months ended September 30, 2021 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Revenues:
Interest income from loans$515,776 $61,545 $— $5,778 $— $583,099 $— $583,099 
Interest income from investment securities51,618 1,659 — 71,748 — 125,025 (92,070)32,955 
Servicing fees333 — — 44,268 — 44,601 (14,862)29,739 
Rental income4,116 — 197,187 29,666 — 230,969 — 230,969 
Other revenues223 228 138 3,032 — 3,621 — 3,621 
Total revenues572,066 63,432 197,325 154,492 — 987,315 (106,932)880,383 
Costs and expenses:
Management fees901 — — (793)91,584 91,692 21 91,713 
Interest expense144,717 27,916 49,697 16,890 89,970 329,190 (632)328,558 
General and administrative30,922 10,281 2,964 65,182 13,172 122,521 244 122,765 
Acquisition and investment pursuit costs522 249 — 35 — 806 — 806 
Costs of rental operations1,348 — 76,516 13,128 — 90,992 — 90,992 
Depreciation and amortization930 301 53,883 11,878 — 66,992 — 66,992 
Credit loss (reversal) provision, net(12,957)594 — — — (12,363)— (12,363)
Other expense31 — 583 94 — 708 — 708 
Total costs and expenses166,414 39,341 183,643 106,414 194,726 690,538 (367)690,171 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 80,303 80,303 
Change in fair value of servicing rights— — — 795 — 795 1,945 2,740 
Change in fair value of investment securities, net(20,134)— — (2,545)— (22,679)23,582 903 
Change in fair value of mortgage loans, net24,079 — — 44,037 — 68,116 — 68,116 
Earnings from unconsolidated entities5,415 75 — 235 — 5,725 277 6,002 
Gain on sale of investments and other assets, net16,627 27 — 9,723 — 26,377 — 26,377 
Gain (loss) on derivative financial instruments, net59,212 883 4,034 7,544 (5,881)65,792 — 65,792 
Foreign currency loss, net(35,699)(279)(16)(63)— (36,057)— (36,057)
Loss on extinguishment of debt(289)(1,264)(141)(22)(481)(2,197)— (2,197)
Other (loss) income, net(6,468)23 — 29 — (6,416)— (6,416)
Total other income (loss)42,743 (535)3,877 59,733 (6,362)99,456 106,107 205,563 
Income (loss) before income taxes448,395 23,556 17,559 107,811 (201,088)396,233 (458)395,775 
Income tax benefit (provision) 886 338 — (7,602)— (6,378)— (6,378)
Net income (loss)449,281 23,894 17,559 100,209 (201,088)389,855 (458)389,397 
Net (income) loss attributable to non-controlling interests(10)— (14,682)(18,873)— (33,565)458 (33,107)
Net income (loss) attributable to Starwood Property Trust, Inc.
$449,271 $23,894 $2,877 $81,336 $(201,088)$356,290 $— $356,290 
63

The table below presents our consolidated balance sheet as of September 30, 2022 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Assets:
Cash and cash equivalents$76,654 $59,925 $32,464 $43,172 $124,945 $337,160 $2,550 $339,710 
Restricted cash6,230 33,410 978 3,789 77,163 121,570 — 121,570 
Loans held-for-investment, net15,719,718 2,374,444 — 9,660 — 18,103,822 — 18,103,822 
Loans held-for-sale2,125,827 — — 79,857 — 2,205,684 — 2,205,684 
Investment securities1,318,372 66,728 — 1,183,831 — 2,568,931 (1,678,803)890,128 
Properties, net214,896 — 868,454 134,076 — 1,217,426 — 1,217,426 
Investments of consolidated affordable housing fund— — 1,669,265 — — 1,669,265 — 1,669,265 
Investments in unconsolidated entities34,319 29,347 — 35,494 — 99,160 (15,996)83,164 
Goodwill— 119,409 — 140,437 — 259,846 — 259,846 
Intangible assets14,302 — 30,829 69,532 — 114,663 (41,567)73,096 
Derivative assets249,120 242 321 1,488 — 251,171 — 251,171 
Accrued interest receivable143,352 9,177 412 1,412 — 154,353 (205)154,148 
Other assets254,353 4,332 77,207 27,033 55,907 418,832 (374)418,458 
VIE assets, at fair value— — — — — — 54,215,370 54,215,370 
Total Assets$20,157,143 $2,697,014 $2,679,930 $1,729,781 $258,015 $27,521,883 $52,480,975 $80,002,858 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$404,982 $41,457 $12,105 $43,658 $60,171 $562,373 $88 $562,461 
Related-party payable— — — — 26,146 26,146 — 26,146 
Dividends payable— — — — 150,196 150,196 — 150,196 
Derivative liabilities8,943 223 — — 73,600 82,766 — 82,766 
Secured financing agreements, net10,250,349 1,095,459 789,138 612,409 769,814 13,517,169 (21,267)13,495,902 
Collateralized loan obligations and single asset securitization, net2,877,567 813,429 — — — 3,690,996 — 3,690,996 
Unsecured senior notes, net— — — — 2,326,988 2,326,988 — 2,326,988 
VIE liabilities, at fair value— — — — — — 52,501,845 52,501,845 
Total Liabilities13,541,841 1,950,568 801,243 656,067 3,406,915 20,356,634 52,480,666 72,837,300 
Temporary Equity: Redeemable non-controlling interests
— — 344,373 — — 344,373 — 344,373 
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock— — — — 3,170 3,170 — 3,170 
Additional paid-in capital1,624,104 665,104 (381,226)(575,971)4,447,676 5,779,687 — 5,779,687 
Treasury stock— — — — (138,022)(138,022)— (138,022)
Retained earnings (accumulated deficit)4,968,304 81,342 1,706,906 1,484,360 (7,461,724)779,188 — 779,188 
Accumulated other comprehensive income22,776 — — — — 22,776 — 22,776 
Total Starwood Property Trust, Inc. Stockholders’ Equity6,615,184 746,446 1,325,680 908,389 (3,148,900)6,446,799 — 6,446,799 
Non-controlling interests in consolidated subsidiaries118 — 208,634 165,325 — 374,077 309 374,386 
Total Permanent Equity6,615,302 746,446 1,534,314 1,073,714 (3,148,900)6,820,876 309 6,821,185 
Total Liabilities and Equity$20,157,143 $2,697,014 $2,679,930 $1,729,781 $258,015 $27,521,883 $52,480,975 $80,002,858 
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The table below presents our consolidated balance sheet as of December 31, 2021 by business segment (amounts in thousands):
Commercial and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateSubtotalSecuritization
VIEs		Total
Assets:
Cash and cash equivalents$65,064 $17,011 $14,136 $26,700 $93,861 $216,772 $590 $217,362 
Restricted cash39,853 43,408 954 20,337 — 104,552 — 104,552 
Loans held-for-investment, net13,499,520 2,027,426 — 9,903 — 15,536,849 — 15,536,849 
Loans held-for-sale2,590,005 — — 286,795 — 2,876,800 — 2,876,800 
Investment securities1,155,452 31,923 — 1,165,395 — 2,352,770 (1,491,786)860,984 
Properties, net124,503 — 887,553 154,331 — 1,166,387 — 1,166,387 
Investments of consolidated affordable housing fund— — 1,040,309 — — 1,040,309 — 1,040,309 
Investments in unconsolidated entities44,938 26,255 — 34,160 — 105,353 (15,256)90,097 
Goodwill— 119,409 — 140,437 — 259,846 — 259,846 
Intangible assets— — 34,619 71,064 — 105,683 (42,119)63,564 
Derivative assets34,265 128 8 391 13,424 48,216 — 48,216 
Accrued interest receivable106,251 3,207 — 947 5,988 116,393 (131)116,262 
Other assets68,908 14,265 43,420 40,395 21,800 188,788 (162)188,626 
VIE assets, at fair value— — — — — — 61,280,543 61,280,543 
Total Assets$17,728,759 $2,283,032 $2,020,999 $1,950,855 $135,073 $24,118,718 $59,731,679 $83,850,397 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$57,267 $8,917 $14,757 $58,920 $49,779 $189,640 $56 $189,696 
Related-party payable— — — — 76,371 76,371 — 76,371 
Dividends payable— — — — 147,624 147,624 — 147,624 
Derivative liabilities12,870 260 — 291 — 13,421 — 13,421 
Secured financing agreements, net9,097,985 1,225,548 787,396 714,237 773,244 12,598,410 (21,560)12,576,850 
Collateralized loan obligations and single asset securitization, net2,210,798 405,318 — — — 2,616,116 — 2,616,116 
Unsecured senior notes, net— — — — 1,828,590 1,828,590 — 1,828,590 
VIE liabilities, at fair value— — — — — — 59,752,922 59,752,922 
Total Liabilities11,378,920 1,640,043 802,153 773,448 2,875,608 17,470,172 59,731,418 77,201,590 
Temporary Equity: Redeemable non-controlling interests
— — 214,915 — — 214,915 — 214,915 
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock— — — — 3,123 3,123 — 3,123 
Additional paid-in capital1,735,397 600,412 (365,922)(388,196)4,091,685 5,673,376 — 5,673,376 
Treasury stock— — — — (138,022)(138,022)— (138,022)
Retained earnings (accumulated deficit)4,573,374 42,577 1,161,334 1,413,142 (6,697,321)493,106 — 493,106 
Accumulated other comprehensive income40,953 — — — — 40,953 — 40,953 
Total Starwood Property Trust, Inc. Stockholders’ Equity6,349,724 642,989 795,412 1,024,946 (2,740,535)6,072,536 — 6,072,536 
Non-controlling interests in consolidated subsidiaries115 — 208,519 152,461 — 361,095 261 361,356 
Total Permanent Equity6,349,839 642,989 1,003,931 1,177,407 (2,740,535)6,433,631 261 6,433,892 
Total Liabilities and Equity$17,728,759 $2,283,032 $2,020,999 $1,950,855 $135,073 $24,118,718 $59,731,679 $83,850,397 


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24. Subsequent Events
On November 3, 2022, we priced a term loan facility totaling $600.0 million that carries a five-year term and an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor, and an issue discount of 3.0%. The transaction is expected to close on November 18, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the information included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (our “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements. See “Special Note Regarding Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.
Overview
Starwood Property Trust, Inc. (“STWD” and, together with its subsidiaries, “we” or the “Company”) is a Maryland corporation that commenced operations in August 2009, upon the completion of our initial public offering. We are focused primarily on originating, acquiring, financing and managing mortgage loans and other real estate investments in the United States (“U.S.”), Europe and Australia. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.

We have four reportable business segments as of September 30, 2022 and we refer to the investments within these segments as our target assets:
•Real estate commercial and residential lending (the “Commercial and Residential Lending Segment”)—engages primarily in originating, acquiring, financing and managing commercial first mortgages, non-agency residential mortgages (“residential loans”), subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”) and other real estate and real estate-related debt investments in the U.S., Europe and Australia (including distressed or non-performing loans). Our residential loans are secured by a first mortgage lien on residential property and primarily consist of non-agency residential loans that are not guaranteed by any U.S. Government agency or federally chartered corporation.

•Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments.

•Real estate property (the “Property Segment”)—engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, that are held for investment.

•Real estate investing and servicing (the “Investing and Servicing Segment”)—includes (i) a servicing business in the U.S. that manages and works out problem assets, (ii) an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions, (iii) a mortgage loan business which originates conduit loans for the primary purpose of selling these loans into securitization transactions and (iv) an investment business that selectively acquires commercial real estate assets, including properties acquired from CMBS trusts.

Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).
Refer to Note 1 of our condensed consolidated financial statements included herein (the “Condensed Consolidated Financial Statements”) for further discussion of our business and organization.
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Developments During the Third Quarter of 2022
Commercial and Residential Lending Segment
•Originated $935.5 million of commercial investments during the quarter, including the following:
◦$324.2 million of first mortgage and mezzanine loans for the acquisition of a 1,684 unit portfolio of six multifamily properties located in Florida, Texas, Tennessee, South Carolina and Georgia, of which the Company funded $305.3 million.
◦$282.9 million first mortgage and mezzanine loan to refinance the existing debt and fund construction of a multi-story industrial facility located in New York, of which the Company funded $122.7 million.
◦$226.0 million first mortgage and mezzanine loan for the acquisition and refinancing of a 41-property, 4,967-key hotel portfolio located in Florida, Georgia, Massachusetts, North Carolina, South Carolina and Virginia, of which the Company funded $195.0 million.
◦A$122.0 million ($84.8 million) first mortgage loan for the development and construction of a 17-story student housing tower located in Australia, of which the Company funded $16.7 million.
•Funded $210.6 million of previously originated commercial loan commitments.
•Received gross proceeds of $524.4 million ($385.6 million, net of debt repayments) from maturities and principal repayments on our commercial loans.
•Sold a $63.7 million loan on a hotel in San Francisco.
Infrastructure Lending Segment
•Acquired $222.9 million of infrastructure loans and funded $1.7 million of pre-existing infrastructure loan commitments.
•Received proceeds of $98.5 million from principal repayments on our infrastructure loans and bonds.
Investing and Servicing Segment
•Originated commercial conduit loans of $70.6 million.
•Received proceeds of $31.0 million from sales of previously originated commercial conduit loans and priced $70.5 million of previously originated commercial conduit loans in a securitization that settled subsequent to September 30, 2022.
•Obtained eight new special servicing assignments for CMBS trusts with a total unpaid principal balance of $5.7 billion, bringing our total named special servicing portfolio to $107.4 billion.
•Sold commercial real estate for gross proceeds of $19.5 million and recognized a gain of $13.7 million.
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Developments During the Nine Months Ended September 30, 2022
Commercial and Residential Lending Segment
•In February 2022, we refinanced a pool of our commercial loans held-for-investment through a collateralized loan obligation ("CLO"), STWD 2022-FL3. The CLO has a contractual maturity of November 2038 and a weighted average cost of financing of SOFR + 1.91%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $1.0 billion of notes and preferred shares, of which $842.5 million of notes were purchased by third party investors. We retained $82.5 million of notes, along with preferred shares with a liquidation preference of $75.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash for a period of two years.
•Originated or acquired $5.0 billion of commercial loans during the period, including the following:
◦A$1.3 billion ($960.5 million) first mortgage loan for the acquisition of three of the largest hotel and gaming resorts located across Australia, which the Company fully funded.
◦$324.2 million of first mortgage and mezzanine loans for the acquisition of a 1,684 unit portfolio of six multifamily properties located in Florida, Texas, Tennessee, South Carolina and Georgia, of which the Company funded $305.3 million.
◦$282.9 million first mortgage and mezzanine loan to refinance the existing debt and fund construction of a multi-story industrial facility located in New York, of which the Company funded $122.7 million.
◦$263.6 million of first mortgage loans for the acquisition of a 1,828 unit portfolio of eight multifamily properties located in Texas, of which the Company funded $241.5 million.
◦$250.0 million participation in a first mortgage loan for the construction of 235 luxury residences, a 136-key hotel and 78,000 square feet of commercial space located in New York, of which the Company funded $157.6 million.
◦$226.0 million first mortgage and mezzanine loan for the acquisition and refinancing of a 41-property, 4,967-key hotel portfolio located in Florida, Georgia, Massachusetts, North Carolina, South Carolina and Virginia, of which the Company funded $195.0 million.
◦$200.0 million first mortgage loan to refinance existing debt on a 22 property luxury cabin portfolio and finance the acquisition of 18 future properties located across the U.S., of which the Company funded $120.4 million.
◦€162.7 million ($186.2 million) first mortgage loan for the acquisition of a 382,000 square foot office and retail property located in Germany, which the Company has not yet funded.
◦$174.1 million first mortgage loan for the acquisition and renovation of two garden-style multifamily properties located in Florida, of which the Company funded $166.1 million.
◦$165.0 million first mortgage and mezzanine loan for the construction of a 65-story, 100% pre-sold residential project located in South Florida, of which the Company funded $17.8 million.
•Funded $598.9 million of previously originated commercial loan commitments.
•Received gross proceeds of $1.6 billion ($0.9 billion, net of debt repayments) from maturities and principal repayments on our commercial loans.
•Sold a $63.7 million loan on a hotel in San Francisco and also received gross proceeds of $6.5 million from sales of senior interests in first mortgage loans.
•Sold commercial real estate in Florida that was previously acquired through foreclosure in April 2019 for gross proceeds of $114.8 million and recognized a gain of $86.6 million.
•Entered into commercial credit facilities of $1.4 billion. Amended several commercial credit facilities resulting in an aggregate net upsize of $974.7 million.
•Acquired $3.0 billion of residential loans.
69

•Received proceeds of $3.0 billion, including retained RMBS of $226.2 million, from the securitization and sales of $3.0 billion of residential loans.
•Amended certain of our residential loan repurchase facilities to increase available non-mark-to-market capacity by $250.0 million to $800.0 million. The margin call provisions under these facilities do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.
Infrastructure Lending Segment
•In January 2022, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF2. The CLO has a contractual maturity of January 2033 and a weighted average cost of financing of SOFR + 2.11%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $500.0 million of notes and preferred shares, of which $410.0 million of notes was purchased by third party investors. We retained preferred shares with a liquidation preference of $90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash for a period of three years.
•Acquired $650.1 million of infrastructure loans and bonds and funded $24.7 million of pre-existing infrastructure loan commitments.
•Received proceeds of $248.7 million from principal repayments on our infrastructure loans and bonds.
•Entered into a credit facility with a maximum facility size of $500.0 million and a three-year revolving period with two one-year extension options. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.
Investing and Servicing Segment
•Originated commercial conduit loans of $831.9 million.
•Received proceeds of $1.0 billion from sales of previously originated commercial conduit loans and priced $70.5 million of previously originated commercial conduit loans in a securitization that settled subsequent to September 30, 2022.
•Acquired CMBS for a purchase price of $63.7 million, of which $17.1 million related to non-controlling interests.
•Obtained 23 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $20.5 billion, bringing our total named special servicing portfolio to $107.4 billion.
•Sold two operating properties for gross proceeds of $54.0 million and recognized a total gain of $25.4 million.
Corporate
•Issued $500.0 million of 4.375% Senior Notes due 2027 (the “2027 Senior Notes”) and swapped the notes to a floating rate of SOFR + 2.95%.
•Entered into a Starwood Property Trust, Inc. Common Stock Sales Agreement (the “ATM Agreement”) with a syndicate of financial institutions to sell shares of the Company’s common stock of up to $500.0 million from time to time, through an “at the market” equity offering program. During the nine months ended September 30, 2022, we issued 1.4 million shares under the ATM Agreement for gross proceeds of $33.3 million at an average share price of $23.54.
Subsequent Events
Refer to Note 24 to the Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2022.
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Results of Operations
The discussion below is based on accounting principles generally accepted in the United States of America (“GAAP”) and therefore reflects the elimination of certain key financial statement line items related to the consolidation of securitization variable interest entities (“VIEs”), particularly within revenues and other income, as discussed in Note 2 to the Condensed Consolidated Financial Statements. For a discussion of our results of operations excluding the impact of Accounting Standards Codification (“ASC”) Topic 810 as it relates to the consolidation of securitization VIEs, refer to the section captioned “Non-GAAP Financial Measures.”
The following table compares our summarized results of operations for the three months ended September 30, 2022 and June 30, 2022 and for the nine months ended September 30, 2022 and 2021 by business segment (amounts in thousands):
For the Three Months Ended
For the Nine Months Ended
$ Change
Revenues:September 30, 2022June 30, 2022$ ChangeSeptember 30, 2022September 30, 2021
Commercial and Residential Lending Segment$314,981 $251,393 $63,588 $791,554 $572,066 $219,488 
Infrastructure Lending Segment44,351 31,359 12,992 103,508 63,432 40,076 
Property Segment22,940 22,676 264 68,031 197,325 (129,294)
Investing and Servicing Segment50,147 52,811 (2,664)160,767 154,492 6,275 
Corporate— 3 (3)3 — 3 
Securitization VIE eliminations(41,878)(32,656)(9,222)(113,744)(106,932)(6,812)
390,541 325,586 64,955 1,010,119 880,383 129,736 
Costs and expenses:
Commercial and Residential Lending Segment175,619 113,248 62,371 367,361 166,414 200,947 
Infrastructure Lending Segment33,133 19,249 13,884 67,570 39,341 28,229 
Property Segment24,153 21,446 2,707 66,016 183,643 (117,627)
Investing and Servicing Segment33,194 35,619 (2,425)105,182 106,414 (1,232)
Corporate70,679 72,854 (2,175)237,021 194,726 42,295 
Securitization VIE eliminations(131)(118)(13)(382)(367)(15)
336,647 262,298 74,349 842,768 690,171 152,597 
Other income (loss):
Commercial and Residential Lending Segment(21,275)(122,744)101,469 (86,935)42,743 (129,678)
Infrastructure Lending Segment1,970 370 1,600 2,820 (535)3,355 
Property Segment127,811 312,537 (184,726)691,936 3,877 688,059 
Investing and Servicing Segment2,610 11,024 (8,414)34,295 59,733 (25,438)
Corporate(31,668)(13,183)(18,485)(82,019)(6,362)(75,657)
Securitization VIE eliminations41,741 32,619 9,122 113,410 106,107 7,303 
121,189 220,623 (99,434)673,507 205,563 467,944 
Income (loss) before income taxes:
Commercial and Residential Lending Segment118,087 15,401 102,686 337,258 448,395 (111,137)
Infrastructure Lending Segment13,188 12,480 708 38,758 23,556 15,202 
Property Segment126,598 313,767 (187,169)693,951 17,559 676,392 
Investing and Servicing Segment19,563 28,216 (8,653)89,880 107,811 (17,931)
Corporate(102,347)(86,034)(16,313)(319,037)(201,088)(117,949)
Securitization VIE eliminations(6)81 (87)48 (458)506 
175,083 283,911 (108,828)840,858 395,775 445,083 
Income tax benefit (provision)48,755 (2,206)50,961 48,999 (6,378)55,377 
Net income attributable to non-controlling interests(29,276)(69,418)40,142 (158,409)(33,107)(125,302)
Net income attributable to Starwood Property Trust, Inc.$194,562 $212,287 $(17,725)$731,448 $356,290 $375,158 
71

Three Months Ended September 30, 2022 Compared to the Three Months Ended June 30, 2022
Commercial and Residential Lending Segment

Revenues

For the three months September 30, 2022, revenues of our Commercial and Residential Lending Segment increased $63.6 million to $315.0 million, compared to $251.4 million for the three months ended June 30, 2022. This increase was primarily due to an increase in interest income from loans of $56.6 million and investment securities of $6.0 million. The increase in interest income from loans reflects (i) a $58.3 million increase from commercial loans reflecting higher average index rates and loan balances partially offset by lower prepayment related income and (ii) a $1.7 million decrease from residential loans principally due to lower average loan balances partially offset by higher average coupon rates. The increase in interest income from investment securities was primarily due to higher average index rates on commercial investments and higher RMBS investment balances and yields.

Costs and Expenses

For the three months ended September 30, 2022, costs and expenses of our Commercial and Residential Lending Segment increased $62.4 million to $175.6 million, compared to $113.2 million for the three months ended June 30, 2022. This increase was primarily due to a $56.9 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The increase in interest expense was primarily due to higher average index rates and borrowings outstanding.

Net Interest Income (amounts in thousands)
For the Three Months Ended
September 30, 2022June 30, 2022Change
Interest income from loans$284,197 $227,555 $56,642 
Interest income from investment securities28,560 22,591 5,969 
Interest expense(145,107)(88,226)(56,881)
Net interest income$167,650 $161,920 $5,730 

For the three months ended September 30, 2022, net interest income of our Commercial and Residential Lending Segment increased $5.7 million to $167.6 million, compared to $161.9 million for the three months ended June 30, 2022. This increase reflects the increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

During the three months ended September 30, 2022 and June 30, 2022, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:
For the Three Months Ended
September 30, 2022June 30, 2022
Commercial6.7 %5.4 %
Residential4.9 %4.8 %
Overall6.5 %5.4 %

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates partially offset by lower prepayment related income. The weighted average unlevered yield on our residential loans increased slightly primarily due to higher average coupon rates.

During the three months ended September 30, 2022 and June 30, 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 4.3% and 2.9%, respectively. The increase in borrowing rates primarily reflects higher index rates.

Other Loss

For the three months ended September 30, 2022, other loss of our Commercial and Residential Lending Segment decreased $101.4 million to $21.3 million compared to $122.7 million for the three months ended June 30, 2022. This decrease was primarily due to (i) a $93.1 million increase in net gains on derivatives, (ii) a $35.7 million favorable change in fair value of investment securities, principally related to RMBS, and (iii) a $31.2 million lesser decrease in fair value of residential loans,
72

partially offset by (iv) a $28.8 million increase in foreign currency loss and (v) a $23.0 million higher loss contingency provision related to residential loans sold in February 2022 (refer to Note 22 to the Condensed Consolidated Financial Statements). The increase in net gains on derivatives in the third quarter of 2022 reflects a $56.3 million increased gain on interest rate swaps principally related to residential loans and a $36.8 million increased gain on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increased gain on foreign currency hedges and the increase in foreign currency loss reflect the strengthening of the U.S. dollar against the pound sterling (“GBP”), Euro (“EUR”) and Australian dollar (“AUD”) in the third quarter of 2022 compared to a lesser strengthening of the U.S. dollar against those currencies in the second quarter of 2022.

