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 FY2023 Q2

Starwood Property Trust - 10-Q quarterly report FY2023 Q2


Text size:
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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 June 30, 2023
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 July 28, 2023 was 312,777,208.
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, 2022 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”;
•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;
•the duration and extent of the ongoing effects of the COVID-19 pandemic, including variants and resurgences, or any future pandemic or similar outbreak, on the global economy, our operations and financial performance and the operations and financial performance of the borrowers underlying our real estate-related assets and infrastructure loans and tenants of our owned properties;
•national and local economic and business conditions, including as a result of the impact of 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 war between Russia and 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
19
Note 4 Loans
20
Note 5 Investment Securities
25
Note 6 Properties
28
Note 7 Investments of Consolidated Affordable Housing Fund
30
Note 8 Investments in Unconsolidated Entities
31
Note 9 Goodwill and Intangibles
32
Note 10 Secured Borrowings
34
Note 11 Unsecured Senior Notes
39
Note 12 Loan Securitization/Sale Activities
40
Note 13 Derivatives and Hedging Activity
41
Note 14 Offsetting Assets and Liabilities
42
Note 15 Variable Interest Entities
43
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
58
Note 23 Segment Data
59
Note 24 Subsequent Events
65
Item 2.
66
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 June 30,
As of December 31,
2023
2022
Assets:
Cash and cash equivalents$333,929 $261,061 
Restricted cash120,283 121,072 
Loans held-for-investment, net of credit loss allowances of $236,804 and $99,413
17,713,146 18,401,439 
Loans held-for-sale ($2,732,996 and $2,784,594 held at fair value)
2,774,388 2,784,594 
Investment securities, net of credit loss allowances of $10,620 and $3,182 ($135,856 and $142,334 held at fair value)
764,117 815,804 
Properties, net1,442,763 1,449,986 
Investments of consolidated affordable housing fund, at fair value
1,976,985 1,761,002 
Investments in unconsolidated entities93,651 91,892 
Goodwill259,846 259,846 
Intangible assets ($18,256 and $17,790 held at fair value)
68,232 68,773 
Derivative assets79,009 108,621 
Accrued interest receivable189,622 168,521 
Other assets489,526 297,477 
Variable interest entity (“VIE”) assets, at fair value46,864,870 52,453,041 
Total Assets$73,170,367 $79,043,129 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$268,077 $298,999 
Related-party payable27,325 41,186 
Dividends payable152,418 151,511 
Derivative liabilities97,483 91,404 
Secured financing agreements, net14,505,047 14,501,532 
Collateralized loan obligations and single asset securitization, net3,659,793 3,676,224 
Unsecured senior notes, net2,083,517 2,329,211 
VIE liabilities, at fair value45,183,730 50,754,355 
Total Liabilities65,977,390 71,844,422 
Commitments and contingencies (Note 22)
Temporary Equity: Redeemable non-controlling interests
408,034 362,790 
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, 320,217,189 issued and 312,768,498 outstanding as of June 30, 2023 and 318,123,861 issued and 310,675,170 outstanding as of December 31, 2022
3,202 3,181 
Additional paid-in capital5,842,813 5,807,087 
Treasury stock (7,448,691 shares)
(138,022)(138,022)
Retained earnings 689,146 769,237 
Accumulated other comprehensive income17,355 20,955 
Total Starwood Property Trust, Inc. Stockholders’ Equity6,414,494 6,462,438 
Non-controlling interests in consolidated subsidiaries370,449 373,479 
Total Permanent Equity6,784,943 6,835,917 
Total Liabilities and Equity$73,170,367 $79,043,129 
________________________________________________________
Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 include assets of $4.4 billion and $4.5 billion, respectively, and liabilities of $3.7 billion, as of both June 30, 2023 and December 31, 2022, 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
June 30,
For the Six Months Ended
June 30,
2023202220232022
Revenues:
Interest income from loans$455,849 $261,150 $886,757 $494,769 
Interest income from investment securities18,919 15,306 37,556 29,289 
Servicing fees6,342 12,553 13,598 22,545 
Rental income32,307 31,524 64,596 63,104 
Other revenues2,252 5,053 3,576 9,871 
Total revenues515,669 325,586 1,006,083 619,578 
Costs and expenses:
Management fees30,978 31,624 70,518 86,919 
Interest expense363,332 152,618 698,633 279,069 
General and administrative43,156 45,005 85,264 89,326 
Acquisition and investment pursuit costs145 517 414 939 
Costs of rental operations11,467 10,598 23,133 19,888 
Depreciation and amortization12,323 12,240 24,739 23,887 
Credit loss provision, net121,925 8,438 165,119 4,780 
Other expense126 1,258 974 1,313 
Total costs and expenses583,452 262,298 1,068,794 506,121 
Other income (loss):
Change in net assets related to consolidated VIEs54,123 8,373 95,261 35,122 
Change in fair value of servicing rights162 (365)466 719 
Change in fair value of investment securities, net(12)(1,245)70 (1,600)
Change in fair value of mortgage loans, net(53,342)(113,480)(44,441)(239,263)
Income from affordable housing fund investments223,823 307,165 236,788 541,206 
Earnings from unconsolidated entities9,962 3,865 12,687 2,955 
Gain on sale of investments and other assets, net4,680 138 4,870 98,606 
Gain on derivative financial instruments, net56,376 128,583 23,548 255,851 
Foreign currency gain (loss), net23,334 (78,602)38,353 (105,883)
Loss on extinguishment of debt(1,123)— (1,184)(823)
Other loss, net(26,624)(33,809)(29,165)(34,572)
Total other income291,359 220,623 337,253 552,318 
Income before income taxes223,576 283,911 274,542 665,775 
Income tax (provision) benefit(1,197)(2,206)7,598 244 
Net income222,379 281,705 282,140 666,019 
Net income attributable to non-controlling interests(53,536)(69,418)(61,323)(129,133)
Net income attributable to Starwood Property Trust, Inc.
$168,843 $212,287 $220,817 $536,886 
Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic$0.54 $0.68 $0.70 $1.72 
Diluted$0.54 $0.67 $0.70 $1.69 
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
June 30,
For the Six Months Ended
June 30,
2023202220232022
Net income$222,379 $281,705 $282,140 $666,019 
Other comprehensive income (loss) (net change by component):
Available-for-sale securities(2,496)(6,699)(3,600)(11,983)
Other comprehensive loss(2,496)(6,699)(3,600)(11,983)
Comprehensive income219,883 275,006 278,540 654,036 
Less: Comprehensive income attributable to non-controlling interests(53,536)(69,418)(61,323)(129,133)
Comprehensive income attributable to Starwood Property Trust, Inc.
$166,347 $205,588 $217,217 $524,903 
See notes to condensed consolidated financial statements.
6

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
For the Three Months Ended June 30, 2023 and 2022
(Unaudited, amounts in thousands, except share data)
Temporary EquityCommon stockAdditional
Paid-in
Capital		Treasury StockRetained EarningsAccumulated
Other
Comprehensive
Income		Total
Starwood Property
Trust, Inc.
Stockholders’
Equity		Non-
Controlling
Interests		Total Permanent
Equity
SharesPar
Value		SharesAmount
Balance, March 31, 2023
$364,418 319,669,537 $3,197 $5,826,509 7,448,691 $(138,022)$670,690 $19,851 $6,382,225 $370,248 $6,752,473 
Proceeds from DRIP Plan— 15,795 — 275 — — — — 275 — 275 
Proceeds from employee stock purchase plan— 23,998 — 353 — — — — 353 — 353 
Share-based compensation— 130,652 1 9,497 — — — — 9,498 — 9,498 
Manager fees paid in stock— 377,207 4 6,179 — — — — 6,183 — 6,183 
Net income45,661 — — — — — 168,843 — 168,843 7,875 176,718 
Dividends declared, $0.48 per share
— — — — — — (150,387)— (150,387)— (150,387)
Other comprehensive loss, net— — — — — — — (2,496)(2,496)— (2,496)
Distributions to non-controlling interests(2,045)— — — — — — — — (7,674)(7,674)
Balance, June 30, 2023$408,034 320,217,189 $3,202 $5,842,813 7,448,691 $(138,022)$689,146 $17,355 $6,414,494 $370,449 $6,784,943 
Balance, March 31, 2022
$261,685 314,360,996 $3,144 $5,709,027 7,448,691 $(138,022)$669,877 $35,669 $6,279,695 $368,273 $6,647,968 
Proceeds from ATM agreement— 1,415,564 14 33,307 — — — — 33,321 — 33,321 
Proceeds from DRIP Plan— 12,208 — 284 — — — — 284 — 284 
Equity offering costs— — — (667)— — — — (667)— (667)
Share-based compensation— 224,639 3 9,904 — — — — 9,907 — 9,907 
Manager fees paid in stock— 647,128 6 14,678 — — — — 14,684 — 14,684 
Net income62,783 — — — — — 212,287 — 212,287 6,635 218,922 
Dividends declared, $0.48 per share
— — — — — — (148,816)— (148,816)— (148,816)
Other comprehensive loss, net— — — — — — — (6,699)(6,699)— (6,699)
Contributions from non-controlling interests — — — — — — — — — 17,236 17,236 
Distributions to non-controlling interests(1,715)— — — — — — — — (11,753)(11,753)
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 
See notes to condensed consolidated financial statements.
7

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity (Continued)
For the Six Months Ended June 30, 2023 and 2022
(Unaudited, amounts in thousands, except share data)
Temporary EquityCommon stockAdditional
Paid-in
Capital		Treasury StockRetained EarningsAccumulated
Other
Comprehensive
Income		Total Starwood
Property
Trust, Inc.
Stockholders’
Equity		Non-
Controlling
Interests		Total Permanent
Equity
SharesPar
Value		SharesAmount
Balance, December 31, 2022$362,790 318,123,861 $3,181 $5,807,087 7,448,691 $(138,022)$769,237 $20,955 $6,462,438 $373,479 $6,835,917 
Proceeds from DRIP Plan— 31,452 — 574 — — — — 574 — 574 
Proceeds from employee stock purchase plan— 89,024 1 1,322 — — — — 1,323 — 1,323 
Share-based compensation— 1,222,441 12 20,422 — — — — 20,434 — 20,434 
Manager fees paid in stock— 750,411 8 13,408 — — — — 13,416 — 13,416 
Net income47,948 — — — — — 220,817 — 220,817 13,375 234,192 
Dividends declared, $0.96 per share
— — — — — — (300,908)— (300,908)— (300,908)
Other comprehensive loss, net— — — — — — — (3,600)(3,600)— (3,600)
Distributions to non-controlling interests(2,704)— — — — — — — — (16,405)(16,405)
Balance, June 30, 2023$408,034 320,217,189 $3,202 $5,842,813 7,448,691 $(138,022)$689,146 $17,355 $6,414,494 $370,449 $6,784,943 
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— 22,469 — 535 — — — — 535 — 535 
Equity offering costs— — — (756)— — — — (756)— (756)
Share-based compensation— 1,237,602 13 19,987 — — — — 20,000 — 20,000 
Manager fees paid in stock— 1,715,956 17 40,084 — — — — 40,101 — 40,101 
Net income110,503 — — — — — 536,886 — 536,886 18,630 555,516 
Dividends declared, $0.96 per share
— — — — — — (296,644)— (296,644)— (296,644)
Other comprehensive loss, net— — — — — — — (11,983)(11,983)— (11,983)
Contributions from non-controlling interests— — — — — — — — — 21,926 21,926 
Distributions to non-controlling interests(2,665)— — — — — — — — (21,521)(21,521)
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 
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 Six Months Ended
June 30
20232022
Cash Flows from Operating Activities:
Net income$282,140 $666,019 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings26,026 23,158 
Amortization of discounts and deferred financing costs on unsecured senior notes4,306 4,343 
Accretion of net discount on investment securities(4,273)(7,010)
Accretion of net deferred loan fees and discounts(32,212)(30,869)
Share-based compensation20,434 20,000 
Manager fees paid in stock13,416 40,101 
Change in fair value of investment securities(70)1,600 
Change in fair value of consolidated VIEs(22,696)36,885 
Change in fair value of servicing rights(466)(719)
Change in fair value of loans44,441 239,263 
Change in fair value of affordable housing fund investments (215,983)(518,541)
Change in fair value of derivatives13,335 (260,677)
Foreign currency (gain) loss, net(38,353)105,883 
Gain on sale of investments and other assets(4,870)(98,606)
Impairment charges on properties and related intangibles23,856 55 
Credit loss provision, net165,119 4,780 
Depreciation and amortization27,295 26,118 
Earnings from unconsolidated entities(12,687)(2,955)
Distributions of earnings from unconsolidated entities7,299 4,632 
Loss on extinguishment of debt1,184 624 
Origination and purchase of loans held-for-sale, net of principal collections(162,212)(3,491,526)
Proceeds from sale of loans held-for-sale171,318 3,960,798 
Changes in operating assets and liabilities:
Related-party payable(13,861)(45,617)
Accrued and capitalized interest receivable, less purchased interest(77,999)(72,498)
Other assets(17,963)(60,627)
Accounts payable, accrued expenses and other liabilities(36,168)140,629 
Net cash provided by operating activities
160,356 685,243 
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment(1,039,139)(3,892,225)
Proceeds from principal collections on loans1,477,281 1,204,499 
Proceeds from loans sold52,912 6,469 
Purchase and funding of investment securities(1,452)(86,058)
Proceeds from sales and redemptions of investment securities295 — 
Proceeds from principal collections on investment securities51,348 15,180 
Proceeds from sales of real estate19,037 147,334 
Purchases and additions to properties and other assets(14,314)(11,276)
Investments in unconsolidated entities— (461)
Distribution of capital from unconsolidated entities2,607 3,375 
Cash resulting from initial consolidation of entities123 617 
Payments for purchase or termination of derivatives(9,397)(16,308)
Proceeds from termination of derivatives12,781 152,360 
Net cash provided by (used in) investing activities
552,082 $(2,476,494)
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 Six Months Ended
June 30
20232022
Cash Flows from Financing Activities:
Proceeds from borrowings$2,342,276 $10,035,448 
Principal repayments on and repurchases of borrowings(2,700,729)(7,683,627)
Payment of deferred financing costs(5,093)(33,885)
Proceeds from common stock issuances1,897 33,856 
Payment of equity offering costs— (756)
Payment of dividends(300,001)(294,277)
Contributions from non-controlling interests— 21,926 
Distributions to non-controlling interests(19,109)(24,186)
Repayment of debt of consolidated VIEs(216)(290,034)
Distributions of cash from consolidated VIEs40,447 42,753 
Net cash (used in) provided by financing activities
(640,528)1,807,218 
Net increase in cash, cash equivalents and restricted cash71,910 15,967 
Cash, cash equivalents and restricted cash, beginning of period382,133 321,914 
Effect of exchange rate changes on cash169 (1,075)
Cash, cash equivalents and restricted cash, end of period$454,212 $336,806 
Supplemental disclosure of cash flow information:
Cash paid for interest$662,047 $227,051 
Income taxes paid (refunded), net1,873 (8,220)
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid$152,892 $150,556 
Consolidation of VIEs (VIE asset/liability additions)— 4,361,325 
Deconsolidation of VIEs (VIE asset/liability reductions)— 730,012 
Net assets acquired through foreclosure, control or conversion to equity interest:
Assets acquired, less cash40,897 145,330 
Liabilities assumed74 95,796 
Loan principal collections temporarily held at master servicer158,125 14,053 
Reclassification of loans held-for-investment to loans held-for-sale41,392 63,962 
See notes to condensed consolidated financial statements.
10