Infrastructure Lending Segment

Revenues

For the three months ended September 30, 2022, revenues of our Infrastructure Lending Segment increased $13.0 million to $44.4 million, compared to $31.4 million for the three months ended June 30, 2022. This was primarily due to an increase in interest income from loans of $12.9 million reflecting higher average index rates and loan balances.

Costs and Expenses

For the three months ended September 30, 2022, costs and expenses of our Infrastructure Lending Segment increased $13.9 million to $33.1 million, compared to $19.2 million for the three months ended June 30, 2022. The increase was primarily due to a $7.5 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and a $6.4 million increase in credit loss provision. The increase in interest expense was primarily due to higher average index rates and borrowings outstanding. The increase in the credit loss provision was primarily due to an increase in the specific reserve for a credit-deteriorated loan.

Net Interest Income (amounts in thousands)
For the Three Months Ended
September 30, 2022June 30, 2022Change
Interest income from loans$43,018 $30,096 $12,922 
Interest income from investment securities1,204 1,173 31 
Interest expense(22,500)(15,001)(7,499)
Net interest income$21,722 $16,268 $5,454 

For the three months ended September 30, 2022, net interest income of our Infrastructure Lending Segment increased $5.4 million to $21.7 million, compared to $16.3 million for the three months ended June 30, 2022. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

During the three months ended September 30, 2022 and June 30, 2022, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities held-for-investment were 7.0% and 5.5%, respectively.

During the three months ended September 30, 2022 and June 30, 2022, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 4.6% and 3.4%, respectively.

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Other Income

For the three months ended September 30, 2022, other income of our Infrastructure Lending Segment increased $1.6 million to $2.0 million, compared to $0.4 million for the three months ended June 30, 2022. This increase was primarily due to a $1.5 million increase in earnings from an unconsolidated entity.

Property Segment

Change in Results by Portfolio (amounts in thousands)
$ Change from prior period
RevenuesCosts and
 expenses		Gain (loss) on derivative
financial instruments		Other income (loss)Income (loss) before
 income taxes
Master Lease Portfolio$— $17 $— $— $(17)
Medical Office Portfolio264 2,763 4,907 — 2,408 
Woodstar Fund— (11)— (189,636)(189,625)
Other/Corporate— (62)— 3 65 
Total$264 $2,707 $4,907 $(189,633)$(187,169)
See Notes 6 and 7 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios and fund.

Revenues

For the three months ended September 30, 2022, revenues of our Property Segment increased $0.2 million to $22.9 million, compared to $22.7 million for the three months ended June 30, 2022.

Costs and Expenses

For the three months ended September 30, 2022, costs and expenses of our Property Segment increased $2.7 million to $24.1 million, compared to $21.4 million for the three months ended June 30, 2022. The increase is primarily due to an increase of $2.2 million in interest expense reflecting higher index rates on variable rate borrowings.

Other Income

For the three months ended September 30, 2022, other income of our Property Segment decreased $184.7 million to $127.8 million compared to $312.5 million for the three months ended June 30, 2022. The decrease is primarily due to (i) a $189.6 million decrease in income attributable to investments of the Woodstar Fund, reflecting lower unrealized increases in fair value during the third quarter of 2022, partially offset by (ii) a $4.9 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Investing and Servicing Segment

Revenues

For the three months ended September 30, 2022, revenues of our Investing and Servicing Segment decreased $2.7 million to $50.1 million, compared to $52.8 million for the three months ended June 30, 2022. The decrease primarily reflects a $7.2 million decrease in servicing and other fees, partially offset by a $4.2 million net increase in interest income reflecting higher recoveries on CMBS investments but reduced interest on lower average balances of conduit loans.

Costs and Expenses

For the three months ended September 30, 2022, costs and expenses of our Investing and Servicing Segment decreased $2.4 million to $33.2 million, compared to $35.6 million for the three months ended June 30, 2022. The decrease primarily reflects lower incentive compensation due to lower securitization volume in the third quarter of 2022.

Other Income

For the three months ended September 30, 2022, other income of our Investing and Servicing Segment decreased $8.4 million to $2.6 million, compared to $11.0 million for the three months ended June 30, 2022. The decrease in other income was primarily due to (i) a $13.3 million greater decrease in fair value of CMBS investments, (ii) a $5.2 million lesser increase in fair
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value of conduit loans and (iii) a $2.2 million decrease in net gains on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments, all partially offset by (iv) a $13.7 million gain on sale of an operating property in the third quarter of 2022.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended September 30, 2022, corporate expenses decreased $2.2 million to $70.7 million, compared to $72.9 million for the three months ended June 30, 2022. This decrease was primarily due to (i) a decrease of $4.2 million in management fees principally due to lower incentive fees and (ii) a $1.0 million decrease in general and administrative expenses reflecting lower project related professional fees, partially offset by (iii) a $3.0 million increase in interest expense attributable to higher index rates on our term loan.

Corporate Other Loss

For the three months ended September 30, 2022, corporate other loss increased $18.5 million to $31.7 million, compared to $13.2 million for the three months ended June 30, 2022. This increase was due to a greater loss on our fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Securitization VIE Eliminations

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

Income Tax Benefit (Provision)

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended September 30, 2022, our income tax provision decreased $51.0 million to a benefit of $48.8 million compared to a provision of $2.2 million for the three months ended June 30, 2022 due to tax losses of our TRSs in the third quarter of 2022 and use of the discrete method compared to taxable income of our TRSs in the second quarter of 2022 and use of the annual effective tax rate method. The tax losses in the third quarter of 2022 were primarily attributable to net unrealized losses on our residential loans.

Net Income Attributable to Non-controlling Interests

During the three months ended September 30, 2022, net income attributable to non-controlling interests decreased $40.1 million to $29.3 million, compared to $69.4 million during the three months ended June 30, 2022. The decrease was primarily due to non-controlling interests in lower income of the Woodstar Fund in the third quarter of 2022.

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Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Commercial and Residential Lending Segment
Revenues
For the nine months ended September 30, 2022, revenues of our Commercial and Residential Lending Segment increased $219.5 million to $791.6 million, compared to $572.1 million for the nine months ended September 30, 2021. This increase was primarily due to increases in interest income from loans of $198.4 million and investment securities of $20.4 million. The increase in interest income from loans reflects (i) a $155.8 million increase from commercial loans, reflecting higher average balances and index rates, partially offset by the timing effect of certain loans being placed on nonaccrual, and (ii) a $42.6 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations, partially offset by lower average coupon rates. The increase in interest income from investment securities was primarily due to higher commercial and RMBS average investment balances and the effect of higher index rates on certain commercial investments.
Costs and Expenses
For the nine months ended September 30, 2022, costs and expenses of our Commercial and Residential Lending Segment increased $201.0 million to $367.4 million, compared to $166.4 million for the nine months ended September 30, 2021. This increase was primarily due to (i) a $157.2 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, (ii) a $26.0 million increase in credit loss provision from a reversal of $13.0 million in the nine months of 2021 to a provision of $13.0 million in nine months of 2022 and (iii) a $9.0 million increase in primarily legal related general and administrative expenses. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates. The credit loss provision in the nine months of 2022 was primarily due to rising index rates and its potential effect on borrower cash flows in our estimate of current expected credit losses (“CECL”).

Net Interest Income (amounts in thousands)
For the Nine Months Ended September 30,
20222021Change
Interest income from loans$714,222 $515,776 $198,446 
Interest income from investment securities71,987 51,618 20,369 
Interest expense(301,935)(144,717)(157,218)
Net interest income$484,274 $422,677 $61,597 
For the nine months ended September 30, 2022, net interest income of our Commercial and Residential Lending Segment increased $61.6 million to $484.3 million, compared to $422.7 million for the nine months ended September 30, 2021. This increase reflects the increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.
During the nine months ended September 30, 2022 and 2021, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:
For the Nine Months Ended September 30,
20222021
Commercial5.9 %5.9 %
Residential4.6 %5.2 %
Overall5.7 %5.9 %
The weighted average unlevered yield on our commercial loans remained unchanged despite higher index rates primarily due to repayment of loans with higher LIBOR floors being replaced by newer loans with lower floating rate floors. The unlevered yield on our residential loans decreased due to lower weighted average coupons which resulted from market spread tightening as well as a change in the composition of our residential loan portfolio to include agency loans which generally carry a lower coupon than non-agency loans.
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During the nine months ended September 30, 2022 and 2021, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 3.3% and 2.5%, respectively. The increase in borrowing rates primarily reflects higher index rates, partially offset by decreases in weighted average spreads particularly due to increased use of lower cost CLO financing.
Other Income (Loss)
For the nine months ended September 30, 2022, other income of our Commercial and Residential Lending Segment decreased $129.6 million to a loss of $86.9 million, compared to income of $42.7 million for the nine months ended September 30, 2021. This decrease primarily reflects (i) a $351.8 million unfavorable change in fair value of residential loans, (ii) a $177.0 million increase in foreign currency loss and (iii) an $88.4 million estimated loss contingency related to residential loans sold in February 2022 (refer to Note 22 to the Condensed Consolidated Financial Statements), all partially offset by (iv) a $406.6 million increase in net gains on derivatives and (v) a $69.8 million increased gain on sale of foreclosed properties. The unfavorable change in fair value of residential loans was principally related to a rapid rise in interest rates and widening of credit spreads in the nine months of 2022, which resulted in mark-to-market losses on our fixed coupon residential loans. The increased gains on derivatives during the nine months ended September 30, 2022 reflect a $209.2 million increased gain on interest rate swaps principally related to residential loans, which partially offsets the unfavorable change in fair value of those loans, and a $197.4 million increased gain on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increased gain on foreign currency hedges and the increase in foreign currency loss reflect the strengthening of the U.S. dollar against the GBP, EUR and AUD during the nine months of 2022 compared to a lesser overall strengthening of the U.S. dollar against those currencies during the nine months of 2021.
Infrastructure Lending Segment
Revenues
For the nine months ended September 30, 2022, revenues of our Infrastructure Lending Segment increased $40.1 million to $103.5 million, compared to $63.4 million for the nine months ended September 30, 2021. This increase was primarily due to an increase in interest income from loans of $38.6 million, principally due to higher average loan balances and index rates.
Costs and Expenses
For the nine months ended September 30, 2022, costs and expenses of our Infrastructure Lending Segment increased $28.3 million to $67.6 million, compared to $39.3 million for the nine months ended September 30, 2021. The increase was primarily due to (i) a $21.5 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and (ii) a $6.5 million increase in credit loss provision. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates. The increase in the credit loss provision was primarily due to an increase in the specific reserve for a credit-deteriorated loan.
Net Interest Income (amounts in thousands)
For the Nine Months Ended September 30,
20222021Change
Interest income from loans$100,097 $61,545 $38,552 
Interest income from investment securities3,124 1,659 1,465 
Interest expense(49,431)(27,916)(21,515)
Net interest income$53,790 $35,288 $18,502 
For the nine months ended September 30, 2022, net interest income of our Infrastructure Lending Segment increased $18.5 million to $53.8 million, compared to $35.3 million for the nine months ended September 30, 2021. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.
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During the nine months ended September 30, 2022 and 2021, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities held-for-investment were 5.9% and 4.9%, respectively. During the nine months ended September 30, 2021, the weighted average unlevered yield on the Infrastructure Lending Segment’s loans held-for-sale was 2.8%. There were no loans held-for-sale during the nine months ended September 30, 2022.
During the nine months ended September 30, 2022 and 2021, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 3.6% and 2.8%, respectively.
Other Income (Loss)
For the nine months ended September 30, 2022 and 2021, other income of our Infrastructure Lending Segment increased $3.3 million to income of $2.8 million, compared to a loss of $0.5 million for the nine months ended September 30, 2021. The increase primarily reflects a $2.6 million increase in earnings from an unconsolidated entity and a $0.8 million lower loss on extinguishment of debt.
Property Segment
Change in Results by Portfolio (amounts in thousands)
$ Change from prior period
RevenuesCosts and
 expenses		Gain (loss) on derivative
 financial instruments		Other income (loss)Income (loss) before
 income taxes
Master Lease Portfolio$— $(34)$— $— $34 
Medical Office Portfolio87 2,849 29,184 — 26,422 
Woodstar I Portfolio(74,557)(67,750)(55)— (6,862)
Woodstar II Portfolio(54,824)(52,943)— 141 (1,740)
Woodstar Fund— 1,507 — 658,733 657,226 
Other/Corporate— (1,256)— 56 1,312 
Total$(129,294)$(117,627)$29,129 $658,930 $676,392 
Revenues
For the nine months ended September 30, 2022, revenues of our Property Segment decreased $129.3 million to $68.0 million, compared to $197.3 million for the nine months ended September 30, 2021. The decrease is primarily due to the conversion of the Woodstar Portfolios to the Woodstar Fund on November 5, 2021.
Costs and Expenses
For the nine months ended September 30, 2022, costs and expenses of our Property Segment decreased $117.6 million to $66.0 million, compared to $183.6 million for the nine months ended September 30, 2021, primarily due to the Woodstar Fund conversion referred to above.
Other Income
For the nine months ended September 30, 2022, other income of our Property Segment increased $688.0 million to $691.9 million, compared to $3.9 million for the nine months ended September 30, 2021. The increase is primarily due to (i) $658.7 million of income attributable to investments of the Woodstar Fund, including $613.0 million of unrealized increases in fair value, during the nine months of 2022 and (ii) a $29.1 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio
Investing and Servicing Segment
Revenues
For the nine months ended September 30, 2022, revenues of our Investing and Servicing Segment increased $6.3 million to $160.8 million, compared to $154.5 million for the nine months ended September 30, 2021. The increase in revenues was primarily due to (i) a $7.2 million increase in interest income from CMBS investments and conduit loans and (ii) a $7.9 million increase in other fee income related to the origination of certain loans contributed into CMBS transactions, partially
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offset by (iii) a $6.2 million decrease in rental income principally reflecting fewer properties held and (iv) a $2.7 million decrease in servicing fees.
Costs and Expenses
For the nine months ended September 30, 2022, costs and expenses of our Investing and Servicing Segment decreased $1.2 million to $105.2 million, compared to $106.4 million for the nine months ended September 30, 2021.
Other Income
For the nine months ended September 30, 2022, other income of our Investing and Servicing Segment decreased $25.4 million to $34.3 million, compared to $59.7 million for the nine months ended September 30, 2021. The decrease in other income was primarily due to (i) a $43.0 million lesser increase in fair value of conduit loans and (ii) a $36.3 million greater decrease in fair value of CMBS investments, partially offset by (iii) a $36.2 million increased gain on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments and (iv) a $15.9 million increased gain on sales of operating properties.
Corporate and Other Items
Corporate Costs and Expenses
For the nine months ended September 30, 2022, corporate expenses increased $42.3 million to $237.0 million, compared to $194.7 million for the nine months ended September 30, 2021. This increase was primarily due to increases of (i) $21.9 million in management fees, primarily reflecting higher incentive fees principally related to operating property sales, and (ii) $19.2 million in interest expense on higher average outstanding term loan and unsecured senior note balances, as well as higher index rates on our term loan.
Corporate Other Loss
For the nine months ended September 30, 2022, corporate other loss increased $75.6 million to $82.0 million, compared to $6.4 million for the nine months ended September 30, 2021. This increase was primarily due to a greater loss on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.
Securitization VIE Eliminations