Starwood Property Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As of June 30, 2023
(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 June 30, 2023 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, 2022 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and six months ended June 30, 2023 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, 2022 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
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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 Accounting Standard Update (“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 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. We periodically enter into derivative financial instruments to hedge unpredictable changes in fair value of loans held-for-sale, including changes resulting from both interest rates and credit quality. Because these derivatives are not designated, changes in their fair value are recorded in earnings. In order to best reflect the results of the hedged loan portfolio in earnings, we have elected the fair value option for these loans. As a result, changes in the fair value of the loans are also recorded in earnings.
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.
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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.
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. 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
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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.
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. 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.

Income Taxes
The Company has elected to be taxed as a REIT under the Code. The Company is subject to federal income taxation at corporate rates on its REIT taxable income, however, the Company is allowed a deduction for the amount of dividends paid to its stockholders in arriving at its REIT taxable income. As a result, distributed net income of the Company is subjected to taxation at the stockholder level only. The Company intends to continue operating in a manner that will permit it to maintain its qualification as a REIT for tax purposes.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods.

We recognize tax positions in the financial statements only when it is more likely than not that, based on the technical merits of the tax position, the position will be sustained upon examination by the relevant taxing authority. A tax position is measured at the largest amount of benefit that will more likely than not be realized upon settlement. If, as a result of new events or information, a recognized tax position no longer is considered more likely than not to be sustained upon examination, a liability is established for the unrecognized benefit with a corresponding charge to income tax expense in our consolidated
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statement of operations. We report interest and penalties, if any, related to income tax matters as a component of income tax expense.

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 and any outstanding discounted share purchase options under the Employee Stock Purchase Program (“ESPP”), (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 six months ended June 30, 2023 and 2022, 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. In addition, 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 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 June 30, 2023. 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, 2024, as extended by ASU 2022-06, Deferral of the Sunset Date of Topic 848, issued by the FASB on December 21, 2022. The Company has not adopted any of the optional expedients or exceptions through June 30, 2023.
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3. Acquisitions and Divestitures
Investing and Servicing Segment Property Portfolio (“REIS Equity Portfolio”)

During the three and six months ended June 30, 2023, we sold an operating property for $16.3 million within the REIS Equity Portfolio. In connection with this sale, we recognized a total gain of $4.8 million within gain on sale of investments and other assets in our condensed consolidated statements of operations. During the six months ended June 30, 2022, we sold an operating property for $34.5 million. In connection with this sale, we recognized a gain of $11.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

Commercial and Residential Lending Segment
During the six months ended June 30, 2023, there were no material sales of property within the Commercial and Residential Lending Segment. During the six months ended June 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 three and six months ended June 30, 2023 and 2022, we had no significant acquisitions of properties or businesses other than properties acquired through loan foreclosure or obtaining equity control as discussed in Note 4.


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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 June 30, 2023 and December 31, 2022 (dollars in thousands):
June 30, 2023Carrying
Value		Face
Amount		Weighted
Average
Coupon (1)		Weighted
Average Life
(“WAL”)
(years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3)$15,262,891 $15,342,980 8.9 %1.4
Subordinated mortgages (4)74,177 74,870 14.6 %1.3
Mezzanine loans (3)327,532 323,764 12.2 %1.4
Other73,644 74,351 8.2 %1.0
Total commercial loans15,738,244 15,815,965 
Infrastructure first priority loans 2,211,706 2,242,243 9.5 %3.8
Total loans held-for-investment17,949,950 18,058,208 
Loans held-for-sale:
Residential, fair value option 2,621,642 3,008,047 4.5 %N/A(5)
Commercial, $111,354 under fair value option (6)
152,746 153,797 6.6 %5.2
Total loans held-for-sale2,774,388 3,161,844 
Total gross loans20,724,338 $21,220,052 
Credit loss allowances:
Commercial loans held-for-investment(217,071)
Infrastructure loans held-for-investment(19,733)
Total allowances(236,804)
Total net loans$20,487,534 
December 31, 2022
Loans held-for-investment:
Commercial loans:
First mortgages (3)$15,562,452 $15,648,358 7.9 %1.7
Subordinated mortgages (4)71,100 72,118 13.6 %1.8
Mezzanine loans (3)445,363 442,339 12.9 %1.0
Other58,393 59,393 8.2 %1.4
Total commercial loans16,137,308 16,222,208 
Infrastructure first priority loans2,363,544 2,395,762 8.6 %3.9
Total loans held-for-investment18,500,852 18,617,970 
Loans held-for-sale:
Residential, fair value option 2,763,458 3,092,915 4.5 %N/A(5)
Commercial, fair value option21,136 23,900 5.7 %8.6
Total loans held-for-sale2,784,594 3,116,815 
Total gross loans21,285,446 $21,734,785 
Credit loss allowances:
Commercial loans held-for-investment(88,801)
Infrastructure loans held-for-investment(10,612)
Total allowances(99,413)
Total net loans$21,186,033 
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______________________________________________________________________________________________________________________
(1)Calculated using applicable index rates as of June 30, 2023 and December 31, 2022 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 $1.1 billion and $1.3 billion being classified as first mortgages as of June 30, 2023 and December 31, 2022, 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)Residential loans have a weighted average remaining contractual life of 28.3 years and 28.8 years as of June 30, 2023 and December 31, 2022, respectively.
(6)During the six months ended June 30, 2023, $41.4 million of commercial loans held-for-investment were reclassified into loans held-for-sale.
As of June 30, 2023, our variable rate loans held-for-investment, excluding loans for which interest income is not recognized, were as follows (dollars in thousands):
June 30, 2023Carrying
Value		Weighted-average
Spread Above Index
Commercial loans$15,026,054 4.0 %
Infrastructure loans2,198,800 4.0 %
Total variable rate loans held-for-investment$17,224,854 4.0 %

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 conditions (i.e. Gross Domestic Product, employment and interest rates) which apply broadly across all assets. For instance, although the office sector has been adversely affected by the increase in remote working arrangements and the retail sector has been adversely affected by electronic commerce, the broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to office and retail properties than for other property types in determining our credit loss allowance. We have also selected a more adverse macroeconomic recovery forecast for those properties which are experiencing more challenges than their general property type or asset class.
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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 economic cycles over a long period of time as well as average recovery rates. We categorize the results principally 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 June 30, 2023 (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 June 30, 202320232022202120202019Prior
Commercial loans:
Credit quality indicator:
LTV < 60%$275,770 $1,958,777 $2,824,122 $200,775 $1,106,017 $440,664 $— $6,806,125 $17,789 
LTV 60% - 70%— 1,903,719 3,922,152 98,406 272,684 323,718 — 6,520,679 66,179 
LTV > 70%39,248 102,185 549,751 449,713 483,805 659,168 — 2,283,870 128,178 
Credit deteriorated— — — — — 53,925 — 53,925 4,925 
Defeased and other15,900 42,138 — — — 15,607 — 73,645 — 
Total commercial$330,918 $4,006,819 $7,296,025 $748,894 $1,862,506 $1,493,082 $— $15,738,244 $217,071 
Infrastructure loans:
Credit quality indicator:
Power$57,497 $73,841 $114,023 $79,431 $281,282 $625,038 $13,402 $1,244,514 $3,401 
Oil and gas108,488 124,841 347,740 — 187,507 134,862 2,028 905,466 5,025 
Other48,819 — — — — — — 48,819 201 
Credit deteriorated— — — — — 12,907 — 12,907 11,106 
Total infrastructure$214,804 $198,682 $461,763 $79,431 $468,789 $772,807 $15,430 $2,211,706 $19,733 
Loans held-for-sale2,774,388 — 
Total gross loans$20,724,338 $236,804 



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Non-Credit Deteriorated Loans
As of June 30, 2023, we had the following loans with a combined amortized cost basis of $376.7 million that were 90 days or greater past due at June 30, 2023: (i) a $156.8 million mortgage loan on an office complex in Brooklyn, New York; (ii) a $120.8 million senior mortgage loan on an office building in Washington, DC; (iii) $52.1 million of residential loans; (iv) a $37.8 million leasehold mortgage loan on a luxury resort in California destroyed by wildfire; and (v) a $9.2 million loan on a hospitality asset in New York City that our Investing and Servicing Segment acquired as nonperforming in October 2021. All of these loans were on nonaccrual as of June 30, 2023 with the exception of (i).
We also had the following loan on nonaccrual that was not 90 days or greater past due as of June 30, 2023: a $218.0 million senior loan on a retail and entertainment project in New Jersey, of which $7.3 million was previously converted into equity interests (see Note 8). The loan was not considered credit deteriorated as we presently expect to recover all amounts due.
Credit Deteriorated Loans
As of June 30, 2023, we had the following loans that were deemed credit deteriorated: (i) a $63.7 million commercial mortgage loan on an office and retail complex in Arizona for which we provided a $14.7 million specific credit loss provision during the three months ended June 30, 2023, which was charged off in the same period, (ii) a $12.9 million infrastructure loan participation collateralized by a first priority lien on two natural gas fired power plants near Chicago for which we provided a $6.7 million specific credit loss provision during the three months ended March 31, 2023 when the borrower filed for bankruptcy, and a $4.4 million additional specific credit loss provision during the three months ended June 30, 2023, and (iii) a $4.9 million commercial subordinated loan secured by a department store in Chicago which was fully reserved in prior years. All of these loans are on nonaccrual under the cost recovery method as of June 30, 2023.
Foreclosures
In May 2023, we obtained a deed in lieu of foreclosure on a mortgage loan on the retail portion of a hotel located in Chicago, which resulted in our obtaining physical possession of the underlying collateral. The carrying value of the loan was $41.1 million. In connection therewith, we reclassified the carrying value of the loan (representing our acquisition cost of the underlying land, building and in-place leases) to properties ($36.8 million) and lease intangible assets ($4.3 million) in accordance with the asset acquisition provisions of ASC 805.
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
Six Months Ended June 30, 2023
CommercialInfrastructure
Credit loss allowance at December 31, 2022$88,801 $10,612 $99,413 
Credit loss provision, net142,932 9,121 152,053 
Charge-offs (1)(14,662)— (14,662)
Credit loss allowance at June 30, 2023$217,071 $19,733 $236,804 
_____________________________________________________________________________________________________________________
(1)Represents the charge-off of a credit loss allowance relating to the portion of a credit deteriorated commercial mortgage loan on an office and retail complex in Arizona deemed uncollectible (see discussion above). Such loan was originated in 2015.

Unfunded Commitments Credit Loss Allowance (1)
Loans Held-for-Investment
Six Months Ended June 30, 2023
CommercialInfrastructureCMBS (2)Total
Credit loss allowance at December 31, 2022$9,749 $72 $52 $9,873 
Credit loss provision (reversal), net5,551 (27)104 5,628 
Credit loss allowance at June 30, 2023$15,300 $45 $156 $15,501 
Memo: Unfunded commitments as of June 30, 2023 (3)
$1,721,337 $11,250 $34,891 $1,767,478 
______________________________________________________________________________________________________________________
(1)Included in accounts payable, accrued expenses and other liabilities in our consolidated balance sheets.
(2)See Note 5 for further details.
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(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
Six Months Ended June 30, 2023
CommercialInfrastructureResidentialHeld-for-Sale LoansTotal Loans
Balance at December 31, 2022$16,048,507 $2,352,932 $— $2,784,594 $21,186,033 
Acquisitions/originations/additional funding780,232 258,907 — 249,450 1,288,589 
Capitalized interest (1)57,680 259 — 7 57,946 
Basis of loans sold (2)(53,000)— — (171,318)(224,318)
Loan maturities/principal repayments(1,216,797)(418,180)— (84,651)(1,719,628)
Discount accretion/premium amortization25,833 6,379 — — 32,212 
Changes in fair value— — — (44,441)(44,441)
Foreign currency translation gain, net104,113 797 — — 104,910 
Credit loss provision, net(142,932)(9,121)— — (152,053)
Loan foreclosure(41,071)— — (645)(41,716)(3)
Transfer to/from other asset classifications or between segments(41,392)— — 41,392 — 
Balance at June 30, 2023$15,521,173 $2,191,973 $— $2,774,388 $20,487,534 
Held-for-Investment Loans
Six Months Ended June 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 funding3,510,157 382,068 — 3,607,070 7,499,295 
Capitalized interest (1)54,414 242 — 147 54,803 
Basis of loans sold (2)(6,330)— — (3,960,798)(3,967,128)
Loan maturities/principal repayments(1,034,439)(148,225)(4,207)(110,642)(1,297,513)
Discount accretion/premium amortization26,525 4,344 — — 30,869 
Changes in fair value— — 629 (239,892)(239,263)
Foreign currency translation loss, net(299,206)(2,740)— — (301,946)
Credit loss provision, net(10,071)(108)— — (10,179)
Loan foreclosure and equity control(50,151)— — — (50,151)(4)
Transfer to/from other asset classifications or between segments(63,616)— (346)63,962 — 
Balance at June 30, 2022$15,577,481 $2,263,007 $55,301 $2,236,647 $20,132,436 
______________________________________________________________________________________________________________________
(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 $41.1 million carrying value of a mortgage loan on the retail portion of a hotel located in Chicago foreclosed in May 2023 (see discussion above) and a $0.6 million residential mortgage loan foreclosed.
(4)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.

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5. Investment Securities
Investment securities were comprised of the following as of June 30, 2023 and December 31, 2022 (amounts in thousands):
Carrying Value as of
June 30, 2023December 31, 2022
RMBS, available-for-sale$107,216 $113,386 
RMBS, fair value option (1)443,274 423,183 
CMBS, fair value option (1), (2)1,225,740 1,262,846 
HTM debt securities, amortized cost net of credit loss allowance of $10,620 and $3,182
628,261 673,470 
Equity security, fair value10,037 9,840 
Subtotal—Investment securities
2,414,528 2,482,725 
VIE eliminations (1)(1,650,411)(1,666,921)
Total investment securities$764,117 $815,804 
______________________________________________________________________________________________________________________
(1)Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.
(2)Includes $195.5 million and $198.9 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of June 30, 2023 and December 31, 2022, respectively.
Purchases, sales and redemptions, and principal collections for all investment securities were as follows (amounts in thousands):
RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Equity
Security		Securitization
VIEs (1)		Total
Three Months Ended June 30, 2023
Purchases/fundings$— $— $— $861 $— $— $861 
Sales and redemptions— — — — 295 — 295 
Principal collections2,548 14,577 10,980 7,583 — (25,118)10,570 
Three Months Ended June 30, 2022
Purchases/fundings$— $141,795 $63,681 $67,919 $— $(205,476)$67,919 
Sales and redemptions— — — — — — 
Principal collections5,893 20,325 641 1,276 — (20,739)7,396 
RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Equity
Security		Securitization
VIEs (1)		Total
Six Months Ended June 30, 2023
Purchases/fundings$— $— $— $1,452 $— $— $1,452 
Sales and redemptions— — — — 295 — 295 
Principal collections4,983 28,797 12,234 45,781 — (40,447)51,348 
Six Months Ended June 30, 2022
Purchases/fundings$— $226,152 $63,681 $86,058 $— $(289,833)$86,058 
Sales and redemptions— — — — — — — 
Principal collections12,788 41,929 1,276 1,940 — (42,753)15,180 
_________________________________________________________________________________________________________________
(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 June 30, 2023 and December 31, 2022. 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 June 30, 2023 and December 31, 2022 (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
June 30, 2023
RMBS$89,861 $— $89,861 $19,728 $(2,373)$17,355 $107,216 
December 31, 2022
RMBS$92,431 $— $92,431 $21,765 $(810)$20,955 $113,386 
Weighted Average Coupon (1)WAL 
(Years) (2)
June 30, 2023
RMBS5.6 %7.3
______________________________________________________________________________________________________________________
(1)Calculated using the June 30, 2023 LIBOR rate of 5.218% 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 June 30, 2023, approximately $94.9 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 for both the three months ended June 30, 2023 and 2022, and $0.4 million and $0.5 million for the six months ended June 30, 2023 and 2022, 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 June 30, 2023 and December 31, 2022, 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 June 30, 2023
RMBS$14,219 $3,223 $(1,596)$(777)
As of December 31, 2022
RMBS$6,961 $1,889 $(502)$(308)
As of June 30, 2023 and December 31, 2022, there were thirteen securities and ten securities, 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 June 30, 2023, 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 $1.2 billion and $2.8 billion, respectively. As of June 30, 2023, 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 $443.3 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 $18.6 million at June 30, 2023) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.
As of June 30, 2023, $97.8 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 June 30, 2023 and December 31, 2022 (amounts in thousands):
Amortized
Cost Basis		Credit Loss
Allowance		Net Carrying
Amount		Gross Unrealized
Holding Gains		Gross Unrealized
Holding Losses		Fair Value
June 30, 2023
CMBS$577,300 $(536)$576,764 $116 $(29,904)$546,976 
Preferred interests31,340 — 31,340 125 (5,556)25,909 
Infrastructure bonds30,241 (10,084)20,157 35 (20)20,172 
Total$638,881 $(10,620)$628,261 $276 $(35,480)$593,057 
December 31, 2022
CMBS$577,681 $(172)$577,509 $30 $(30,424)$547,115 
Preferred interests29,757 — 29,757 125 (4,863)25,019 
Infrastructure bonds69,214 (3,010)66,204 47 (1,110)65,141 
Total$676,652 $(3,182)$673,470 $202 $(36,397)$637,275 
The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):
CMBSInfrastructure
Bonds		Total HTM
Credit Loss
Allowance
Six Months Ended June 30, 2023
Credit loss allowance at December 31, 2022$172 $3,010 $3,182 
Credit loss provision, net364 7,074 7,438 
Credit loss allowance at June 30, 2023$536 $10,084 $10,620 
During the six months ended June 30, 2023, we provided an additional $7.2 million specific credit loss allowance, bringing the total to $10.0 million, on a $19.2 million infrastructure bond that is collateralized by a first priority lien on a coal-fired power plant in Mississippi. It was deemed credit deteriorated when we acquired the Infrastructure Lending Segment in 2018. It has been placed on nonaccrual under the cost recovery method due to a forbearance and restructuring plan agreed between the lenders and borrower that was necessitated by operating shortfalls at the plant.

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The table below summarizes the maturities of our HTM debt securities by type as of June 30, 2023 (amounts in thousands):
CMBSPreferred
Interests		Infrastructure
Bonds		Total
Less than one year$96,578 $31,340 $— $127,918 
One to three years434,506 — — 434,506 
Three to five years45,680 — 11,043 56,723 
Thereafter— — 9,114 9,114 
Total$576,764 $31,340 $20,157 $628,261 
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. During the three months ended June 30, 2023, 223,016 shares were redeemed by SEREF, leaving 8,916,984 held as of June 30, 2023. The fair value of the investment remeasured in USD was $10.0 million and $9.8 million as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, 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 $775.0 million and debt of $597.4 million as of June 30, 2023.
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 $193.5 million as of June 30, 2023.
Investing and Servicing Segment Property Portfolio
The REIS Equity Portfolio is comprised of 9 commercial real estate properties which were acquired from CMBS trusts over time. The REIS Equity Portfolio includes total gross properties and lease intangibles of $171.0 million and debt of $118.1 million as of June 30, 2023.
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 $500.6 million and debt of $204.4 million as of June 30, 2023.
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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Depreciable LifeJune 30, 2023December 31, 2022
Property Segment
Land and land improvements
0 - 15 years
$176,086 $176,029 
Buildings and building improvements
0 - 45 years
862,943 856,411 
Furniture & fixtures
3 - 5 years
595 446 
Investing and Servicing Segment
Land and land improvements
0 - 15 years
33,584 34,613 
Buildings and building improvements
3 - 40 years
110,588 122,384 
Furniture & fixtures
2 - 5 years
3,332 3,207 
Commercial and Residential Lending Segment
Land and land improvements
N/A
95,603 99,043 
Buildings and building improvements
0 - 50 years
113,467 79,661 
Construction in progress
N/A
273,002 287,701 
Properties, cost1,669,200 1,659,495 
Less: accumulated depreciation(226,437)(209,509)
Properties, net$1,442,763 $1,449,986 

During the three and six months ended June 30, 2023, we recognized a $23.8 million property impairment loss within other loss, net in our condensed consolidated statements of operations. The loss related to a vacant building in California which had been acquired by our Commercial and Residential Lending Segment through a loan foreclosure in December 2022. Management continues to evaluate a variety of potential sale and redevelopment opportunities related to the property. Given the current range of these potential outcomes, we determined that our basis may not be fully recoverable. The estimated fair value of the property was based on a third party appraisal obtained earlier this year.

During the three and six months ended June 30, 2023, we sold an operating property for $16.3 million within the REIS Equity Portfolio. In connection with this sale, we recognized a total gain of $4.8 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. During the six months ended June 30, 2022, we sold an operating property within the REIS Equity Portfolio for $34.5 million and recognized a gain of $11.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the six months ended June 30, 2023, there were no material sales of property within the Commercial and Residential Lending Segment. During the six months ended June 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. 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 $1.8 billion and debt at fair value of $729.4 million as of June 30, 2023.
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 $1.4 billion and debt at fair value of $478.6 million as of June 30, 2023.
Income from the Woodstar Fund’s investments reflects the following components for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Distributions from affordable housing fund investments
$9,000 $12,475 $20,805 $22,665 
Unrealized change in fair value of investments (1)
214,823 294,690 215,983 518,541 
Income from affordable housing fund investments
$223,823 $307,165 $236,788 $541,206 
______________________________________________________________________________________________________________________
(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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Participation /
Ownership % (1)		Carrying value as of
June 30, 2023December 31, 2022
Equity method investments:
Equity interest in two natural gas power plants
10% - 12%
$49,890 $46,618 
Investor entity which owns equity in an online real estate company50%5,491 5,457 
Equity interest in a residential mortgage originator (2)N/A— 1,449 
Various
25% - 50%
16,400 15,377 
71,781 68,901 
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
4% - 6%
940 940 
Investor entities which own equity interests in two entertainment and retail centers (3)15%6,201 7,322 
Various
1% - 3%
1,774 1,774 
21,870 22,991 
$93,651 $91,892 
______________________________________________________________________________________________________________________
(1)None of these investments are publicly traded and therefore quoted market prices are not available.
(2)In January 2023, we sold our ownership interest to an unaffiliated third party.
(3)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. During the three and six months ended June 30, 2023, we received a $1.1 million distribution from one of these investor entities which was considered a return of capital and reduced the carrying value of that investment. 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 June 30, 2023.
During the three and six months ended June 30, 2023, 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 June 30, 2023 and December 31, 2022 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 June 30, 2023 and December 31, 2022 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 June 30, 2023 and December 31, 2022, the balance of the domestic servicing intangible was net of $36.9 million and $39.1 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 June 30, 2023 and December 31, 2022, the domestic servicing intangible had a balance of $55.1 million and $56.8 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 June 30, 2023 and December 31, 2022 (amounts in thousands):
As of June 30, 2023As of December 31, 2022
Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value		Gross Carrying
Value		Accumulated
Amortization		Net Carrying
Value
Domestic servicing rights, at fair value$18,256 $— $18,256 $17,790 $— $17,790 
In-place lease intangible assets98,190 (66,164)32,026 98,622 (64,246)34,376 
Favorable lease intangible assets28,858 (10,908)17,950 26,649 (10,042)16,607 
Total net intangible assets$145,304 $(77,072)$68,232 $143,061 $(74,288)$68,773 
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The following table summarizes the activity within intangible assets for the six months ended June 30, 2023 (amounts in thousands):
Domestic
Servicing
Rights		In-place Lease
Intangible
Assets		Favorable Lease
Intangible
Assets		Total
Balance as of January 1, 2023$17,790 $34,376 $16,607 $68,773 
Acquisition (1)— 2,061 2,280 4,341 
Amortization— (3,560)(937)(4,497)
Sales— (851)— (851)
Changes in fair value due to changes in inputs and assumptions466 — — 466 
Balance as of June 30, 2023$18,256 $32,026 $17,950 $68,232 
______________________________________________
(1)    Represents lease intangibles related to a deed in lieu of foreclosure on a mortgage loan on the retail portion of a hotel located in Chicago in May 2023 (see Note 4).
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):
2023 (remainder of)$4,246 
20247,241 
20256,136 
20264,610 
20274,116 
Thereafter23,627 
Total$49,976 