Refer to the preceding comparison of the three months ended September 30, 2022 to the three months ended June 30, 2022 for a discussion of the effect of securitization VIE eliminations.
Income Tax Benefit (Provision)
Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the nine months ended September 30, 2022, our income taxes decreased $55.4 million to a benefit of $49.0 million, compared to a provision of $6.4 million for the nine months ended September 30, 2021 due to tax losses of our TRSs in the nine months of 2022 compared to taxable income of our TRSs in the nine months of 2021. The tax losses in the nine months of 2022 were primarily attributable to net unrealized losses on our residential loans.
Net Income Attributable to Non-controlling Interests
For the nine months ended September 30, 2022, net income attributable to non-controlling interests increased $125.3 million to $158.4 million, compared to $33.1 million for the nine months ended September 30, 2021. The increase was primarily due to non-controlling interests in earnings of the Woodstar Fund during the nine months of 2022.
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Non-GAAP Financial Measures
Distributable Earnings is a non-GAAP financial measure. We calculate Distributable Earnings as GAAP net income (loss) excluding the following:
(i)non-cash equity compensation expense;
(ii)incentive fees due under our management agreement;
(iii)depreciation and amortization of real estate and associated intangibles;
(iv)acquisition costs associated with successful acquisitions;
(v)any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; and
(vi)any deductions for distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein.
The CECL reserve has been excluded from Distributable Earnings consistent with other unrealized gains (losses) pursuant to our existing policy for reporting Distributable Earnings. We expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the book value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan.
We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. 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. 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. Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations, and is a performance metric we consider when declaring our dividends. We also use Distributable Earnings (previously defined as “Core Earnings”) to compute the incentive fee due under our management agreement.
Distributable Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of our GAAP cash flows from operations, a measure of our liquidity, taxable income, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.
As discussed in Note 2 to the Consolidated Financial Statements, consolidation of securitization variable interest entities (“VIEs”) results in the elimination of certain key financial statement line items, particularly within revenues and other income, including unrealized changes in fair value of loans and investment securities. These line items are essential to understanding the true financial performance of our business segments and the Company as a whole. For this reason, as referenced in Note 2 to our Condensed Consolidated Financial Statements, we present business segment data in Note 23 without consolidation of these VIEs. This is how we manage our business and is the basis for all data reviewed with our board of directors, investors and analysts. This presentation also allows for a more transparent reconciliation of the unrealized gain (loss) adjustments below to the segment data presented in Note 23.
The weighted average diluted share count applied to Distributable Earnings for purposes of determining Distributable Earnings per share (“EPS”) is computed using the GAAP diluted share count, adjusted for the following:
(i)Unvested stock awards – Currently, unvested stock awards are excluded from the denominator of GAAP EPS. The related compensation expense is also excluded from Distributable Earnings. In order to effectuate dilution from these awards in the Distributable Earnings computation, we adjust the GAAP diluted share count to include these shares.
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(ii)Convertible Notes – Conversion of our Convertible Notes is an event that is contingent upon numerous factors, none of which are in our control, and is an event that may or may not occur. Consistent with the treatment of other unrealized adjustments to Distributable Earnings, we adjust the GAAP diluted share count to exclude the potential shares issuable upon conversion until a conversion occurs.
(iii)Subsidiary equity – The intent of a February 2018 amendment to our management agreement (the “Amendment”) is to treat subsidiary equity in the same manner as if parent equity had been issued. The Class A Units issued in connection with the acquisition of assets in our Woodstar II Portfolio are currently excluded from our GAAP diluted share count, with the subsidiary equity represented as non-controlling interests in consolidated subsidiaries on our GAAP balance sheet. Consistent with the Amendment, we adjust GAAP diluted share count to include these subsidiary units.    
The following table presents our diluted weighted average shares used in our GAAP EPS calculation reconciled to our diluted weighted average shares used in our Distributable EPS calculation (amounts in thousands):
For the Three Months Ended
For the Nine Months Ended
September 30, 2022June 30, 2022
September 30, 2022
September 30, 2021
Diluted weighted average shares - GAAP EPS316,575 314,962 314,741 294,393 
Add: Unvested stock awards3,210 3,486 3,464 4,274 
Add: Woodstar II Class A Units9,773 9,773 9,773 10,282 
Less: Convertible Notes dilution(9,649)(9,649)(9,649)(9,649)
Diluted weighted average shares - Distributable EPS319,909 318,572 318,329 299,300 
The definition of Distributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors, in situations where such adjustments are considered appropriate in order for Distributable Earnings to be calculated in a manner consistent with its definition and objective. No adjustments to the definition of Distributable Earnings became effective during the nine months ended September 30, 2022.
The following table summarizes our quarterly Distributable Earnings per weighted average diluted share for the nine months ended September 30, 2022 and 2021:
Distributable Earnings For the Three-Month Periods Ended
March 31,June 30,September 30,
2022
$0.76 $0.51 $0.51 
2021
0.50 0.51 0.52 



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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended September 30, 2022, by business segment (amounts in thousands, except per share data). Refer to the footnotes following the Distributable Earnings reconciliation table for the nine months ended September 30, 2021.
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$314,981 $44,351 $22,940 $50,147 $— $432,419 
Costs and expenses(175,619)(33,133)(24,153)(33,194)(70,679)(336,778)
Other income (loss) (21,275)1,970 127,811 2,610 (31,668)79,448 
Income (loss) before income taxes118,087 13,188 126,598 19,563 (102,347)175,089 
Income tax benefit (provision) 53,099 2 — (4,346)— 48,755 
Income attributable to non-controlling interests(3)— (28,486)(793)— (29,282)
Net income (loss) attributable to Starwood Property Trust, Inc.171,183 13,190 98,112 14,424 (102,347)194,562 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 4,691 — — 4,691 
Non-controlling interests attributable to unrealized gains/losses— — 21,111 (4,019)— 17,092 
Non-cash equity compensation expense1,660 338 75 1,458 6,172 9,703 
Management incentive fee— — — — 895 895 
Acquisition and investment pursuit costs(22)— (82)— — (104)
Depreciation and amortization1,728 90 8,232 2,841 — 12,891 
Interest income adjustment for securities1,280 — — 2,746 — 4,026 
Extinguishment of debt, net— — — — (246)(246)
Consolidated income tax benefit associated with 
fair value adjustments
(53,099)(2)— 4,346 — (48,755)
Other non-cash items55,522 — 344 76 — 55,942 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans90,159 — — (2,685)— 87,474 
Credit loss provision, net8,401 6,942 — — — 15,343 
Securities(16,398)— — 21,412 — 5,014 
Woodstar Fund investments— — (117,527)— — (117,527)
Derivatives(220,296)(331)(10,262)(6,849)31,668 (206,070)
Foreign currency107,087 253 (22)— — 107,318 
Loss (earnings) from unconsolidated entities4,044 (1,892)— (602)— 1,550 
Sales of properties— — — (13,741)— (13,741)
Recognition of Distributable realized gains / (losses) on:
Loans (2)
(470)— — 3,078 — 2,608 
Securities (4)
(1)— — (5,341)— (5,342)
Woodstar Fund investments (5)
— — 14,855 — — 14,855 
Derivatives (6)
9,144 18 1,345 2,923 (1,109)12,321 
Foreign currency (7)
(2,579)(57)22 — — (2,614)
(Loss) earnings from unconsolidated entities (8)
(3,846)1,893 — 913 — (1,040)
Sales of properties (9)
— — — 12,424 — 12,424 
Distributable Earnings (Loss)$153,497 $20,442 $20,894 $33,404 $(64,967)$163,270 
Distributable Earnings (Loss) per Weighted Average Diluted Share$0.48 $0.06 $0.07 $0.10 $(0.20)$0.51 
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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended June 30, 2022, by business segment (amounts in thousands, except per share data). Refer to the footnotes following the Distributable Earnings reconciliation table for the nine months ended September 30, 2021.
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$251,393 $31,359 $22,676 $52,811 $3 $358,242 
Costs and expenses(113,248)(19,249)(21,446)(35,619)(72,854)(262,416)
Other income (loss)(122,744)370 312,537 11,024 (13,183)188,004 
Income (loss) before income taxes15,401 12,480 313,767 28,216 (86,034)283,830 
Income tax (provision) benefit(557)1 — (1,650)— (2,206)
Income attributable to non-controlling interests(4)— (67,482)(1,851)— (69,337)
Net income (loss) attributable to Starwood Property Trust, Inc.14,840 12,481 246,285 24,715 (86,034)212,287 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 4,691 — — 4,691 
Non-controlling interests attributable to unrealized gains/losses— — 60,043 (1,910)— 58,133 
Non-cash equity compensation expense2,036 345 76 1,424 6,026 9,907 
Management incentive fee— — — — 5,271 5,271 
Acquisition and investment pursuit costs(39)— (82)— — (121)
Depreciation and amortization1,229 96 8,250 2,895 — 12,470 
Interest income adjustment for securities2,573 — — 3,723 — 6,296 
Extinguishment of debt, net— — — — (247)(247)
Other non-cash items32,666 — 336 80 — 33,082 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans121,356 — — (7,876)— 113,480 
Credit loss provision, net7,925 513 — — — 8,438 
Securities19,312 — — 8,150 — 27,462 
Woodstar Fund investments— — (307,165)— — (307,165)
Derivatives(127,140)(265)(5,354)(9,007)13,183 (128,583)
Foreign currency78,331 289 (18)— — 78,602 
Earnings from unconsolidated entities(2,786)(394)— (1,748)— (4,928)
Recognition of Distributable realized gains /
(losses) on:
Loans (2)
(36,343)— — 7,753 — (28,590)
Securities (4)
(333)— — (4,413)— (4,746)
Woodstar Fund investments (5)
— — 15,175 — — 15,175 
Derivatives (6)
38,905 (25)(788)7,436 2,510 48,038 
Foreign currency (7)
(2,117)(31)18 — — (2,130)
Earnings from unconsolidated entities (8)
2,903 394 — 2,375 — 5,672 
Distributable Earnings (Loss)$153,318 $13,403 $21,467 $33,597 $(59,291)$162,494 
Distributable Earnings (Loss) per Weighted Average Diluted Share$0.48 $0.04 $0.07 $0.11 $(0.19)$0.51 

83

Three Months Ended September 30, 2022 Compared to the Three Months Ended June 30, 2022

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $0.2 million, from $153.3 million during the second quarter of 2022 to $153.5 million in the third quarter of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $316.4 million, costs and expenses were $164.0 million, other income was $1.1 million and there was no income tax provision.