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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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Outstanding Balance at
Current
Maturity		   
Extended
Maturity (a)
   Weighted Average
Pricing		Pledged Asset
Carrying Value		Maximum
Facility Size		   June 30, 2023December 31, 2022
Repurchase Agreements:
Commercial LoansAug 2023 to Jun 2028
(b)
Oct 2025 to Dec 2030
(b)
Index + 2.10%
(c)
$10,811,471 $12,131,598 
(d)
$7,628,663 $7,746,867 
Residential LoansOct 2023 to Apr 2024Oct 2023 to Jun 2024
SOFR + 2.30%
2,393,914 3,037,862 2,149,527 1,912,774 
Infrastructure LoansSep 2024Sep 2026
SOFR + 2.07%
339,751 650,000 274,570 290,431 
Conduit LoansDec 2023 to Jun 2025Feb 2024 to Jun 2027
SOFR + 2.13%
102,186 381,500 76,884 8,423 
CMBS/RMBSOct 2023 to Apr 2032
(e)
Oct 2023 to Oct 2032
(e)
(f)1,490,154 1,080,413 776,494 
(g)
840,625 
Total Repurchase Agreements15,137,476 17,281,373 10,906,138 10,799,120 
Other Secured Financing:
Borrowing Base FacilityNov 2024Oct 2026
SOFR + 2.11%
— 750,000 
(h)
— — 
Commercial Financing FacilitiesDec 2023 to Aug 2025Jul 2025 to Dec 2030
Index + 2.03%
407,821 483,570 
(i)
293,371 311,825 
Residential Financing FacilitySep 2023N/A
SOFR + 2.45%
223,790 213,530 213,530 244,418 
Infrastructure Financing FacilitiesJun 2025 to Oct 2025Jun 2027 to Jul 2032
Index + 2.15%
915,553 1,550,000 709,821 765,265 
Property Mortgages - Fixed rateNov 2024 to Sep 2029
(j)
N/A4.45%351,137 249,566 249,566 261,100 
Property Mortgages - Variable rateNov 2023 to Dec 2027N/A(k)973,119 849,328 847,317 847,633 
Term Loans and Revolver(l)N/A(l) N/A
(l)
1,523,772 1,373,772 1,380,766 
Total Other Secured Financing2,871,420 5,619,766 3,687,377 3,811,007 
$18,008,896 $22,901,139 14,593,515 14,610,127 
Unamortized net discount(27,470)(30,320)
Unamortized deferred financing costs(60,998)(78,275)
$14,505,047 $14,501,532 
______________________________________________________________________________________________________________________
(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 $2.9 billion as of June 30, 2023 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to SOFR.
(d)Certain facilities with an aggregate initial maximum facility size of $12.0 billion may be increased to $12.1 billion, subject to certain conditions. The $12.1 billion amount includes such upsizes.
(e)Certain facilities with an outstanding balance of $353.8 million as of June 30, 2023 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 $260.0 million as of June 30, 2023 has a weighted average fixed annual interest rate of 3.27%. All other facilities are variable rate with a weighted average rate of SOFR + 2.22%.
(g)Includes: (i) $260.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $41.5 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 June 30, 2023 of $450.0 million may be increased to $750.0 million, subject to certain conditions.
(i)Certain facilities with an aggregate initial maximum facility size of $383.6 million may be increased to $483.6 million, subject to certain conditions. The $483.6 million amount includes such upsizes.
(j)The weighted average maturity is 4.0 years as of June 30, 2023.
(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 SOFR + 3.36%.
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(l)Consists of: (i) a $776.8 million term loan facility that matures in July 2026, of which $385.0 million has an annual interest rate of SOFR + 2.60% and $391.8 million has an annual interest rate of SOFR + 3.35%, subject to a 0.75% SOFR floor, (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.60% and (iii) a $597.0 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.3 billion as of June 30, 2023.

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.

Our secured financing agreements contain certain financial tests and covenants. As of June 30, 2023, 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 69% 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 31% of repurchase agreements which do permit valuation adjustments based on capital market events, approximately 6% 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 six months ended June 30, 2023, approximately $10.6 million and $20.8 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 six months ended June 30, 2022, approximately $9.2 million and $18.8 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 June 30, 2023, Morgan Stanley Bank, N.A. and JPMorgan Chase Bank, N.A. held collateral sold under certain of our repurchase agreements with carrying values that exceeded the respective repurchase obligations by $795.7 million and $697.4 million, respectively. The weighted average extended maturity of those repurchase agreements is 3.4 years and 4.5 years, respectively.


35

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 six months ended June 30, 2023, we utilized the reinvestment feature, contributing $0.5 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 were 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 six months ended June 30, 2023, we utilized the reinvestment feature, contributing $28.9 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 were 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, allowed us to contribute new loans or participation interests in loans to the CLO in exchange for cash. The reinvestment period expired during 2022 and during the six months ended June 30, 2023, we repaid CLO debt in the amount of $18.8 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 six months ended June 30, 2023, we utilized the reinvestment feature, contributing $65.1 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 for a period of three years. During the six months ended June 30, 2023, we utilized the reinvestment feature, contributing $77.2 million of additional interests into the CLO.

36

The following table is a summary of our CLOs and our SASB as of June 30, 2023 and December 31, 2022 (amounts in thousands):
June 30, 2023CountFace
Amount		Carrying
Value		Weighted
Average Spread		Maturity
STWD 2022-FL3
Collateral assets50$998,388 $1,009,428 
Index + 3.50%
(a)March 2026(b)
Financing1842,500 841,067 
SOFR + 1.93%
(c)November 2038(d)
STWD 2021-HTS
Collateral assets1230,000 231,257 
LIBOR + 3.87%
(a)April 2026(b)
Financing1210,091 209,413 
LIBOR + 2.71%
(c)April 2034(d)
STWD 2021-FL2
Collateral assets371,245,117 1,286,589 
Index + 3.93%
(a)September 2025(b)
Financing11,077,375 1,073,759 
LIBOR + 1.80%
(c)April 2038(d)
STWD 2019-FL1
Collateral assets14741,995 889,185 
Index + 3.52%
(a)April 2025(b)
Financing1720,370 720,370 
SOFR + 1.69%
(c)July 2038(d)
STWD 2021-SIF2
Collateral assets29473,484 512,808 
Index + 3.83%
(a)August 2027(b)
Financing1410,000 407,713 
SOFR + 2.11%
(c)January 2033(d)
STWD 2021-SIF1
Collateral assets29473,976 513,083 
Index + 3.98%
(a)April 2027(b)
Financing1410,000 407,471 
LIBOR + 2.15%
(c)April 2032(d)
Total
Collateral assets$4,162,960 $4,442,350 
Financing$3,670,336 $3,659,793 
December 31, 2022CountFace
Amount		Carrying
Value		Weighted
Average Spread		Maturity
STWD 2022-FL3
Collateral assets51$1,000,000 $1,010,051 
Index + 3.52%
(a)February 2026(b)
Financing1842,500 842,374 
SOFR + 1.93%
(c)November 2038(d)
STWD 2021-HTS
Collateral assets1230,000 231,186 
LIBOR + 3.85%
(a)April 2026(b)
Financing1210,091 208,961 
LIBOR + 2.71%
(c)April 2034(d)
STWD 2021-FL2
Collateral assets361,277,474 1,284,240 
Index + 4.04%
(a)June 2025(b)
Financing11,077,375 1,072,403 
LIBOR + 1.80%
(c)April 2038(d)
STWD 2019-FL1
Collateral assets16902,799 906,409 
Index + 3.67%
(a)December 2024(b)
Financing1739,174 738,473 
SOFR + 1.64%
(c)July 2038(d)
STWD 2021-SIF2
Collateral assets31495,587 510,730 
Index + 3.73%
(a)February 2027(b)
Financing1410,000 407,260 
 SOFR + 2.11%
(c)January 2033(d)
STWD 2021-SIF1
Collateral assets31495,781 511,471 
Index + 3.76%
(a)November 2026(b)
Financing1410,000 406,753 
LIBOR + 2.15%
(c)April 2032(d)
Total
Collateral assets$4,401,641 $4,454,087 
Financing$3,689,140 $3,676,224 
______________________________________________________________________________________________________________________________
(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 June 30, 2023, 7% earned fixed-rate weighted average interest of 7.42%. Of the investments financed by the STWD 2021-SIF1 CLO as of June 30, 2023, 2% earned fixed-rate weighted average interest of 5.69%.
(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.
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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 six months ended June 30, 2023, approximately $2.0 million and $4.7 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. For the three and six months ended June 30, 2022, approximately $2.7 million and $5.1 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, our unamortized issuance costs were $13.5 million and $18.2 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
2023 (remainder of)$1,436,817 $241,571 $433,031 $2,111,419 
20242,267,999 659,783 331,257 3,259,039 
20251,048,921 302,691 840,801 2,192,413 
20262,230,735 920,583 1,782,777 4,934,095 
20273,494,149 1,338,607 120,493 4,953,249 
Thereafter427,517 224,142 161,977 813,636 
Total$10,906,138 $3,687,377 $3,670,336 $18,263,851 
______________________________________________________________________________________________________________________
(a)For the CLOs, the above does not assume utilization of their reinvestment features. The SASB does not have a reinvestment feature.
38

11. Unsecured Senior Notes
The following table is a summary of our unsecured senior notes outstanding as of June 30, 2023 and December 31, 2022 (dollars in thousands):
Coupon
Rate		Effective
Rate (1)		Maturity
Date		Remaining
Period of
Amortization		Carrying Value at
June 30, 2023December 31, 2022
2023 Convertible Notes4.38 %4.57 %4/1/20230.0 years— 250,000 
2023 Senior Notes5.50 %5.71 %11/1/20230.3 years300,000 300,000 
2024 Senior Notes3.75 %3.94 %12/31/20241.5 years400,000 400,000 
2025 Senior Notes4.75 %(2)5.04 %3/15/20251.7 years500,000 500,000 
2026 Senior Notes3.63 %3.77 %7/15/20263.0 years400,000 400,000 
2027 Senior Notes4.38 %(3)4.49 %1/15/20273.5 years500,000 500,000 
Total principal amount2,100,000 2,350,000 
Unamortized discount—Convertible Notes— (118)
Unamortized discount—Senior Notes(7,211)(9,051)
Unamortized deferred financing costs(9,272)(11,620)
Total carrying amount$2,083,517 $2,329,211 
______________________________________________________________________________________________________________________
(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%.
Our unsecured senior notes contain certain financial tests and covenants. As of June 30, 2023, we were in compliance with all such covenants.
Convertible Senior Notes
On March 29, 2017, we issued $250.0 million of 4.375% Convertible Senior Notes due 2023 (the “Convertible Notes”). The entire $250.0 million principal balance of the Convertible Notes matured and was repaid in cash on April 1, 2023.
There was no interest expense recognized from our Convertible Notes during the three months ended June 30, 2023. We recognized interest expense of $2.9 million during the six months ended June 30, 2023 from our Convertible Notes. We recognized interest expense of $2.9 million and $5.8 million, respectively, during the three and six months ended June 30, 2022 from our Convertible Notes.

39

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 six months ended June 30, 2023 and 2022 (amounts in thousands):
Commercial LoansResidential Loans
Face AmountProceedsFace AmountProceeds
For the Three Months Ended June 30,
2023$160,691 $157,879 $— $— 
2022658,447 649,730 827,871 813,175 
For the Six Months Ended June 30,
2023$172,887 $171,318 $— $— 
20221,005,889 991,797 1,905,829 1,913,459 
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 June 30,Face amount (1)Proceeds (1)Face Amount Proceeds
2023$53,000 $52,912 $— $— 
20226,980 6,469 220,101 219,426 
For the Six Months Ended June 30,
2023$53,000 $52,912 $— $— 
20226,980 6,469 1,055,861 1,055,542 
______________________________________________________________________________________________________________________
(1)During the three and six months ended June 30, 2023, we sold a $53.0 million mezzanine loan at par less costs to sell. During the three and six months ended June 30, 2022, we sold $7.0 million of senior interests in first mortgage loans for proceeds of $6.5 million.

40

During both the three and six months ended June 30, 2023 and 2022, there were no gains or losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans.
Infrastructure Loan Sales
There were no sales of loans by the Infrastructure Lending Segment during both the three and six months ended June 30, 2023 and 2022.

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 June 30, 2023 and December 31, 2022, 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.
The following table summarizes our non-designated derivatives as of June 30, 2023 (notional amounts in thousands):

Type of DerivativeNumber of ContractsAggregate Notional AmountNotional CurrencyMaturity
Fx contracts – Buy Euros (“EUR”)39,225 EURApril 2026
Fx contracts – Buy Pounds Sterling (“GBP”)1999,901 GBPJuly 2023 - October 2024
Fx contracts – Buy Australian dollar (“AUD”)4371,553 AUDAugust 2023 - January 2026
Fx contracts – Sell EUR202787,878 EURJuly 2023 - October 2026
Fx contracts – Sell GBP206636,780 GBPJuly 2023 - April 2027
Fx contracts – Sell AUD1071,081,244 AUDJuly 2023 - October 2026
Fx contracts – Sell Swiss Franc (“CHF”)8121,355 CHFAugust 2023 - November 2025
Interest rate swaps – Paying fixed rates524,344,645 USDApril 2024 - April 2033
Interest rate swaps – Receiving fixed rates2970,000 USDMarch 2025 - January 2027
Interest rate caps4624,833 USDNovember 2023 - April 2025
Interest rate caps161,000 GBPApril 2024
Credit instruments349,000 USDSeptember 2058 - August 2061
Interest rate swap guarantees1105,982 USDJune 2025
Total685

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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 June 30, 2023 and December 31, 2022 (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
June 30,
2023
December 31, 2022
June 30,
2023
December 31, 2022
Interest rate contracts$6,935 $10,756 $69,044 $69,776 
Foreign exchange contracts71,192 97,289 28,439 21,628 
Credit instruments882 576 — — 
Total derivatives$79,009 $108,621 $97,483 $91,404 
___________________________________________________
(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 six months ended June 30, 2023 and 2022 (amounts in thousands):

Derivatives Not Designated
as Hedging Instruments		Location of Gain (Loss) 
Recognized in Income
Amount of (Loss) Gain
Recognized in Income for the
Three Months Ended June 30,
Amount of Gain (Loss)
Recognized in Income for the
Six Months Ended June 30,
2023202220232022
Interest rate contractsGain on derivative financial instruments, net$76,483 $37,257 $53,533 $140,190 
Interest rate swap guaranteesGain on derivative financial instruments, net— 100 — 259 
Foreign exchange contractsGain on derivative financial instruments, net(19,794)90,543 (30,138)114,685 
Credit instrumentsGain on derivative financial instruments, net(313)683 153 717 
$56,376 $128,583 $23,548 $255,851 
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 June 30, 2023
Derivative assets$79,009 $— $79,009 $55,904 $— $23,105 
Derivative liabilities$97,483 $— $97,483 $55,904 $41,579 $— 
Repurchase agreements10,906,138 — 10,906,138 10,906,138 — — 
$11,003,621 $— $11,003,621 $10,962,042 $41,579 $— 
As of December 31, 2022
Derivative assets$108,621 $— $108,621 $69,221 $— $39,400 
Derivative liabilities$91,404 $— $91,404 $69,221 $22,183 $— 
Repurchase agreements10,799,120 — 10,799,120 10,799,120 — — 
$10,890,524 $— $10,890,524 $10,868,341 $22,183 $— 
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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.
The following table details the assets and liabilities of our consolidated CLOs and SASB as of June 30, 2023 and December 31, 2022 (amounts in thousands):
June 30, 2023December 31, 2022
Assets:
Cash and cash equivalents$114,873 $31,611 
Loans held-for-investment4,146,798 4,365,791 
Investment securities11,062 36,466 
Accrued interest receivable25,695 20,088 
Other assets143,922 131 
Total Assets$4,442,350 $4,454,087 
Liabilities
Accounts payable, accrued expenses and other liabilities$20,208 $17,737 
Collateralized loan obligations and single asset securitization, net3,659,793 3,676,224 
Total Liabilities$3,680,001 $3,693,961 
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 $2.0 billion, including its indirect
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investment in SPT Dolphin, and no significant liabilities as of June 30, 2023. As of June 30, 2023, Woodstar Feeder Fund, L.P. and its consolidated subsidiary which is also considered a VIE, Woodstar Feeder REIT, LLC, had a $0.6 billion investment in the Woodstar Fund, had no significant liabilities and had temporary equity of $0.4 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 $358.6 million and liabilities of $86.0 million as of June 30, 2023. Refer to Note 17 for further discussion.
In addition to the above non-securitization entities, we have smaller VIEs with total assets of $74.7 million and liabilities of $35.0 million as of June 30, 2023.
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 June 30, 2023, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $18.6 million on a fair value basis.
As of June 30, 2023, 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 $4.6 billion. The 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 $0.9 million as of June 30, 2023, 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 June 30, 2023 and 2022, approximately $21.8 million and $21.6 million, respectively, was incurred for base management fees. For the six months ended June 30, 2023 and 2022, approximately $43.6 million and $43.1 million, respectively, was incurred for base management fees. As of both June 30, 2023 and December 31, 2022, there were $21.8 million of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.
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Incentive Fee. For the three months ended June 30, 2023 and 2022, approximately $3.8 million and $5.2 million, respectively, was incurred for incentive fees. For the six months ended June 30, 2023 and 2022, approximately $16.2 million and $34.2 million, respectively, was incurred for incentive fees. As of June 30, 2023 and December 31, 2022, there were $3.8 million and $14.5 million, respectively, of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.
Expense Reimbursement. For the three months ended June 30, 2023 and 2022, approximately $1.8 million and $1.9 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 both the six months ended June 30, 2023 and 2022, approximately $3.6 million was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, there were $1.7 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. There were no RSAs granted during the three months ended June 30, 2023 and 2022. Expenses related to the vesting of awards to employees of affiliates of our Manager were $2.2 million and $2.3 million during the three months ended June 30, 2023 and 2022, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. During the six months ended June 30, 2023 and 2022, we granted 226,955 and 200,972 RSAs, respectively, at a grant date fair values of $4.3 million and $4.8 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $4.3 million and $5.0 million during the six months ended June 30, 2023 and 2022, respectively. These shares generally vest over a three-year period. Compensation expense related to the ESPP (refer to Note 17) for employees of affiliates of our Manager were not material during the three and six months ended June 30, 2023, and are reflected in general and administrative expenses in our condensed consolidated statement of operations.
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 2022, we granted 1,500,000 RSUs to our Manager under the 2022 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 connection with these grants and prior similar grants, we recognized share-based compensation expense of $5.1 million and $4.5 million within management fees in our condensed consolidated statements of operations for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, we recognized $10.3 million and $9.0 million, respectively, related to these awards. Refer to Note 17 for further discussion.
Investments in Securities
In December 2012, the Company acquired 9,140,000 ordinary shares in SEREF, a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange, for approximately $14.7 million, which equated to approximately 4% ownership of SEREF. During the three months ended June 30, 2023, 223,016 shares were redeemed by SEREF, leaving 8,916,984 held as of June 30, 2023. As of June 30, 2023, our shares represent an approximate 2% interest in SEREF. Refer to Note 5 for additional details.
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 six months ended June 30, 2023, we made payments to the landlord under the terms of the lease of $1.4 million and $2.9 million, respectively, for rent, parking and our pro rata share of building operating expenses. During the six months ended June 30, 2023, we also paid $0.3 million for reimbursements relating to tenant improvements. During the three and six months ended
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June 30, 2023, we recognized $1.6 million and $3.3 million, respectively, of expenses with respect to this lease within general and administrative expenses in our condensed consolidated statements of operations.
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 June 30, 2023 and 2022, property management fees to Highmark of $1.4 million and $1.3 million, respectively, were recognized within our Woodstar Portfolios. During the six months ended June 30, 2023 and 2022, property management fees to Highmark were $2.9 million and $2.7 million, respectively.

Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.
17. Stockholders’ Equity and Non-Controlling Interests
During the six months ended June 30, 2023, our board of directors declared the following dividends:

Declaration DateRecord DateEx-Dividend DatePayment DateAmountFrequency
6/15/236/30/236/29/237/17/23$0.48 Quarterly
3/16/233/31/233/30/234/14/230.48 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 a financial institution. There were no shares issued under the ATM Agreement during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, we issued 1,415,564 shares of common stock under the 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.
Dividend Reinvestment and Direct Stock Purchase Plan
During the six months ended June 30, 2023 and 2022, 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 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 months ended June 30, 2023, 23,998 shares of common stock were purchased by participants at a weighted average discounted purchase price of $14.70. During the six months ended June 30, 2023, 89,024 shares of common stock were purchased by participants at a weighted average discounted purchase price of $14.85 per share. During the three and six months ended June 30, 2023, the Company recognized $0.1 million and $0.3 million, respectively, of compensation expense related to its ESPP 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 June 30, 2023, there were 1.8 million shares of common stock available for future issuance through the ESPP.

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Equity Incentive 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”).
The table below summarizes our share awards granted or vested under the 2017 and 2022 Manager Equity Plans during the six months ended June 30, 2023 and 2022 (dollar amounts in thousands):
Grant DateTypeAmount GrantedGrant Date Fair ValueVesting Period
November 2022RSU1,500,000 $31,605 3 years
November 2020RSU1,800,000 $30,078 3 years
September 2019RSU1,200,000 29,484 (1)
______________________________________________________________________________________________________________________
(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)

Equity Plan
Manager
Equity Plan		TotalWeighted Average
Grant Date Fair
Value (per share)
Balance as of January 1, 2023
2,513,847 1,825,000 4,338,847 $20.65 
Granted863,888 — 863,888 18.91 
Vested(646,421)(550,000)(1,196,421)18.26 
Forfeited(162,857)— (162,857)22.79 
Balance as of June 30, 20232,568,457 1,275,000 3,843,457 20.91 
(1)    Equity-based award activity for awards granted under the 2017 and 2022 Equity Plans is reflected within the Equity Plan column, and for awards granted under the 2017 and 2022 Manager Equity Plans, within the Manager Equity Plan column.
As of June 30, 2023, there were 16.6 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 six months ended June 30, 2023, net income attributable to these non-controlling interests was $45.7 million and $47.9 million, respectively. During the three and six months ended June 30, 2022, net income attributable to these non-controlling interests was $62.8 million and $110.5 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 June 30, 2023, 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 June 30, 2023. 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 both June 30, 2023 and December 31, 2022.
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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 six months ended June 30, 2023, we recognized net income attributable to non-controlling interests of $4.7 million and $9.4 million, respectively, associated with these Class A Units, the same as recognized during the three and six months ended June 30, 2022.
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-controlling interests in our condensed consolidated statement of operations. The non-controlling interests in the CMBS JV were $142.8 million and $144.3 million as of June 30, 2023 and December 31, 2022, respectively. During the three and six months ended June 30, 2023, net income attributable to these non-controlling interests was $2.2 million and $2.9 million, respectively. During the three and six months ended June 30, 2022, net income attributable to these non-controlling interests was $1.3 million and $4.9 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
June 30,		For the Six Months Ended
June 30,
2023202220232022
Basic Earnings
Income attributable to STWD common stockholders$168,843 $212,287 $220,817 $536,886 
Less: Income attributable to participating shares not already deducted as non-controlling interests(2,411)(3,990)(3,452)(12,811)
Basic earnings$166,432 $208,297 $217,365 $524,075 
Diluted Earnings
Income attributable to STWD common stockholders$168,843 $212,287 $220,817 $536,886 
Less: Income attributable to participating shares not already deducted as non-controlling interests(2,411)(3,990)(3,452)(12,811)
Add: Interest expense on Convertible Notes— 2,915 — 5,818 
Add: Undistributed earnings to participating shares770 2,584 — 9,879 
Less: Undistributed earnings reallocated to participating shares(769)(2,506)— (9,579)
Diluted earnings$166,433 $211,290 $217,365 $530,193 
Number of Shares:
Basic — Average shares outstanding309,721 305,035 309,067 303,995 
Effect of dilutive securities — Convertible Notes— 9,649 — 9,649 
Effect of dilutive securities — Contingently issuable shares99 120 99 120 
Effect of dilutive securities — Unvested non-participating shares235 158 247 144 
Diluted — Average shares outstanding310,055 314,962 309,413 313,908 
Earnings Per Share Attributable to STWD Common Stockholders:
Basic$0.54 $0.68 $0.70 $1.72 
Diluted$0.54 $0.67 $0.70 $1.69 
As of June 30, 2023 and 2022, participating shares of 13.2 million and 12.7 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.
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Such participating shares at both June 30, 2023 and 2022 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.
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
Three Months Ended June 30, 2023
Balance at April 1, 2023$19,851 
OCI before reclassifications(2,496)
Amounts reclassified from AOCI— 
Net period OCI(2,496)
Balance at June 30, 2023$17,355 
Three Months Ended June 30, 2022
Balance at April 1, 2022$35,669 
OCI before reclassifications(6,699)
Amounts reclassified from AOCI— 
Net period OCI(6,699)
Balance at June 30, 2022$28,970 
Six Months Ended June 30, 2023
Balance at January 1, 2023$20,955 
OCI before reclassifications(3,600)
Amounts reclassified from AOCI— 
Net period OCI(3,600)
Balance at June 30, 2023$17,355 
Six Months Ended June 30, 2022
Balance at January 1, 2022$40,953 
OCI before reclassifications(11,983)
Amounts reclassified from AOCI— 
Net period OCI(11,983)
Balance at June 30, 2022$28,970 


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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, residential
We measure the fair value of our residential loans held-for-sale 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. The fair value of the Woodstar Fund’s investments as of December 31, 2022 was determined by reference to an external appraisal as of that date.