Revenues, consisting principally of interest income on loans, increased by $62.3 million in the third quarter of 2022, primarily due to an increase in interest income from loans of $56.6 million and investment securities of $4.7 million. The increase in interest income from loans reflects (i) a $58.3 million increase from commercial loans, reflecting higher average index rates and loan balances partially offset by lower prepayment related income and (ii) a $1.7 million decrease from residential loans principally due to lower average loan balances partially offset by higher average coupon rates. The increase in interest income from investment securities was primarily due to higher average index rates on commercial investments and higher RMBS investment balances and yields.

Costs and expenses increased by $61.8 million in the third quarter of 2022, primarily due to a $56.9 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.

Other income decreased by $0.9 million in the third quarter of 2022.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, decreased $0.6 million in the third quarter of 2022.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $7.0 million, from $13.4 million during the second quarter of 2022 to $20.4 million in the third quarter of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $44.3 million, costs and expenses were $25.8 million and other income was $1.9 million.

Revenues, consisting principally of interest income on loans, increased by $13.0 million in the third quarter of 2022, primarily due to an increase in interest income from loans of $12.9 million reflecting higher average index rates and loan balances.

Costs and expenses increased by $7.5 million in the third quarter of 2022, primarily due to an increase in interest expense reflecting higher average index rates and borrowings outstanding.

Other income increased by $1.5 million in the third quarter of 2022, primarily due to an increase in earnings from an unconsolidated entity.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)
For the Three Months Ended
September 30, 2022June 30, 2022Change
Master Lease Portfolio$4,300 $4,317 $(17)
Medical Office Portfolio5,155 5,532 (377)
Woodstar Fund, net of non-controlling interests12,117 12,300 (183)
Other/Corporate(678)(682)4 
Distributable Earnings$20,894 $21,467 $(573)

The Property Segment’s Distributable Earnings decreased by $0.6 million, from $21.5 million during the second quarter of 2022 to $20.9 million in the third quarter of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $23.3 million, costs and expenses were $16.0 million, other income was $16.3 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $2.7 million.

84

Revenues increased by $0.2 million in the third quarter of 2022.

Costs and expenses increased by $2.7 million in the third quarter of 2022, primarily due to a $2.2 million increase in interest expense reflecting higher index rates on variable rate borrowings.

Other income increased by $1.8 million in the third quarter of 2022 primarily due to a $2.1 million favorable change in realized gain (loss) 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 decreased $0.1 million in the third quarter of 2022.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $0.2 million, from $33.6 million during the second quarter of 2022 to $33.4 million in the third quarter of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $53.0 million, costs and expenses were $28.9 million, other income was $14.1 million, there was no income tax provision and the deduction of income attributable to non-controlling interests was $4.8 million.

Revenues decreased by $3.6 million in the third quarter of 2022, primarily due to a $7.2 million decrease in servicing and other fees, partially offset by a $3.3 million net increase in interest income reflecting higher recoveries on CMBS investments but reduced interest on lower average balances of conduit loans. The treatment of CMBS interest income on a GAAP basis is complicated by our application of the ASC 810 consolidation rules. In an attempt to treat these securities similar to the trust’s other investment securities, we compute distributable interest income pursuant to an effective yield methodology. In doing so, we segregate the portfolio into various categories based on the components of the bonds’ cash flows and the volatility related to each of these components. We then accrete interest income on an effective yield basis using the components of cash flows that are reliably estimable. Other minor adjustments are made to reflect management’s expectations for other components of the projected cash flow stream.

Costs and expenses decreased by $2.4 million in the third quarter of 2022, primarily reflecting lower incentive compensation due to lower securitization volume in the third quarter of 2022.

Other income includes profit realized upon securitization of loans by our conduit business, gains on sales of CMBS and operating properties, gains and losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and credit risk on our conduit loans 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 $0.4 million in the third quarter of 2022.

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 $1.6 million in the third quarter of 2022.

Income attributable to non-controlling interests increased $1.0 million, primarily due to non-controlling interests related to the sale of an operating property in the third quarter of 2022.

Corporate

Corporate loss increased by $5.7 million, from $59.3 million during the second quarter of 2022 to $65.0 million in the third quarter of 2022, primarily due to (i) a $3.0 million increase in interest expense attributable to higher index rates on our term loan and (ii) a $3.6 million decrease in realized gains on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the nine months ended September 30, 2022, by business segment (amounts in thousands, except per share data):
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$791,554 $103,508 $68,031 $160,767 $3 $1,123,863 
Costs and expenses(367,361)(67,570)(66,016)(105,182)(237,021)(843,150)
Other income (loss)(86,935)2,820 691,936 34,295 (82,019)560,097 
Income (loss) before income taxes337,258 38,758 693,951 89,880 (319,037)840,810 
Income tax benefit (provision)57,682 7 — (8,690)— 48,999 
Income attributable to non-controlling interests(10)— (148,379)(9,972)— (158,361)
Net income (loss) attributable to Starwood Property Trust, Inc.394,930 38,765 545,572 71,218 (319,037)731,448 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 14,073 — — 14,073 
Non-controlling interests attributable to unrealized gains/losses— — 126,056 (3,373)— 122,683 
Non-cash equity compensation expense6,113 980 209 4,157 18,244 29,703 
Management incentive fee— — — — 35,121 35,121 
Acquisition and investment pursuit costs(359)— (242)(169)— (770)
Depreciation and amortization3,191 281 24,774 8,888 — 37,134 
Interest income adjustment for securities6,343 — — 4,761 — 11,104 
Extinguishment of debt, net— — — — (739)(739)
Consolidated income tax benefit associated with 
fair value adjustments
(53,099)(2)— 4,346 — (48,755)
Other non-cash items88,191 — 1,136 278 — 89,605 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans327,743 — — (1,006)— 326,737 
Credit loss provision, net13,027 7,096 — — — 20,123 
Securities5,019 — — 38,853 — 43,872 
Woodstar Fund investments— — (658,733)— — (658,733)
Derivatives(465,831)(1,228)(33,162)(43,719)82,019 (461,921)
Foreign currency212,672 570 (41)— — 213,201 
Loss (earnings) from unconsolidated entities2,598 (2,631)— (2,501)— (2,534)
Sales of properties(86,610)— — (25,599)— (112,209)
Recognition of Distributable realized gains / (losses) on:
Loans (2)
(73,021)— — 270 — (72,751)
Securities (4)
(3,102)— — (9,728)— (12,830)
Woodstar Fund investments (5)
— — 45,689 — — 45,689 
Derivatives (6)
82,165 (59)(1,102)33,772 5,006 119,782 
Foreign currency (7)
(4,874)24 41 — — (4,809)
(Loss) earnings from unconsolidated entities (8)
(2,182)2,632 — 3,758 — 4,208 
Sales of properties (9)
84,738 — — 12,601 — 97,339 
Distributable Earnings (Loss)$537,652 $46,428 $64,270 $96,807 $(179,386)$565,771 
Distributable Earnings (Loss) per Weighted Average Diluted Share$1.69 $0.15 $0.20 $0.30 $(0.56)$1.78 


86

The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the nine months ended September 30, 2021, by business segment (amounts in thousands, except per share data):
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$572,066 $63,432 $197,325 $154,492 $— $987,315 
Costs and expenses(166,414)(39,341)(183,643)(106,414)(194,726)(690,538)
Other income (loss) 42,743 (535)3,877 59,733 (6,362)99,456 
Income (loss) before income taxes448,395 23,556 17,559 107,811 (201,088)396,233 
Income tax benefit (provision)886 338 — (7,602)— (6,378)
Income attributable to non-controlling interests(10)— (14,682)(18,873)— (33,565)
Net income (loss) attributable to Starwood Property Trust, Inc.449,271 23,894 2,877 81,336 (201,088)356,290 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 14,682 — — 14,682 
Non-controlling interests attributable to unrealized gains/losses— — — 5,061 — 5,061 
Non-cash equity compensation expense5,427 1,163 142 3,179 19,448 29,359 
Management incentive fee— — — — 19,107 19,107 
Acquisition and investment pursuit costs(458)— (266)(58)— (782)
Depreciation and amortization750 272 54,080 11,299 — 66,401 
Interest income adjustment for securities(2,332)— — 11,405 — 9,073 
Extinguishment of debt, net— — — — (739)(739)
Consolidated income tax benefit associated with 
fair value adjustments
(6,495)— — 405 — (6,090)
Other non-cash items12 — (881)585 413 129 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans(24,079)— — (44,037)— (68,116)
Credit loss (reversal) provision, net(12,957)594 — — — (12,363)
Securities20,134 — — 2,545 — 22,679 
Derivatives(59,212)(883)(4,034)(7,544)5,881 (65,792)
Foreign currency35,699 279 16 63 — 36,057 
Earnings from unconsolidated entities(5,415)(75)— (235)— (5,725)
Sales of properties(17,693)— — (9,723)— (27,416)
Recognition of Distributable realized gains / (losses) on:
Loans (2)
44,625 — — 44,436 — 89,061 
Realized credit loss (3)
(7,757)— — — — (7,757)
Securities (4)
(32,042)— — (2,422)— (34,464)
Derivatives (6)
695 (185)(5,412)3,152 7,370 5,620 
Foreign currency (7)
10,131 (54)(16)(63)— 9,998 
Earnings from unconsolidated entities (8)
9,468 75 — 2,001 — 11,544 
Sales of properties (9)
8,298 — — 4,975 — 13,273 
Distributable Earnings (Loss)$416,070 $25,080 $61,188 $106,360 $(149,608)$459,090 
Distributable Earnings (Loss) per Weighted Average Diluted Share$1.39 $0.08 $0.20 $0.36 $(0.50)$1.53 
______________________________________________________________________________________________________________________

(1)The reconciling items in this section are exactly equivalent to the amounts recognized within GAAP net income (before the consolidation of VIEs), each of which can be agreed back to the respective lines within Note 23 to our Condensed Consolidated Financial Statements. They reflect both unrealized and realized (gains) and losses. For added transparency and consistency of presentation, the entire amount recognized in GAAP income is reversed in this section, and the realized components of these amounts are reflected in the next section entitled “Recognition of Distributable realized gains / (losses).”
87

(2)Represents the realized portion of GAAP gains (losses) on residential and commercial conduit loans carried under the fair value option that were sold during the period. The amount is calculated as the difference between (i) the net proceeds received in connection with a securitization or sale of loans and (ii) such loans’ historical cost basis.
(3)Represents loan losses that are deemed nonrecoverable, which is generally upon a realization event, such as when a loan is repaid, or in the case of foreclosure, when the underlying asset is sold. Non-recoverability may also be determined if, in our determination, it is nearly certain that amounts due will not be collected. The amount is calculated as the difference between the cash received and the book value of the asset.
(4)Represents the realized portion of GAAP gains (losses) on CMBS and RMBS carried under the fair value option that are sold or impaired during the period. Upon sale, the difference between the cash proceeds received and the historical cost basis of the security is treated as a realized gain or loss for Distributable Earnings purposes. We consider a CMBS or an RMBS credit loss to be realized when such amounts are deemed nonrecoverable. Non-recoverability is generally at the time the underlying assets within the securitization are liquidated, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The amount is calculated as the difference between the cash received and the historical cost basis of the security.
(5)Represents GAAP income from the Woodstar Fund investments excluding unrealized changes in the fair value of its underlying assets and liabilities. The amount is calculated as the difference between the Woodstar Fund’s GAAP net income and its unrealized gains (losses), which represents changes in working capital and actual cash distributions received.
(6)Represents the 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.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Commercial and Residential Lending Segment
The Commercial and Residential Lending Segment’s Distributable Earnings increased by $121.6 million, from $416.1 million during the nine months of 2021 to $537.7 million in the nine months of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $798.2 million, costs and expenses were $345.7 million, other income was $80.6 million and income tax benefit was $4.6 million.
Revenues, consisting principally of interest income on loans, increased by $228.4 million in the nine months of 2022, primarily due to increases in interest income from loans of $198.4 million and investment securities of $29.0 million. The increase in interest income from loans reflects (i) a $155.8 million increase from commercial loans, reflecting higher average balances and index rates, partially offset by the timing effect of certain loans being placed on nonaccrual, and (ii) a $42.6 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations, partially offset by lower average coupon rates. The increase in interest income from investment securities was primarily due to higher commercial and RMBS average investment balances and the effect of higher index rates on certain commercial investments.
Costs and expenses increased by $164.2 million in the nine months of 2022, primarily due to a $157.2 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates.
88

Other income increased by $47.2 million in the nine months of 2022, primarily due to (i) a $76.4 million increased gain on sale of foreclosed properties and (ii) a $28.9 million decrease in recognized losses on RMBS investments, partially offset by (iii) a $46.0 million unfavorable change in gain (loss) on residential loan sales and securitizations, net of related interest rate derivatives, and (iv) a $15.0 million unfavorable change in Distributable Earnings (Loss) from an unconsolidated residential mortgage originator.
Income taxes principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs. Income taxes decreased $10.2 million to a benefit of $4.6 million in the nine months of 2022 compared to a provision of $5.6 million in the nine months of 2021. This decrease was primarily due to a significant reduction in securitization activity during the nine months of 2022 resulting from elevated market volatility during the period, as compared to a more normalized securitization environment in 2021. This market dislocation resulted in our holding more residential loans and recording net unrealized losses on those loans during the nine months of 2022, which led to a corresponding income tax benefit in the period.
Infrastructure Lending Segment
The Infrastructure Lending Segment’s Distributable Earnings increased by $21.3 million, from $25.1 million during the nine months of 2021 to $46.4 million in the nine months of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $103.5 million, costs and expenses were $59.2 million and other income was $2.1 million.
Revenues, consisting principally of interest income on loans, increased by $40.1 million in the nine months of 2022, primarily due to an increase in interest income from loans of $38.6 million, principally due to higher average loan balances and index rates.
Costs and expenses increased by $21.9 million in the nine months of 2022, primarily due to an increase in interest expense reflecting higher average borrowings outstanding and higher average index rates.
Other income increased by $3.5 million from a loss in the nine months of 2021 to income in the nine months of 2022, primarily due to a $2.6 million increase in earnings from an unconsolidated entity and a $0.8 million lower loss on extinguishment of debt.
Property Segment
Distributable Earnings by Portfolio (amounts in thousands)
For the Nine Months Ended
September 30,
20222021Change
Master Lease Portfolio$12,959 $12,925 $34 
Medical Office Portfolio16,342 15,382 960 
Woodstar I Portfolio— 18,633 (18,633)
Woodstar II Portfolio— 16,518 (16,518)
Woodstar Fund, net of non-controlling interests37,136 — 37,136 
Other/Corporate(2,167)(2,270)103 
Distributable Earnings$64,270 $61,188 $3,082 
The Property Segment’s Distributable Earnings increased by $3.1 million, from $61.2 million during the nine months of 2021 to $64.3 million in the nine months of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $69.2 million, costs and expenses were $41.4 million, other income was $44.7 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $8.2 million.
Revenues decreased by $127.3 million in the nine months of 2022, primarily due to the conversion of the Woodstar Portfolios to the Woodstar Fund on November 5, 2021.
Costs and expenses decreased by $88.4 million in the nine months of 2022, primarily due to the Woodstar Fund conversion referred to above.
89

Other income increased by $50.2 million from a loss in the nine months of 2021 to income in the nine months of 2022 primarily due to $45.7 million of Distributable Earnings (before non-controlling interests of $8.2 million) from the Woodstar Fund investments in the nine months of 2022.
Investing and Servicing Segment
The Investing and Servicing Segment’s Distributable Earnings decreased by $9.6 million from $106.4 million during the nine months of 2021 to $96.8 million in the nine months of 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $166.0 million, costs and expenses were $92.5 million, other income was $41.0 million, income tax provision was $4.3 million and the deduction of income attributable to non-controlling interests was $13.4 million.
Revenues decreased by $0.8 million in the nine months of 2022.
Costs and expenses increased by $0.2 million in the nine months of 2022.
Other income decreased by $11.9 million in the nine months of 2022, primarily due to (i) a $44.2 million decrease in realized gains on conduit loans, partially offset by (ii) a $30.6 million increase in realized gains on derivatives, principally related to 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 $2.9 million due to lower taxable income of those TRSs during the nine months of 2022.
Income attributable to non-controlling interests decreased $0.4 million.
Corporate
Corporate loss increased by $29.8 million, from $149.6 million during the nine months of 2021 to $179.4 million in the nine months of 2022, primarily due to (i) a $19.6 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances, (ii) a $7.3 million increase in base management fees and (iii) a $2.4 million decrease in realized gains on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay dividends to our stockholders, and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months. Our strategy for managing liquidity and capital resources has not changed since December 31, 2021. Refer to our Form 10-K for a description of these strategies.
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Sources of Liquidity
Our primary sources of liquidity are as follows:
Cash Flows for the Nine Months Ended September 30, 2022 (amounts in thousands)
GAAPVIE
Adjustments		Excluding Securitization VIEs
Net cash provided by operating activities
$844,734 $(1,960)$842,774 
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment(5,007,398)— (5,007,398)
Proceeds from principal collections and sale of loans1,911,325 — 1,911,325 
Purchase and funding of investment securities(86,058)(289,833)(375,891)
Proceeds from sales and collections of investment securities19,431 64,555 83,986 
Proceeds from sales of real estate166,424 — 166,424 
Purchases and additions to properties and other assets(17,295)— (17,295)
Net cash flows from other investments and assets157,173 — 157,173 
Net cash used in investing activities
(2,856,398)(225,278)(3,081,676)
Cash Flows from Financing Activities:
Proceeds from borrowings11,603,576 — 11,603,576 
Principal repayments on and repurchases of borrowings(8,751,730)(299)(8,752,029)
Payment of deferred financing costs(48,847)— (48,847)
Proceeds from common stock issuances, net of offering costs33,960 — 33,960 
Payment of dividends(442,794)— (442,794)
Contributions from non-controlling interests21,926 — 21,926 
Distributions to non-controlling interests(37,847)— (37,847)
Repayment of debt of consolidated VIEs(290,132)290,132 — 
Distributions of cash from consolidated VIEs64,555 (64,555)— 
Net cash provided by financing activities
2,152,667 225,278 2,377,945 
Net increase in cash, cash equivalents and restricted cash
141,003 (1,960)139,043 
Cash, cash equivalents and restricted cash, beginning of period321,914 (590)321,324 
Effect of exchange rate changes on cash(1,637)— (1,637)
Cash, cash equivalents and restricted cash, end of period$461,280 $(2,550)$458,730 
The discussion below is on a non-GAAP basis, after removing adjustments principally resulting from the consolidation of the securitization VIEs under ASC 810. These adjustments principally relate to (i) the purchase of CMBS, RMBS, loans and real estate from consolidated VIEs, which are reflected as repayments of VIE debt on a GAAP basis and (ii) sales, principal collections and redemptions of CMBS and RMBS related to consolidated VIEs, which are reflected as VIE distributions on a GAAP basis. There is no significant net impact to overall cash resulting from these consolidations. Refer to Note 2 to the Condensed Consolidated Financial Statements for further discussion.
Cash and cash equivalents increased by $139.0 million during the nine months ended September 30, 2022, reflecting net cash provided by financing activities of $2.4 billion and operating activities of $842.8 million, partially offset by net cash used in investing activities of $3.1 billion.
Net cash provided by operating activities of $842.8 million during the nine months ended September 30, 2022 related primarily to cash interest income of $641.3 million from our loans and $139.5 million from our investment securities, sales and principal collections, net of purchases and originations, of loans held-for-sale of $351.8 million and net change in operating assets and liabilities of $269.9 million. Net rental income provided cash of $61.4 million and servicing fees provided cash of $41.8 million. Offsetting these cash inflows was cash interest expense of $424.0 million, management fees of $107.0 million and general and administrative expenses of $90.6 million.
Net cash used in investing activities of $3.1 billion for the nine months ended September 30, 2022 related primarily to the origination and acquisition of loans held-for-investment of $5.0 billion and the purchase and funding of investment
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securities of $375.9 million, partially offset by proceeds received from principal collections and sales of loans of $1.9 billion and investment securities of $84.0 million and sales of operating properties for $166.4 million.
Net cash provided by financing activities of $2.4 billion for the nine months ended September 30, 2022 related primarily to borrowings on our debt, net of repayments and deferred loan costs, of $2.8 billion, partially offset by dividend distributions of $442.8 million.
Our Investment Portfolio
The following is a review of our investment portfolio by segment.
Commercial and Residential Lending Segment
The following table sets forth the amount of each category of investments we owned across various property types within our Commercial and Residential Lending Segment as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Face
Amount		Carrying
Value		Asset Specific
Financing		Net
Investment		Unlevered
Return on
Asset (6)
September 30, 2022
First mortgages (1)$15,253,973 $15,164,460 $11,087,584 $4,076,876 5.9 %
Subordinated mortgages (2)70,966 69,793 — 69,793 13.9 %
Mezzanine loans (1)435,818 438,457 — 438,457 12.7 %
Residential loans, fair value option54,569 53,176 33,020 20,156 5.8 %(5)
Other loans59,850 58,694 — 58,694 13.3 %
Loans held-for-sale, fair value option, residential2,340,929 2,125,827 1,552,502 573,325 4.7 %(5)
RMBS, available-for-sale205,834 116,577 80,046 36,531 11.4 %
RMBS, fair value option326,274 418,480 (3)104,074 314,406 9.9 %
CMBS, fair value option102,900 97,144 (3)49,798 47,346 5.3 %
HTM debt securities (4)674,501 677,685 133,142 544,543 6.8 %
Credit loss allowance— (65,719)— (65,719)
Equity security10,200 9,343 — 9,343 
Investments in unconsolidated entities N/A 34,319 — 34,319 
Properties, net N/A 214,896 87,750 127,146 
$19,535,814 $19,413,132 $13,127,916 $6,285,216 
December 31, 2021
First mortgages (1)$13,057,621 $12,981,196 $9,116,486 $3,864,710 5.2 %
Subordinated mortgages (2)72,371 70,771 — 70,771 11.8 %
Mezzanine loans (1)415,155 417,504 — 417,504 10.9 %
Residential loans, fair value option60,133 59,225 36,934 22,291 6.0 %(5)
Other loans19,029 17,424 — 17,424 13.3 %
Loans held-for-sale, fair value option, residential2,525,910 2,590,005 1,808,372 781,633 4.2 %(5)
RMBS, available-for-sale221,806 143,980 97,354 46,626 11.8 %
RMBS, fair value option127,437 250,424 (3)37,213 213,211 12.6 %
CMBS, fair value option102,900 98,211 (3)49,798 48,413 5.2 %
HTM debt securities (4)655,557 656,915 113,143 543,772 6.7 %
Credit loss allowance— (52,302)— (52,302)
Equity security12,366 11,624 — 11,624 
Investments in unconsolidated entitiesN/A44,938 — 44,938 
Properties, netN/A124,503 49,483 75,020 
$17,270,285 $17,414,418 $11,308,783 $6,105,635 
__________________________________________
(1)First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this
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methodology resulted in mezzanine loans with carrying values of $1.2 billion and $1.4 billion being classified as first mortgages as of September 30, 2022 and December 31, 2021, respectively.
(2)Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.
(3)Eliminated in consolidation against VIE liabilities pursuant to ASC 810.
(4)CMBS held-to-maturity (“HTM”) and mandatorily redeemable preferred equity interests in commercial real estate entities.
(5)Represents the weighted average coupon of residential mortgage loans.
(6)Calculated using applicable index rates for variable rate investments as of the respective period end and excludes loans for which interest income is not recognized.
As of September 30, 2022 and December 31, 2021, our Commercial and Residential Lending Segment’s investment portfolio, excluding residential loans, RMBS, properties and other investments, had the following characteristics based on carrying values:
Collateral Property TypeSeptember 30, 2022December 31, 2021
Multifamily33.6 %27.3 %
Office23.4 %29.5 %
Hotel16.5 %19.0 %
Mixed Use9.6 %11.5 %
Industrial5.5 %5.6 %
Residential1.8 %1.6 %
Retail1.7 %2.1 %
Other7.9 %3.4 %
100.0 %100.0 %