For the properties, the third party appraisals 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, including June 30, 2023, 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
51

implied rate from the latest appraisal and 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 June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022 (amounts in thousands):
June 30, 2023
TotalLevel ILevel IILevel III
Financial Assets:
Loans under fair value option$2,732,996 $— $59,776 $2,673,220 
RMBS107,216 — — 107,216 
CMBS18,603 — — 18,603 
Equity security10,037 10,037 — — 
Woodstar Fund investments1,976,985 — — 1,976,985 
Domestic servicing rights18,256 — — 18,256 
Derivative assets79,009 — 79,009 — 
VIE assets46,864,870 — — 46,864,870 
Total$51,807,972 $10,037 $138,785 $51,659,150 
Financial Liabilities:
Derivative liabilities$97,483 $— $97,483 $— 
VIE liabilities45,183,730 — 39,292,271 5,891,459 
Total$45,281,213 $— $39,389,754 $5,891,459 

December 31, 2022
TotalLevel ILevel IILevel III
Financial Assets:
Loans under fair value option$2,784,594 $— $— $2,784,594 
RMBS113,386 — — 113,386 
CMBS19,108 — — 19,108 
Equity security9,840 9,840 — — 
Woodstar Fund investments1,761,002 — — 1,761,002 
Domestic servicing rights17,790 — — 17,790 
Derivative assets108,621 — 108,621 — 
VIE assets52,453,041 — — 52,453,041 
Total$57,267,382 $9,840 $108,621 $57,148,921 
Financial Liabilities:
Derivative liabilities$91,404 $— $91,404 $— 
VIE liabilities50,754,355 — 45,248,412 5,505,943 
Total$50,845,759 $— $45,339,816 $5,505,943 


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The changes in financial assets and liabilities classified as Level III are as follows for the three and six months ended June 30, 2023 and 2022 (amounts in thousands):

Three Months Ended June 30, 2023
Loans at
Fair Value		RMBSCMBSWoodstar
Fund Investments		Domestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
April 1, 2023 balance
$2,810,889 $111,069 $18,945 $1,762,162 $18,094 $50,526,390 $(4,833,540)$50,414,009 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale(53,342)— 95 214,823 162 (3,661,520)151,552 (3,348,230)
Net accretion— 1,191 — — — — — 1,191 
Included in OCI— (2,496)— — — — — (2,496)
Purchases / Originations180,250 — — — — — — 180,250 
Sales(157,879)— — — — — — (157,879)
Cash repayments / receipts(46,284)(2,548)(437)— — — (10,541)(59,810)
Transfers into Level III7 — — — — — (1,198,930)(1,198,923)
Transfers out of Level III(60,421)— — — — — — (60,421)
June 30, 2023 balance
$2,673,220 $107,216 $18,603 $1,976,985 $18,256 $46,864,870 $(5,891,459)$45,767,691 
Amount of unrealized gains (losses) attributable to assets still held at June 30, 2023:
Included in earnings$(68,708)$1,191 $95 $214,823 $162 $(3,661,520)$151,552 $(3,362,405)
Included in OCI$— $(2,496)$— $— $— $— $— $(2,496)
Three Months Ended June 30, 2022
Loans at
Fair Value		RMBSCMBSWoodstar Fund InvestmentsDomestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
April 1, 2022 balance
$2,367,022 $134,406 $21,858 $1,264,160 $17,864 $57,763,543 $(5,479,288)$56,089,565 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale(113,480)— (665)294,690 (365)(3,021,691)447,311 (2,394,200)
Net accretion— 2,625 — — — — — 2,625 
Included in OCI— (6,699)— — — — — (6,699)
Purchases / Originations1,340,371 — — — — — — 1,340,371 
Sales(1,309,220)— — — — — — (1,309,220)
Cash repayments / receipts(56,415)(5,893)(228)— — — (415)(62,951)
Transfers into Level III54 — — — — — (426,237)(426,183)
Transfers out of Level III(30,831)— — — — — 262,839 232,008 
Consolidation of VIEs— — — — — 3,251,711 (784,844)2,466,867 
June 30, 2022 balance
$2,197,501 $124,439 $20,965 $1,558,850 $17,499 $57,993,563 $(5,980,634)$55,932,183 
Amount of unrealized gains (losses) attributable to assets still held at June 30, 2022:
Included in earnings$(108,411)$2,340 $(665)$294,690 $(365)$(3,021,691)$447,311 $(2,386,791)
Included in OCI$— $(6,375)$— $— $— $— $— $(6,375)
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Six Months Ended June 30, 2023
Loans at
Fair Value		RMBSCMBSWoodstar Fund InvestmentsDomestic
Servicing
Rights		VIE AssetsVIE
Liabilities		Total
January 1, 2023 balance
$2,784,594 $113,386 $19,108 $1,761,002 $17,790 $52,453,041 $(5,505,943)$51,642,978 
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale(44,441)— 76 215,983 466 (5,588,171)304,605 (5,111,482)
Net accretion— 2,413 — — — — — 2,413 
Included in OCI— (3,600)— — — — — (3,600)
Purchases / Originations249,450 — — — — — — 249,450 
Sales(171,318)— — — — — — (171,318)
Cash repayments / receipts(84,651)(4,983)(581)— — — (11,650)(101,865)
Transfers into Level III7 — — — — — (1,198,930)(1,198,923)
Transfers out of Level III(60,421)— — — — — 520,459 460,038 
June 30, 2023 balance
$2,673,220 $107,216 $18,603 $1,976,985 $18,256 $46,864,870 $(5,891,459)$45,767,691 
Amount of unrealized gains (losses) attributable to
    assets still held at June 30, 2023:
Included in earnings$(61,197)$2,413 $76 $215,983 $466 $(5,588,171)$304,605 $(5,125,825)
Included in OCI$— $(3,600)$— $— $— $— $— $(3,600)
Six Months Ended June 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(239,263)— (1,357)518,541 719 (6,918,293)922,222 (5,717,431)
Net accretion— 5,230 — — — — — 5,230 
Included in OCI— (11,983)— — — — — (11,983)
Purchases / Originations3,607,070 — — — — — — 3,607,070 
Sales(3,587,687)— — — — — — (3,587,687)
Cash repayments / receipts(114,849)(12,788)(452)— — — (825)(128,914)
Transfers into Level III147 — — — — — (630,117)(629,970)
Transfers out of Level III(403,942)— — — — — 317,449 (86,493)
Consolidation of VIEs— — — — — 4,361,325 (1,810,101)2,551,224 
Deconsolidation of VIEs— — 530 — — (730,012)959 (728,523)
June 30, 2022 balance
$2,197,501 $124,439 $20,965 $1,558,850 $17,499 $57,993,563 $(5,980,634)$55,932,183 
Amount of unrealized gains (losses) attributable to
    assets still held at June 30, 2022:
Included in earnings$(168,610)$4,896 $(827)$518,541 $719 $(6,918,293)$922,222 $(5,641,352)
Included in OCI$— $(11,577)$— $— $— $— $— $(11,577)
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.
The following table presents the fair values of our financial instruments not carried at fair value on the consolidated balance sheets (amounts in thousands):
June 30, 2023December 31, 2022
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Financial assets not carried at fair value:
Loans$17,754,538 $17,667,035 $18,401,439 $18,215,072 
HTM debt securities628,261 593,057 673,470 637,275 
Financial liabilities not carried at fair value:
Secured financing agreements, CLOs and SASB$18,164,840 $17,946,463 $18,177,756 $18,017,651 
Unsecured senior notes2,083,517 1,927,078 2,329,211 2,199,135 
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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
June 30, 2023
Valuation
Technique		Unobservable
Input		Range (Weighted Average) as of (1)
June 30, 2023December 31, 2022
Loans under fair value option$2,673,220 Discounted cash flow, market pricingCoupon (d)
2.8% - 9.8% (4.6%)
2.8% - 9.3% (4.5%)
Remaining contractual term (d)
4.8 - 39.0 years (27.9 years)
5.3 - 39.5 years (28.6 years)
FICO score (a)
585 - 900 (749)
585 - 900 (749)
LTV (b)
0% - 92% (66%)
4% - 92% (67%)
Purchase price (d)
80.0% - 108.6% (101.4%)
80.0% - 108.6% (101.4%)
RMBS107,216 Discounted cash flowConstant prepayment rate (a)
2.8% - 12.1% (5.3%)
2.8% - 12.0% (5.5%)
Constant default rate (b)
0.8% - 3.7% (2.0%)
1.1% - 4.4% (2.0%)
Loss severity (b)
0% - 108% (24%) (f)
0% - 109% (24%) (f)
Delinquency rate (c)
5% - 27% (15%)
6% - 29% (16%)
Servicer advances (a)
29% - 81% (52%)
31% - 77.7% (53%)
Annual coupon deterioration (b)
0% - 2.2% (0.1%)
0% - 2.6% (0.1%)
Putback amount per projected total collateral loss (e)
0% - 8% (0.5%)
0% - 8% (0.5%)
CMBS18,603 Discounted cash flowYield (b)
0% - 582.3% (10.8%)
0% - 117.5% (10.1%)
Duration (c)
0 - 7.1 years (2.7 years)
0 - 7.7 years (3.0 years)
Woodstar Fund investments1,976,985 Discounted cash flowDiscount rate - properties (b)N/A
6.3% - 6.8% (6.5%)
Discount rate - debt (a)
5.5% - 7.5% (6.1%)
5.6% - 6.7% (6.1%)
Terminal capitalization rate (b)
N/A
5.0% - 5.5% (5.1%)
Direct capitalization rate (b)
4.2% (4.2%)
 4.2% (4.2%) (Implied)
Domestic servicing rights18,256 Discounted cash flowDebt yield (a)
8.30% (8.30%)
8.25% (8.25%)
Discount rate (b)
15% (15%)
15% (15%)
VIE assets46,864,870 Discounted cash flowYield (b)
0% - 813.4% (15.7%)
0% - 453.6% (15.3%)
Duration (c)
0 - 10.5 years (2.9 years)
0 - 11.0 years (2.4 years)
VIE liabilities5,891,459 Discounted cash flowYield (b)
0% - 813.4% (11.4%)
0% - 453.6% (10.4%)
Duration (c)
0 - 10.5 years (2.4 years)
0 - 11.0 years (1.8 years)
______________________________________________________________________________________________________________________
(1)Unobservable inputs were weighted by the relative carrying value of the instruments as of June 30, 2023 and December 31, 2022.
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.
(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)8% and 10% of the portfolio falls within a range of 45% - 80% as of June 30, 2023 and December 31, 2022, respectively.
57

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 both June 30, 2023 and December 31, 2022, approximately $3.2 billion 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 six months ended June 30, 2023 and 2022 (dollars in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Federal statutory tax rate$46,951 21.0 %$59,622 21.0 %$57,654 21.0 %$139,813 21.0 %
REIT and other non-taxable income(46,049)(20.5)%(58,233)(20.6)%(63,776)(23.3)%(137,431)(20.6)%
State income taxes296 0.1 %456 0.2 %(2,012)(0.7)%782 0.1 %
Federal benefit of state tax deduction(63)— %(95)— %422 0.2 %(164)— %
Intra-entity transfers— — %— — %— — %(3,868)(0.6)%
Other62 (0.1)%456 0.2 %114 — %624 0.1 %
Effective tax rate$1,197 0.5 %$2,206 0.8 %$(7,598)(2.8)%$(244)— %

For the three and six months ended June 30, 2023, 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 benefit. 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.
22. Commitments and Contingencies
As of June 30, 2023, our Commercial and Residential Lending Segment had future commercial loan funding commitments totaling $2.0 billion, of which we expect to fund $1.8 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions.
As of June 30, 2023, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $123.1 million, including $111.9 million under revolvers and letters of credit (“LCs”), and $11.2 million under delayed draw term loans. As of June 30, 2023, $16.4 million of revolvers and LCs were outstanding.
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.

58

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 June 30, 2023 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$394,112 $59,581 $— $2,156 $— $455,849 $— $455,849 
Interest income from investment securities33,763 165 — 21,603 — 55,531 (36,612)18,919 
Servicing fees135 — — 9,410 — 9,545 (3,203)6,342 
Rental income1,959 — 23,325 7,023 — 32,307 — 32,307 
Other revenues841 310 198 512 391 2,252 — 2,252 
Total revenues430,810 60,056 23,523 40,704 391 555,484 (39,815)515,669 
Costs and expenses:
Management fees212 — — — 30,766 30,978 — 30,978 
Interest expense250,332 35,483 13,469 8,875 55,384 363,543 (211)363,332 
General and administrative14,565 3,734 993 20,640 3,224 43,156 — 43,156 
Acquisition and investment pursuit costs251 5 — (111)— 145 — 145 
Costs of rental operations2,579 — 5,446 3,442 — 11,467 — 11,467 
Depreciation and amortization1,719 27 8,023 2,554 — 12,323 — 12,323 
Credit loss provision, net118,162 3,763 — — — 121,925 — 121,925 
Other expense103 — 23 — — 126 — 126 
Total costs and expenses387,923 43,012 27,954 35,400 89,374 583,663 (211)583,452 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 54,123 54,123 
Change in fair value of servicing rights— — — (1,651)— (1,651)1,813 162 
Change in fair value of investment securities, net26,444 — — (11,001)— 15,443 (15,455)(12)
Change in fair value of mortgage loans, net(65,202)— — 11,860 — (53,342)— (53,342)
Income from affordable housing fund investments— — 223,823 — — 223,823 — 223,823 
Earnings (loss) from unconsolidated entities1,482 2,043 — 7,314 — 10,839 (877)9,962 
(Loss) gain on sale of investments and other assets, net(88)— — 4,768 — 4,680 — 4,680 
Gain (loss) on derivative financial instruments, net67,314 197 5,108 3,820 (20,063)56,376 — 56,376 
Foreign currency gain (loss), net23,261 82 (9)— — 23,334 — 23,334 
Loss on extinguishment of debt(1,004)— — (119)— (1,123)— (1,123)
Other (loss) income, net(26,625)6 (5)— — (26,624)— (26,624)
Total other income (loss)25,582 2,328 228,917 14,991 (20,063)251,755 39,604 291,359 
Income (loss) before income taxes68,469 19,372 224,486 20,295 (109,046)223,576 — 223,576 
Income tax (provision) benefit(399)292 — (1,090)— (1,197)— (1,197)
Net income (loss)68,070 19,664 224,486 19,205 (109,046)222,379 — 222,379 
Net income attributable to non-controlling interests(4)— (50,359)(3,173)— (53,536)— (53,536)
Net income (loss) attributable to Starwood Property Trust, Inc.
$68,066 $19,664 $174,127 $16,032 $(109,046)$168,843 $— $168,843 
59