Geographic LocationSeptember 30, 2022December 31, 2021
U.S. Regions:
South East16.9 %12.9 %
North East16.3 %20.0 %
South West15.8 %13.0 %
West12.4 %15.1 %
Mid Atlantic9.4 %10.8 %
Midwest2.8 %3.4 %
International:
United Kingdom12.7 %15.8 %
Other Europe4.8 %5.1 %
Bahamas/Bermuda1.8 %2.1 %
Australia7.1 %1.8 %
100.0 %100.0 %
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Infrastructure Lending Segment
The following table sets forth the amount of each category of investments we owned within our Infrastructure Lending Segment as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Face
Amount		Carrying
Value		Asset Specific
Financing		Net
Investment		Unlevered
Return on
Asset (1)
September 30, 2022
First priority infrastructure loans and HTM securities$2,513,394 $2,471,992 $1,908,888 $563,104 7.0 %
Credit loss allowance— (30,820)— (30,820)
Investments in unconsolidated entities— 29,347 — 29,347 
$2,513,394 $2,470,519 $1,908,888 $561,631 
December 31, 2021
First priority infrastructure loans and HTM securities$2,116,836 $2,082,927 $1,630,866 $452,061 5.1 %
Credit loss allowance— (23,578)— (23,578)
Investments in unconsolidated entities— 26,255 — 26,255 
$2,116,836 $2,085,604 $1,630,866 $454,738 
__________________________________________
(1)Calculated using applicable index rates for variable rate investments as of the respective period end and excludes loans for which interest income is not recognized.
As of September 30, 2022 and December 31, 2021, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:
Collateral TypeSeptember 30, 2022December 31, 2021
Natural gas power61.7 %61.0 %
Midstream/downstream oil & gas37.0 %33.2 %
Renewable power— %1.8 %
Other thermal power1.3 %4.0 %
100.0 %100.0 %

Geographic LocationSeptember 30, 2022December 31, 2021
U.S. Regions:
North East39.4 %41.5 %
South West21.3 %19.5 %
Midwest21.0 %18.9 %
South East7.4 %8.8 %
West4.6 %4.3 %
Other2.0 %2.1 %
Mid-Atlantic1.8 %1.6 %
International:
Mexico1.7 %2.0 %
Other0.8 %1.3 %
100.0 %100.0 %
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Property Segment
The following table sets forth the amount of each category of investments held within our Property Segment as of September 30, 2022 and December 31, 2021 (amounts in thousands):
September 30, 2022December 31, 2021
Properties, net$868,454 $887,553 
Lease intangibles, net29,609 33,151 
Woodstar Fund1,669,265 1,040,309 
$2,567,328 $1,961,013 
The following table sets forth our net investment and other information regarding the Property Segment’s properties and lease intangibles as of September 30, 2022 (dollars in thousands):
Carrying
Value		Asset
Specific
Financing		Net
Investment		Occupancy
Rate		Weighted Average
Remaining
Lease Term
Office—Medical Office Portfolio$764,832 $595,851 $168,981 91.5 %5.8 years
Retail—Master Lease Portfolio343,790 193,287 150,503 100.0 %19.6 years
Subtotal—undepreciated carrying value1,108,622 789,138 319,484 
Accumulated depreciation and amortization(210,559)— (210,559)
Net carrying value$898,063 $789,138 $108,925 
As of September 30, 2022 and December 31, 2021, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:

Geographic LocationSeptember 30, 2022December 31, 2021
South East80.7 %77.4 %
South West5.3 %6.2 %
Midwest5.1 %6.0 %
North East4.9 %5.7 %
West4.0 %4.7 %
100.0 %100.0 %
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Investing and Servicing Segment
The following table sets forth the amount of each category of investments we owned within our Investing and Servicing Segment as of September 30, 2022 and December 31, 2021 (amounts in thousands):
Face
Amount		Carrying
Value		Asset
Specific
Financing		Net
Investment
September 30, 2022
CMBS, fair value option$2,781,327 $1,183,831 (1)$407,931 (2)$775,900 
Intangible assets - servicing rightsN/A59,581 (3)— 59,581 
Lease intangibles, netN/A9,723 — 9,723 
Loans held-for-sale, fair value option, commercial82,223 79,857 60,329 19,528 
Loans held-for-investment9,660 9,660 — 9,660 
Investments in unconsolidated entitiesN/A35,494 (4)— 35,494 
Properties, netN/A134,076 144,149 (10,073)
$2,873,210 $1,512,222 $612,409 $899,813 
December 31, 2021
CMBS, fair value option$2,694,413 $1,165,395 (1)$380,004 (2)$785,391 
Intangible assets - servicing rightsN/A58,899 (3)— 58,899 
Lease intangibles, netN/A11,342 — 11,342 
Loans held-for-sale, fair value option, commercial289,761 286,795 173,430 113,365 
Loans held-for-investment9,903 9,903 — 9,903 
Investments in unconsolidated entitiesN/A34,160 (4)— 34,160 
Properties, netN/A154,331 160,803 (6,472)
$2,994,077 $1,720,825 $714,237 $1,006,588 
______________________________________________

(1)Includes $1.16 billion and $1.14 billion of CMBS eliminated in consolidation against VIE liabilities pursuant to ASC 810 as of September 30, 2022 and December 31, 2021. Also includes $200.0 million and $182.6 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of September 30, 2022 and December 31, 2021, respectively.
(2)Includes $43.2 million and $35.8 million of non-controlling interests in the consolidated entities which hold certain debt balances as of September 30, 2022 and December 31, 2021, respectively.
(3)Includes $41.6 million and $42.1 million of servicing rights intangibles eliminated in consolidation against VIE assets pursuant to ASC 810 as of September 30, 2022 and December 31, 2021, respectively.
(4)Includes $16.0 million and $15.3 million of investments in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of September 30, 2022 and December 31, 2021, respectively.
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Our REIS Equity Portfolio, as described in Note 6 to the Condensed Consolidated Financial Statements, had the following characteristics based on carrying values as of September 30, 2022 and December 31, 2021, respectively:
Property TypeSeptember 30, 2022December 31, 2021
Retail44.4 %37.9 %
Office27.5 %37.4 %
Mixed Use10.4 %9.0 %
Self-storage9.2 %8.0 %
Multifamily6.1 %5.4 %
Hotel2.4 %2.3 %
100.0 %100.0 %

Geographic LocationSeptember 30, 2022December 31, 2021
North East35.7 %31.8 %
West20.0 %18.1 %
Mid Atlantic19.4 %14.5 %
Midwest11.1 %10.1 %
South West7.7 %6.6 %
South East6.1 %18.9 %
100.0 %100.0 %

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New Credit Facilities and Amendments
Refer to Note 10 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, 2021.
Secured Borrowings
The following table is a summary of our secured borrowings as of September 30, 2022 (dollars in thousands):
Current
Maturity
Extended
Maturity (a)
Weighted
Average
Pricing		Pledged
Asset
Carrying
Value		Maximum
Facility
Size		Outstanding
Balance
Approved
but
Undrawn
Capacity (b)
Unallocated
Financing
Amount (c)
Repurchase Agreements:
Commercial LoansJun 2023 to Jun 2027
(d)
Sep 2025 to Dec 2030
(d)
Index + 2.09%
(e)
$10,854,556 $12,291,964 
(f)
$7,971,502 $77,706 $4,242,756 
Residential LoansMay 2023 to Dec 2023May 2023 to Dec 2024
Index + 2.10%
1,633,554 2,502,614 1,407,163 — 1,095,451 
Infrastructure LoansSep 2024Sep 2026
SOFR + 2.07%
379,346 650,000 316,737 — 333,263 
Conduit LoansFeb 2023 to Jun 2025Feb 2024 to Jun 2026
SOFR + 2.28%
79,857 350,000 60,941 — 289,059 
CMBS/RMBSJun 2023 to Apr 2032
(g)
Jun 2023 to Oct 2032
(g)
(h)1,485,618 1,113,025 787,020 
(i)
— 326,005 
Total Repurchase Agreements14,432,931 16,907,603 10,543,363 77,706 6,286,534 
Other Secured Financing:
Borrowing Base FacilityNov 2024Oct 2026
SOFR + 2.11%
23,226 750,000 
(j)
2,000 15,415 732,585 
Commercial Financing FacilitiesDec 2023 to Aug 2025Aug 2027 to Dec 2030
Index + 1.77%
348,619 445,295 
(k)
271,918 — 173,377 
Residential Financing FacilityMar 2024Mar 2027
SOFR + 2.45%
545,450 500,000 179,418 302,739 17,843 
Infrastructure Financing FacilitiesJun 2025 to Oct 2025Jun 2027 to Jul 2032
Index + 2.16%
1,002,010 1,550,000 790,995 — 759,005 
Property Mortgages - Fixed rateNov 2024 to Sep 2029
(l)
N/A4.48%381,440 275,800 275,800 — — 
Property Mortgages - Variable rateNov 2022 to Mar 2025N/A(m) 767,293 733,750 730,315 — 3,435 
Term Loan and Revolver(n)N/A(n) N/A
(n)
932,763 782,763 150,000 — 
STWD 2022-FL3 CLONov 2038N/A
SOFR + 1.64%
1,010,268 842,500 842,500 — — 
STWD 2021-HTS SASBApr 2034N/A
LIBOR + 2.22%
230,923 210,091 210,091 — — 
STWD 2021-FL2 CLOApr 2038N/A
LIBOR + 1.50%
1,282,627 1,077,375 1,077,375 — — 
STWD 2019-FL1 CLOJul 2038N/A
SOFR + 1.40%
921,634 755,482 755,482 — — 
STWD 2021-SIF2 CLOJan 2033N/A
SOFR + 1.89%
508,186 410,000 410,000 — — 
STWD 2021-SIF1 CLOApr 2032N/A
LIBOR + 1.81%
508,667 410,000 410,000 — — 
Total Other Secured Financing7,530,343 8,893,056 6,738,657 468,154 1,686,245 
$21,963,274 $25,800,659 $17,282,020 $545,860 $7,972,779 
Unamortized net discount(6,771)
Unamortized deferred financing costs(88,351)
$17,186,898 
___________________________________________
(a)Subject to certain conditions as defined in the respective facility agreement.
(b)Approved but undrawn capacity represents the total draw amount that has been approved by the lenders related to those assets that have been pledged as collateral, less the drawn amount.
(c)Unallocated financing amount represents the maximum facility size less the total draw capacity that has been approved by the lenders.
(d)For certain facilities, borrowings collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified conditions.
(e)Certain facilities with an outstanding balance of $2.7 billion as of September 30, 2022 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to USD LIBOR and SOFR.
(f)Certain facilities with an aggregate initial maximum facility size of $11.7 billion may be increased to $12.3 billion, subject to certain conditions. The $12.3 billion amount includes such upsizes.
(g)Certain facilities with an outstanding balance of $368.9 million as of September 30, 2022 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size.
(h)A facility with an outstanding balance of $263.9 million as of September 30, 2022 has a weighted average fixed annual interest rate of 3.27%. All other facilities are variable rate with a weighted average rate of Index + 1.96%.
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(i)Includes: (i) $263.9 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $43.2 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 15 to the Condensed Consolidated Financial Statements).
(j)The maximum facility size as of September 30, 2022 of $650.0 million is scheduled to decline to $450.0 million as of December 31, 2022 and may be increased to $750.0 million, subject to certain conditions.
(k)Certain facilities with an aggregate initial maximum facility size of $345.3 million may be increased to $445.3 million, subject to certain conditions. The $445.3 million amount includes such upsizes.
(l)The weighted average maturity is 4.8 years as of September 30, 2022.
(m)Includes a $600.0 million first mortgage and mezzanine loan secured by our Medical Office Portfolio. This debt has a weighted average interest rate of LIBOR + 2.07% that we swapped to a fixed rate of 3.34%. The remainder have a weighted average rate of Index + 2.26%.
(n)Consists of: (i) a $782.8 million term loan facility that matures in July 2026, of which $388.0 million has an annual interest rate of LIBOR + 2.50% and $394.8 million has an annual interest rate of LIBOR + 3.25%, subject to a 0.75% LIBOR floor, and (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50%. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.0 billion as of September 30, 2022.