The table below presents our results of operations for the three months ended June 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$227,555 $30,096 $— $3,499 $— $261,150 $— $261,150 
Interest income from investment securities22,591 1,173 — 20,990 — 44,754 (29,448)15,306 
Servicing fees142 — — 15,616 — 15,758 (3,205)12,553 
Rental income1,044 — 22,628 7,852 — 31,524 — 31,524 
Other revenues61 90 48 4,854 3 5,056 (3)5,053 
Total revenues251,393 31,359 22,676 52,811 3 358,242 (32,656)325,586 
Costs and expenses:
Management fees254 — — — 31,370 31,624 — 31,624 
Interest expense88,226 15,001 7,074 6,391 36,142 152,834 (216)152,618 
General and administrative11,845 3,631 975 23,114 5,342 44,907 98 45,005 
Acquisition and investment pursuit costs738 — 2 (223)— 517 — 517 
Costs of rental operations1,826 — 5,216 3,556 — 10,598 — 10,598 
Depreciation and amortization1,183 104 8,179 2,774 — 12,240 — 12,240 
Credit loss provision, net7,925 513 — — — 8,438 — 8,438 
Other expense1,251 — — 7 — 1,258 — 1,258 
Total costs and expenses113,248 19,249 21,446 35,619 72,854 262,416 (118)262,298 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 8,373 8,373 
Change in fair value of servicing rights— — — 543 — 543 (908)(365)
Change in fair value of investment securities, net(19,312)— — (8,150)— (27,462)26,217 (1,245)
Change in fair value of mortgage loans, net(121,356)— — 7,876 — (113,480)— (113,480)
Income from affordable housing fund investments— — 307,165 — — 307,165 — 307,165 
Earnings (loss) from unconsolidated entities2,786 394 — 1,748 — 4,928 (1,063)3,865 
Gain on sale of investments and other assets, net138 — — — — 138 — 138 
Gain (loss) on derivative financial instruments, net127,140 265 5,354 9,007 (13,183)128,583 — 128,583 
Foreign currency (loss) gain, net(78,331)(289)18 — — (78,602)— (78,602)
Other loss, net(33,809)— — — — (33,809)— (33,809)
Total other income (loss)(122,744)370 312,537 11,024 (13,183)188,004 32,619 220,623 
Income (loss) before income taxes15,401 12,480 313,767 28,216 (86,034)283,830 81 283,911 
Income tax (provision) benefit(557)1 — (1,650)— (2,206)— (2,206)
Net income (loss)14,844 12,481 313,767 26,566 (86,034)281,624 81 281,705 
Net income attributable to non-controlling interests(4)— (67,482)(1,851)— (69,337)(81)(69,418)
Net income (loss) attributable to Starwood Property Trust, Inc.
$14,840 $12,481 $246,285 $24,715 $(86,034)$212,287 $— $212,287 


60


The table below presents our results of operations for the six months ended June 30, 2023 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$769,713 $114,341 $— $2,703 $— $886,757 $— $886,757 
Interest income from investment securities66,284 1,503 — 44,388 — 112,175 (74,619)37,556 
Servicing fees294 — — 19,244 — 19,538 (5,940)13,598 
Rental income3,940 — 47,020 13,636 — 64,596 — 64,596 
Other revenues1,185 526 301 895 669 3,576 — 3,576 
Total revenues841,416 116,370 47,321 80,866 669 1,086,642 (80,559)1,006,083 
Costs and expenses:
Management fees430 — — — 70,088 70,518 — 70,518 
Interest expense476,725 68,301 26,068 16,304 111,656 699,054 (421)698,633 
General and administrative26,458 7,698 1,945 40,687 8,476 85,264 — 85,264 
Acquisition and investment pursuit costs458 13 — (57)— 414 — 414 
Costs of rental operations5,030 — 10,995 7,108 — 23,133 — 23,133 
Depreciation and amortization3,350 57 16,131 5,201 — 24,739 — 24,739 
Credit loss provision, net148,952 16,167 — — — 165,119 — 165,119 
Other expense935 — 23 16 — 974 — 974 
Total costs and expenses662,338 92,236 55,162 69,259 190,220 1,069,215 (421)1,068,794 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 95,261 95,261 
Change in fair value of servicing rights— — — (1,701)— (1,701)2,167 466 
Change in fair value of investment securities, net41,310 — — (25,460)— 15,850 (15,780)70 
Change in fair value of mortgage loans, net(56,940)— — 12,499 — (44,441)— (44,441)
Income from affordable housing fund investments— — 236,788 — — 236,788 — 236,788 
Earnings (loss) from unconsolidated entities2,421 3,783 — 7,993 — 14,197 (1,510)12,687 
(Loss) gain on sale of investments and other assets, net(88)— — 4,958 — 4,870 — 4,870 
Gain (loss) on derivative financial instruments, net32,951 146 3,891 353 (13,793)23,548 — 23,548 
Foreign currency gain, net38,191 157 5 — — 38,353 — 38,353 
Loss on extinguishment of debt(1,065)— — (119)— (1,184)— (1,184)
Other (loss) income, net(29,166)6 (5)— — (29,165)— (29,165)
Total other income (loss)27,614 4,092 240,679 (1,477)(13,793)257,115 80,138 337,253 
Income (loss) before income taxes206,692 28,226 232,838 10,130 (203,344)274,542 — 274,542 
Income tax benefit6,158 338 — 1,102 — 7,598 — 7,598 
Net income (loss)212,850 28,564 232,838 11,232 (203,344)282,140 — 282,140 
Net income attributable to non-controlling interests(7)— (57,337)(3,979)— (61,323)— (61,323)
Net income (loss) attributable to Starwood Property Trust, Inc.
$212,843 $28,564 $175,501 $7,253 $(203,344)$220,817 $— $220,817 



61

The table below presents our results of operations for the six months ended June 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$430,025 $57,079 $— $7,665 $— $494,769 $— $494,769 
Interest income from investment securities43,427 1,920 — 48,379 — 93,726 (64,437)29,289 
Servicing fees278 — — 29,687 — 29,965 (7,420)22,545 
Rental income2,730 — 44,993 15,381 — 63,104 — 63,104 
Other revenues113 158 98 9,508 3 9,880 (9)9,871 
Total revenues476,573 59,157 45,091 110,620 3 691,444 (71,866)619,578 
Costs and expenses:
Management fees531 — — — 86,388 86,919 — 86,919 
Interest expense156,828 26,931 13,155 12,601 69,984 279,499 (430)279,069 
General and administrative23,447 7,142 2,031 46,557 9,970 89,147 179 89,326 
Acquisition and investment pursuit costs1,237 1 7 (306)— 939 — 939 
Costs of rental operations2,345 — 10,217 7,326 — 19,888 — 19,888 
Depreciation and amortization1,477 209 16,398 5,803 — 23,887 — 23,887 
Credit loss provision, net4,626 154 — — — 4,780 — 4,780 
Other expense1,251 — 55 7 — 1,313 — 1,313 
Total costs and expenses191,742 34,437 41,863 71,988 166,342 506,372 (251)506,121 
Other income (loss):
Change in net assets related to consolidated VIEs— — — — — — 35,122 35,122 
Change in fair value of servicing rights— — — 326 — 326 393 719 
Change in fair value of investment securities, net(21,417)— — (17,441)— (38,858)37,258 (1,600)
Change in fair value of mortgage loans, net(237,584)— — (1,679)— (239,263)— (239,263)
Income from affordable housing fund investments— — 541,206 — — 541,206 — 541,206 
Earnings (loss) from unconsolidated entities1,446 739 — 1,899 — 4,084 (1,129)2,955 
Gain on sale of investments and other assets, net86,748 — — 11,858 — 98,606 — 98,606 
Gain (loss) on derivative financial instruments, net245,535 897 22,900 36,870 (50,351)255,851 — 255,851 
Foreign currency (loss) gain, net(105,585)(317)19 — — (105,883)— (105,883)
Loss on extinguishment of debt(206)(469)— (148)— (823)— (823)
Other (loss) income, net(34,597)— — — — (34,597)25 (34,572)
Total other income (loss)(65,660)850 564,125 31,685 (50,351)480,649 71,669 552,318 
Income (loss) before income taxes219,171 25,570 567,353 70,317 (216,690)665,721 54 665,775 
Income tax benefit (provision) 4,583 5 — (4,344)— 244 — 244 
Net income (loss)223,754 25,575 567,353 65,973 (216,690)665,965 54 666,019 
Net income attributable to non-controlling interests(7)— (119,893)(9,179)— (129,079)(54)(129,133)
Net income (loss) attributable to Starwood Property Trust, Inc.
$223,747 $25,575 $447,460 $56,794 $(216,690)$536,886 $— $536,886 
62

The table below presents our consolidated balance sheet as of June 30, 2023 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$54,876 $79,411 $31,769 $31,614 $136,259 $333,929 $— $333,929 
Restricted cash25,912 23,060 958 4,637 65,716 120,283 — 120,283 
Loans held-for-investment, net15,511,767 2,191,973 — 9,406 — 17,713,146 — 17,713,146 
Loans held-for-sale2,663,034 — — 111,354 — 2,774,388 — 2,774,388 
Investment securities1,266,437 20,157 — 1,127,934 — 2,414,528 (1,650,411)764,117 
Properties, net476,847 — 857,354 108,562 — 1,442,763 — 1,442,763 
Investments of consolidated affordable housing fund— — 1,976,985 — — 1,976,985 — 1,976,985 
Investments in unconsolidated entities24,815 50,352 — 32,947 — 108,114 (14,463)93,651 
Goodwill— 119,409 — 140,437 — 259,846 — 259,846 
Intangible assets14,933 — 27,365 62,825 — 105,123 (36,891)68,232 
Derivative assets73,909 189 1,073 3,838 — 79,009 — 79,009 
Accrued interest receivable167,752 14,272 1,213 1,551 5,114 189,902 (280)189,622 
Other assets340,171 19,316 54,319 20,214 55,506 489,526 — 489,526 
VIE assets, at fair value— — — — — — 46,864,870 46,864,870 
Total Assets$20,620,453 $2,518,139 $2,951,036 $1,655,319 $262,595 $28,007,542 $45,162,825 $73,170,367 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$131,382 $20,197 $13,463 $29,472 $73,563 $268,077 $— $268,077 
Related-party payable— — — — 27,325 27,325 — 27,325 
Dividends payable— — — — 152,418 152,418 — 152,418 
Derivative liabilities28,278 161 — — 69,044 97,483 — 97,483 
Secured financing agreements, net10,830,397 974,267 790,880 590,969 1,339,494 14,526,007 (20,960)14,505,047 
Collateralized loan obligations and single asset securitization, net2,844,610 815,183 — — — 3,659,793 — 3,659,793 
Unsecured senior notes, net— — — — 2,083,517 2,083,517 — 2,083,517 
VIE liabilities, at fair value— — — — — — 45,183,730 45,183,730 
Total Liabilities13,834,667 1,809,808 804,343 620,441 3,745,361 20,814,620 45,162,770 65,977,390 
Temporary Equity: Redeemable non-controlling interests
— — 408,034 — — 408,034 — 408,034 
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock— — — — 3,202 3,202 — 3,202 
Additional paid-in capital1,472,374 578,977 (423,121)(648,140)4,862,723 5,842,813 — 5,842,813 
Treasury stock— — — — (138,022)(138,022)— (138,022)
Retained earnings (accumulated deficit)5,295,942 129,354 1,953,146 1,521,373 (8,210,669)689,146 — 689,146 
Accumulated other comprehensive income17,355 — — — — 17,355 — 17,355 
Total Starwood Property Trust, Inc. Stockholders’ Equity6,785,671 708,331 1,530,025 873,233 (3,482,766)6,414,494 — 6,414,494 
Non-controlling interests in consolidated subsidiaries115 — 208,634 161,645 — 370,394 55 370,449 
Total Permanent Equity6,785,786 708,331 1,738,659 1,034,878 (3,482,766)6,784,888 55 6,784,943 
Total Liabilities and Equity$20,620,453 $2,518,139 $2,951,036 $1,655,319 $262,595 $28,007,542 $45,162,825 $73,170,367 
63