The above table no longer reflects property mortgages of the Woodstar Portfolios which, as discussed in Notes 2 and 7 to the Condensed Consolidated Financial Statements, are now reflected within “Investments of consolidated affordable housing fund” on our condensed consolidated balance sheets.
Refer to Note 10 to the Condensed Consolidated Financial Statements for further disclosure regarding the terms of our secured financing arrangements.
Variance between Average and Quarter-End Credit Facility Borrowings Outstanding
The following table compares the average amount outstanding under our secured financing agreements during each quarter and the amount outstanding as of the end of each quarter, together with an explanation of significant variances (amounts in thousands):
Quarter EndedQuarter-End
Balance		Weighted-Average
Balance During
Quarter		VarianceExplanations
for Significant
Variances
December 31, 202115,288,261 14,428,687 859,574 (a)
March 31, 202215,419,344 15,645,668 (226,324)(b)
June 30, 202217,008,158 16,151,019 857,139 (c)
September 30, 202217,282,020 17,521,495 (239,475)(d)
_____________________________________________
(a)Variance primarily due to (i) late quarter draws on commercial, residential and infrastructure loan facilities given the majority of the quarter’s loan closings were back-ended to the last half of the quarter; offset by (ii) the accounting for the Woodstar Fund, which requires property level debt to be presented net within investments of consolidated affordable housing fund.
(b)Variance primarily due to sales and securitizations that occurred late in the quarter.
(c)Variance primarily due to late quarter timing of loan pledges and advances.
(d)Variance primarily due to late quarter timing of debt pay downs from excess cash.
Borrowings under Unsecured Senior Notes
During the three months ended September 30, 2022 and 2021, the weighted average effective borrowing rate on our unsecured senior notes was 4.7% and 5.0%, respectively. During the nine months ended September 30, 2022 and 2021, the weighted average effective borrowing rate on our unsecured senior notes was 4.8% and 5.2%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount.
Refer to Note 11 to the Condensed Consolidated Financial Statements for further disclosure regarding the terms of our unsecured senior notes.
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Scheduled Principal Repayments on Investments and Overhang on Financing Facilities
The following scheduled and/or projected principal repayments on our investments were based on amounts outstanding and extended contractual maturities of those investments as of September 30, 2022. The projected and/or required repayments of financing were based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):
Scheduled Principal
Repayments on Loans
and HTM Securities		Scheduled/Projected
Principal Repayments
on RMBS and CMBS		Projected/Required
Repayments of
Financing		Scheduled Principal
Inflows Net of
Financing Outflows
Fourth Quarter 2022$730,880 $6,145 $(381,375)$355,650 
First Quarter 2023321,536 6,093 (189,566)138,063 
Second Quarter 2023702,348 35,943 (1,591,264)(852,973)(1)
Third Quarter 2023548,068 3,507 (774,100)(222,525)(2)
Total$2,302,832 $51,688 $(2,936,305)$(581,785)
__________________________________________________
(1)Shortfall primarily relates to $850.0 million of repayments under a Residential Loans repurchase facility that carries a one-year term which we can extend every three months with the lender’s consent.
(2)Shortfall primarily relates to $355.8 million of repayments under a securities facility which carries a rolling 12-month term that we have historically extended, and intend to continue to extend with the lender’s consent.
In the normal course of business, the Company is in discussions with its lenders to extend, amend or replace any financing facilities which contain near term expirations.
Issuances of Equity Securities
We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At September 30, 2022, we had 100,000,000 shares of preferred stock available for issuance and 190,416,377 shares of common stock available for issuance.
Other Potential Sources of Financing
In the future, we may also use other sources of financing to fund the acquisition of our target assets and maturities of our unsecured senior notes, including other secured as well as unsecured forms of borrowing and sale of senior loan interests and other assets.
Leverage Policies
Our strategies with regards to use of leverage have not changed significantly since December 31, 2021. Refer to our Form 10-K for a description of our strategies regarding use of leverage.
Cash Requirements
Dividends
U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to distribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders each year, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Refer to our Form 10-K for a detailed dividend history.

100

The Company’s board of directors declared the following dividends during the nine months ended September 30, 2022:

Declaration DateRecord DatePayment DateAmountFrequency
9/16/229/30/2210/14/22$0.48 Quarterly
6/15/226/30/227/15/22$0.48 Quarterly
3/14/223/31/224/15/22$0.48 Quarterly
Contractual Obligations and Commitments
Our material contractual obligations and commitments as of September 30, 2022 are as follows (amounts in thousands):
TotalLess than
1 year		1 to 3 years3 to 5 yearsMore than
5 years
Secured financings (a)$13,576,572 $1,424,638 $3,149,865 $6,861,816 $2,140,253 
CLOs and SASB (b)3,705,448 721,732 906,976 1,979,332 97,408 
Unsecured senior notes2,350,000 250,000 1,200,000 900,000 — 
Future loan commitments:
Commercial Lending (c)2,495,912 1,644,136 801,840 49,936 — 
Residential Lending (d)51,600 51,600 — — — 
Infrastructure Lending (e)156,730 156,730 — — — 
__________________________________________________

(a)Represents the contractual maturity of the respective credit facility, inclusive of available extension options.  If investments that have been pledged as collateral repay earlier than the contractual maturity of the debt, the related portion of the debt would likewise require earlier repayment. Refer to Note 10 to the Consolidated Financial Statements for the expected maturities by year.

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

(c)Excludes $314.3 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 outstanding residential loan purchase commitments.

(e)Represents contractual commitments of $138.6 million under revolvers and letters of credit and $18.2 million of outstanding infrastructure loan purchase commitments.
The table above does not include interest payable, amounts due under our management agreement, amounts due under our derivative agreements or amounts due under guarantees as those contracts do not have fixed and determinable payments.
Our secured financings, CLOs and SASB consist primarily of matched-term funding for our loans and investment securities and long-term mortgages on our owned properties. Repayments of such facilities are generally made from proceeds from maturities, prepayments or sales of such investments and operating cash flows from owned properties. In the normal course of business, we are in discussions with our lenders to extend, amend or replace any financing facilities which contain near term expirations.
Our unsecured senior notes are expected to be repaid from a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements, and/or equity issuances or other potential sources of financing, as discussed above, including issuances of new unsecured senior notes.
Our future loan commitments are expected to be primarily matched-term funded under secured financing agreements with any difference funded from available cash on hand or other potential sources of financing discussed above.
101

Critical Accounting Estimates
Refer to the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” for a full discussion of our critical accounting estimates. Our critical accounting estimates have not materially changed since December 31, 2021.
Recent Accounting Developments
Refer to Note 2 to the Condensed Consolidated Financial Statements for a discussion of recent accounting developments and the expected impact to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. Our strategies for managing risk and our exposure to such risks, as described in Item 7A of our Form 10-K, have not changed materially since December 31, 2021 except as described below.
Credit Risk
Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our asset management team reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
We seek to further manage credit risk associated with our Investing and Servicing Segment loans held-for-sale through the purchase of credit instruments. The following table presents our credit instruments as of September 30, 2022 and December 31, 2021 (dollars in thousands):
Face Value of
Loans Held-for-Sale		Aggregate Notional Value of
Credit Instruments		Number of
Credit Instruments
September 30, 2022$11,700 $49,000 3
December 31, 2021$289,761 $49,000 3
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our investments and the related financing obligations. In general, we seek to match the interest rate characteristics of our investments with the interest rate characteristics of any related financing obligations such as repurchase agreements, bank credit facilities, term loans, revolving facilities and securitizations. In instances where the interest rate characteristics of an investment and the related financing obligation are not matched, we mitigate such interest rate risk through the utilization of interest rate derivatives of the same duration. The following table presents financial instruments where we have utilized interest rate derivatives to hedge interest rate risk and the related interest rate derivatives as of September 30, 2022 and December 31, 2021 (dollars in thousands):
102

Face Value of
Hedged Instruments		Aggregate Notional Value of
Credit Instruments		Number of
Credit Instruments
Instrument hedged as of September 30, 2022
Loans held-for-sale$2,352,629 $2,709,000 33
RMBS, available-for-sale205,834 85,000 2
CMBS, fair value option88,193 58,800 2
HTM debt securities12,580 12,580 1
Secured financing agreements676,626 1,466,043 9
Unsecured senior notes1,000,000 970,000 2
$4,335,862 $5,301,423 49
Instrument hedged as of December 31, 2021
Loans held-for-sale$2,815,671 $2,135,800 62
RMBS, available-for-sale221,806 85,000 2
CMBS, fair value option79,651 71,000 2
HTM debt securities14,283 14,283 1
Secured financing agreements754,620 1,425,396 10
Unsecured senior notes500,000 470,000 1
$4,386,031 $4,201,479 78
The following table summarizes the estimated annual change in net investment income for our variable rate investments and our variable rate debt assuming increases or decreases in LIBOR or other applicable index rates and adjusted for the effects of our interest rate hedging activities (amounts in thousands):
Income (Expense) Subject to Interest Rate SensitivityVariable rate
investments and
indebtedness (1)		0.25% Decrease0.50% Increase1.00% Increase1.50% Increase
Investment income from variable rate investments$18,216,117 $(45,497)$91,081 $182,161 $273,242 
Interest expense from variable rate debt, net of interest rate derivatives(13,330,018)35,390 (70,241)(140,207)(209,904)
Net investment income from variable rate instruments$4,886,099 $(10,107)$20,840 $41,954 $63,338 
______________________________________________________________________________________________________________________
(1)Includes the notional value of interest rate derivatives.
LIBOR Transition Risk

The United Kingdom’s Financial Conduct Authority (the authority that regulates LIBOR) stopped compelling banks to submit rates for the calculation of LIBOR and the LIBOR administrator ceased publication of non-U.S. dollar LIBOR after December 31, 2021. However, for U.S. dollar LIBOR, the relevant date has been deferred to June 30, 2023. Regulators emphasized that, despite any continued publication of U.S. dollar LIBOR through June 30, 2023, no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. As indicated in the Interest Rate Risk section above, a substantial portion of our loans, investment securities, borrowings and interest rate derivatives are indexed to LIBOR or similar reference rates. Our U.S. dollar LIBOR-based loan agreements and borrowing arrangements generally specify alternative reference rates such as the prime rate, federal funds rate or secured overnight financing rate (“SOFR”). Our foreign denominated loan agreements and borrowing arrangements now generally specify the sterling overnight index average (“SONIA”) instead of GBP LIBOR and the bank bill swap rate (“BBSW” or “BBSY”) instead of AUD LIBOR.

As of September 30, 2022, daily compounded SONIA is utilized as the floating benchmark rate on $2.1 billion of our loans and $1.6 billion of our debt outstanding, while SOFR is utilized as the floating benchmark rate on $4.6 billion of our loans and $7.3 billion of our debt outstanding.

At this time, it is not possible to predict how markets will respond to SOFR, SONIA, or other alternative reference rates as the transition away from USD LIBOR and GBP LIBOR proceeds. The resulting changes to benchmark interest rates could increase our financing costs and/or result in mismatches between the interest rates of our investments and the corresponding financings.
103

Foreign Currency Risk
Our loans and investments that are denominated in a foreign currency are also subject to risks related to fluctuations in exchange rates. We generally mitigate this exposure by matching the currency of our foreign currency assets to the currency of the borrowings that finance those assets. As a result, we substantially reduce our exposure to changes in portfolio value related to changes in foreign exchange rates.
We intend to hedge our net currency exposures in a prudent manner. However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments, and/or unequal, inaccurate, or unavailable hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.
Consistent with our strategy of hedging foreign currency exposure on certain investments, we typically enter into a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows (interest income and principal payments) we expect to receive from our foreign currency denominated investments. Accordingly, the notional values and expiration dates of our foreign currency hedges approximate the amounts and timing of future payments we expect to receive on the related investments.
The following table represents our assets and liabilities that are denominated in foreign currencies as well as our expected future net interest receipts (amounts in thousands):
September 30, 2022
GBPEURAUDCHF
Foreign currency assets£1,905,878 €769,864 A$1,836,859 Fr.41,130 
Foreign currency liabilities(1,404,087)(252,864)(1,368,374)(29,611)
Foreign currency contracts - notional, net(574,948)(589,985)(667,134)(15,128)
Expected future net interest cash flows73,157 72,985 198,649 3,609 
Net exposure to exchange rate fluctuations£— €— A$— Fr.— 
Net exposure to exchange rate fluctuations in USD (1)$— $— $— $— 
______________________________________________________________________________________________________________________

(1)     Represents the U.S. dollar equivalent using the GBP closing rate of 1.1160, EUR closing rate of 0.9803, AUD closing rate of 0.6402 and CHF closing rate of 1.0134 as of September 30, 2022.

Substantially all of our net asset exposure to the GBP, EUR, AUD and CHF has been hedged with foreign currency forward contracts as of September 30, 2022, as indicated in the table above. Refer to Note 13 of the Condensed Consolidated Financial Statements for further detail regarding our foreign currency derivatives and their contractual maturities.

Item 4. Controls and Procedures.
Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
104

PART II—OTHER INFORMATION
Item 1.    Legal Proceedings.
Currently, no material legal proceedings are pending or, to our knowledge, threatened or contemplated against us, that could have a material adverse effect on our business, financial position or results of operations.
Item 1A. Risk Factors.
There have been no material changes to the risk factors previously disclosed in our Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of securities during the three months ended September 30, 2022.
Issuer Purchases of Equity Securities
There were no purchases of common stock during the three months ended September 30, 2022.
Item 3.    Defaults Upon Senior Securities.
None.
Item 4.    Mine Safety Disclosures.
Not applicable.
Item 5.    Other Information.
None.
105
Table of Contents

Item 6.    Exhibits.
(a)Index to Exhibits
INDEX TO EXHIBITS
Exhibit No.Description
31.1 
31.2 
32.1 
32.2 
101.INSXBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

106

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STARWOOD PROPERTY TRUST, INC.
Date: November 9, 2022By:
/s/ BARRY S. STERNLICHT
Barry S. Sternlicht
Chief Executive Officer
Principal Executive Officer
Date: November 9, 2022By:
/s/ RINA PANIRY
Rina Paniry
Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

107

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