The table below presents our consolidated balance sheet as of December 31, 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$68,593 $31,153 $31,194 $39,023 $91,098 $261,061 $— $261,061 
Restricted cash18,556 31,133 981 5,259 65,143 121,072 — 121,072 
Loans held-for-investment, net16,038,930 2,352,932 — 9,577 — 18,401,439 — 18,401,439 
Loans held-for-sale2,763,458 — — 21,136 — 2,784,594 — 2,784,594 
Investment securities1,250,893 66,204 — 1,165,628 — 2,482,725 (1,666,921)815,804 
Properties, net463,492 — 864,778 121,716 — 1,449,986 — 1,449,986 
Investments of consolidated affordable housing fund— — 1,761,002 — — 1,761,002 — 1,761,002 
Investments in unconsolidated entities25,326 47,078 — 33,030 — 105,434 (13,542)91,892 
Goodwill— 119,409 — 140,437 — 259,846 — 259,846 
Intangible assets11,908 — 29,613 66,310 — 107,831 (39,058)68,773 
Derivative assets101,082 122 1,803 5,614 — 108,621 — 108,621 
Accrued interest receivable151,852 9,856 863 1,105 5,120 168,796 (275)168,521 
Other assets170,177 3,614 54,313 12,929 56,444 297,477 — 297,477 
VIE assets, at fair value— — — — — — 52,453,041 52,453,041 
Total Assets$21,064,267 $2,661,501 $2,744,547 $1,621,764 $217,805 $28,309,884 $50,733,245 $79,043,129 
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities$146,897 $20,656 $11,716 $46,377 $73,353 $298,999 $— $298,999 
Related-party payable— — — — 41,186 41,186 — 41,186 
Dividends payable— — — — 151,511 151,511 — 151,511 
Derivative liabilities21,523 105 — — 69,776 91,404 — 91,404 
Secured financing agreements, net10,804,970 1,042,679 789,719 543,256 1,342,074 14,522,698 (21,166)14,501,532 
Collateralized loan obligations and single asset securitization, net2,862,211 814,013 — — — 3,676,224 — 3,676,224 
Unsecured senior notes, net— — — — 2,329,211 2,329,211 — 2,329,211 
VIE liabilities, at fair value— — — — — — 50,754,355 50,754,355 
Total Liabilities13,835,601 1,877,453 801,435 589,633 4,007,111 21,111,233 50,733,189 71,844,422 
Temporary Equity: Redeemable non-controlling interests
— — 362,790 — — 362,790 — 362,790 
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock— — — — 3,181 3,181 — 3,181 
Additional paid-in capital2,124,496 683,258 (405,955)(646,662)4,051,950 5,807,087 — 5,807,087 
Treasury stock— — — — (138,022)(138,022)— (138,022)
Retained earnings (accumulated deficit)5,083,100 100,790 1,777,643 1,514,119 (7,706,415)769,237 — 769,237 
Accumulated other comprehensive income20,955 — — — — 20,955 — 20,955 
Total Starwood Property Trust, Inc. Stockholders’ Equity7,228,551 784,048 1,371,688 867,457 (3,789,306)6,462,438 — 6,462,438 
Non-controlling interests in consolidated subsidiaries115 — 208,634 164,674 — 373,423 56 373,479 
Total Permanent Equity7,228,666 784,048 1,580,322 1,032,131 (3,789,306)6,835,861 56 6,835,917 
Total Liabilities and Equity$21,064,267 $2,661,501 $2,744,547 $1,621,764 $217,805 $28,309,884 $50,733,245 $79,043,129 


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24. Subsequent Events
Our significant events subsequent to June 30, 2023 were as follows:
Convertible Senior Notes
In July 2023, we issued $380.8 million of 6.750% Convertible Senior Notes due July 2027 (the “2027 Convertible Notes”) for net proceeds of $371.2 million. Prior to January 15, 2027, the 2027 Convertible Notes will be convertible into our common stock at an initial conversion rate of 48.1783 shares per $1,000 principal amount (equivalent to a conversion price of approximately $20.76 per share) only upon certain circumstances and during certain periods, and thereafter will be convertible at any time prior to the close of business on the second scheduled trading day prior to maturity of the 2027 Convertible Notes. Upon conversion, holders will receive cash, shares of our common stock or a combination thereof at our election.
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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, 2022 (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 June 30, 2023 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.
Economic Environment

The three and six months ended June 30, 2023 have been characterized by continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth, and geopolitical uncertainty. Recent bank failures and consolidations, and other events affecting financial institutions, have also contributed to volatility in global markets and resulted in diminished liquidity and credit availability in the market broadly.

Continued inflation has prompted the Federal Reserve to take monetary policy tightening actions, including repeatedly raising interest rates, which has created further uncertainty for the economy and challenges for our borrowers. Although our business model is such that rising interest rates will, all else equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers and lead to nonperformance. Additionally, rising rates and increasing costs
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may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 4 to the Condensed Consolidated Financial Statements.
Developments During the Second Quarter of 2023
Commercial and Residential Lending Segment
•Originated a $291.6 million first mortgage loan for the refinancing of a live events business located in the United Kingdom, of which the Company funded $272.1 million.
•Funded $235.0 million of previously originated commercial loan commitments.
•Received gross proceeds of $967.0 million ($379.7 million, net of debt repayments) from maturities and principal repayments on our commercial loans.
•Sold a $53.0 million mezzanine loan on a hospitality asset in Orlando, Florida at par.
Infrastructure Lending Segment
•Acquired $80.3 million of infrastructure loans and funded $10.8 million of pre-existing infrastructure loan commitments.
•Received proceeds of $253.5 million from principal repayments on our infrastructure loans and bonds.
Investing and Servicing Segment
•Originated commercial conduit loans of $187.9 million.
•Received proceeds of $157.9 million from sales of previously originated commercial conduit loans and priced $56.8 million of previously originated commercial conduit loans in a securitization that settled subsequent to June 30, 2023.
•Obtained two new special servicing assignments for CMBS trusts with a total unpaid principal balance of $1.0 billion, while $4.1 billion matured and $1.6 billion transferred, bringing our total named special servicing portfolio to $101.8 billion.
•Sold a commercial retail center for gross proceeds of $16.3 million and recognized a total gain of $4.8 million.
•Received a distribution of $7.1 million from an unconsolidated investee upon its sale of a commercial retail center for gross proceeds of $33.0 million.
Corporate
•Repaid the entire $250.0 million of 4.375% Convertible Senior Notes in cash on April 1, 2023.


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Developments During the First Quarter of 2023
Commercial and Residential Lending Segment
•Originated a $58.5 million mezzanine loan for the acquisition and residential conversion of a property located in Hawaii, of which the Company funded $37.5 million.
•Funded $222.2 million of previously originated commercial loan commitments.
•Received gross proceeds of $256.6 million ($127.2 million, net of debt repayments) from maturities and principal repayments on our commercial loans.
•Amended a commercial credit facility resulting in an upsize of $200.0 million.
Infrastructure Lending Segment
•Acquired $160.0 million of infrastructure loans and funded $14.8 million of pre-existing infrastructure loan commitments.
•Received proceeds of $203.5 million from principal repayments on our infrastructure loans and bonds.
Investing and Servicing Segment
•Originated commercial conduit loans of $73.8 million.
•Received proceeds of $13.4 million from sales of previously originated commercial conduit loans.
•Obtained two new special servicing assignments for CMBS trusts with a total unpaid principal balance of $1.5 billion, bringing our total named special servicing portfolio to $106.7 billion as of March 31, 2023.
Subsequent Events
Refer to Note 24 to the Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to June 30, 2023.
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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 June 30, 2023 and March 31, 2023 and for the six months ended June 30, 2023 and 2022 by business segment (amounts in thousands):
For the Three Months Ended
For the Six Months Ended
$ Change
Revenues:June 30, 2023March 31, 2023$ ChangeJune 30, 2023June 30, 2022
Commercial and Residential Lending Segment$430,810 $410,606 $20,204 $841,416 $476,573 $364,843 
Infrastructure Lending Segment60,056 56,314 3,742 116,370 59,157 57,213 
Property Segment23,523 23,798 (275)47,321 45,091 2,230 
Investing and Servicing Segment40,704 40,162 542 80,866 110,620 (29,754)
Corporate391 278 113 669 3 666 
Securitization VIE eliminations(39,815)(40,744)929 (80,559)(71,866)(8,693)
515,669 490,414 25,255 1,006,083 619,578 386,505 
Costs and expenses:
Commercial and Residential Lending Segment387,923 274,415 113,508 662,338 191,742 470,596 
Infrastructure Lending Segment43,012 49,224 (6,212)92,236 34,437 57,799 
Property Segment27,954 27,208 746 55,162 41,863 13,299 
Investing and Servicing Segment35,400 33,859 1,541 69,259 71,988 (2,729)
Corporate89,374 100,846 (11,472)190,220 166,342 23,878 
Securitization VIE eliminations(211)(210)(1)(421)(251)(170)
583,452 485,342 98,110 1,068,794 506,121 562,673 
Other income (loss):
Commercial and Residential Lending Segment25,582 2,032 23,550 27,614 (65,660)93,274 
Infrastructure Lending Segment2,328 1,764 564 4,092 850 3,242 
Property Segment228,917 11,762 217,155 240,679 564,125 (323,446)
Investing and Servicing Segment14,991 (16,468)31,459 (1,477)31,685 (33,162)
Corporate(20,063)6,270 (26,333)(13,793)(50,351)36,558 
Securitization VIE eliminations39,604 40,534 (930)80,138 71,669 8,469 
291,359 45,894 245,465 337,253 552,318 (215,065)
Income (loss) before income taxes:
Commercial and Residential Lending Segment68,469 138,223 (69,754)206,692 219,171 (12,479)
Infrastructure Lending Segment19,372 8,854 10,518 28,226 25,570 2,656 
Property Segment224,486 8,352 216,134 232,838 567,353 (334,515)
Investing and Servicing Segment20,295 (10,165)30,460 10,130 70,317 (60,187)
Corporate(109,046)(94,298)(14,748)(203,344)(216,690)13,346 
Securitization VIE eliminations— — — — 54 (54)
223,576 50,966 172,610 274,542 665,775 (391,233)
Income tax (provision) benefit(1,197)8,795 (9,992)7,598 244 7,354 
Net income attributable to non-controlling interests(53,536)(7,787)(45,749)(61,323)(129,133)67,810 
Net income attributable to Starwood Property Trust, Inc.$168,843 $51,974 $116,869 $220,817 $536,886 $(316,069)
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Three Months Ended June 30, 2023 Compared to the Three Months Ended March 31, 2023
Commercial and Residential Lending Segment

Revenues

For the three months June 30, 2023, revenues of our Commercial and Residential Lending Segment increased $20.2 million to $430.8 million, compared to $410.6 million for the three months ended March 31, 2023. This increase was primarily due to an increase in interest income from loans of $18.5 million and investment securities of $1.2 million. The increase in interest income from loans reflects (i) an $18.8 million increase from commercial loans reflecting higher average index rates, slightly offset by (ii) a $0.3 million decrease from residential loans. The increase in interest income from investment securities was primarily due to higher average index rates on certain commercial investments.

Costs and Expenses

For the three months ended June 30, 2023, costs and expenses of our Commercial and Residential Lending Segment increased $113.5 million to $387.9 million, compared to $274.4 million for the three months ended March 31, 2023. This increase was primarily due to an $87.4 million increase in the credit loss provision and a $23.9 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 the credit loss provision in the second quarter of 2023 was primarily due to a deterioration in modeled macroeconomic forecasts. 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
June 30, 2023March 31, 2023Change
Interest income from loans$394,112 $375,601 $18,511 
Interest income from investment securities33,763 32,521 1,242 
Interest expense(250,332)(226,393)(23,939)
Net interest income$177,543 $181,729 $(4,186)

For the three months ended June 30, 2023, net interest income of our Commercial and Residential Lending Segment decreased $4.2 million to $177.5 million, compared to $181.7 million for the three months ended March 31, 2023. This decrease reflects the increase in interest income being more than offset by the increase in interest expense on our secured financing facilities primarily due to higher average index rates and balances on the variable rate facilities which finance our fixed rate residential loans.

During the three months ended June 30, 2023 and March 31, 2023, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:
For the Three Months Ended
June 30, 2023March 31, 2023
Commercial9.2 %8.6 %
Residential5.0 %4.9 %
Overall8.6 %8.1 %

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates while the weighted average unlevered yield on our residential loans was just slightly higher during the three months ended June 30, 2023.

During the three months ended June 30, 2023 and March 31, 2023, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.2% and 6.7%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of reducing these weighted average borrowing costs to 6.6% and 6.2% during the three months ended June 30, 2023 and March 31, 2023, respectively.

Other Income

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For the three months ended June 30, 2023, other income of our Commercial and Residential Lending Segment increased $23.6 million to $25.6 million compared to $2.0 million for the three months ended March 31, 2023. This increase was primarily due to (i) a $101.7 million favorable change in gain (loss) on derivatives, (ii) an $11.6 million greater increase in fair vale of primarily RMBS investment securities and (iii) an $8.3 million increase in foreign currency gains, partially offset by (iv) a $73.5 million unfavorable change in fair value of residential loans and (iv) a $23.8 million impairment loss on a vacant building which had been acquired through a loan foreclosure in December 2022 . The favorable change on derivatives in the second quarter of 2023 reflects a $111.1 million favorable change in gain (loss) on interest rate swaps principally related to residential loans, which more than offsets the unfavorable change in fair value of those loans, partially offset by a $9.4 million increased loss on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increase in foreign currency gains and the increased loss on foreign currency hedges reflect the weakening of the U.S. dollar against the pound sterling (“GBP”) and Euro (“EUR”), partially offset by a strengthening against the Australian dollar (“AUD”), in the second quarter of 2023 compared to a lesser overall weakening of the U.S. dollar against the GBP and EUR, partially offset by a greater strengthening against the AUD in the first quarter of 2023.

Infrastructure Lending Segment

Revenues

For the three months ended June 30, 2023, revenues of our Infrastructure Lending Segment increased $3.8 million to $60.1 million, compared to $56.3 million for the three months ended March 31, 2023. This was primarily due to an increase in interest income from loans of $4.8 million reflecting higher average index rates, partially offset by a $1.2 million decrease in interest income from investment securities reflecting lower average balances and prepayment related income.

Costs and Expenses

For the three months ended June 30, 2023, costs and expenses of our Infrastructure Lending Segment decreased $6.2 million to $43.0 million, compared to $49.2 million for the three months ended March 31, 2023. The decrease was primarily due to an $8.6 million decrease in credit loss provision, partially offset by a $2.7 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio. The decrease in the credit loss provision was primarily due to a decrease in specific loss provisions for a credit-deteriorated loan and investment security. The increase in interest expense was primarily due to higher average index rates.

Net Interest Income (amounts in thousands)
For the Three Months Ended
June 30, 2023March 31, 2023Change
Interest income from loans$59,581 $54,760 $4,821 
Interest income from investment securities165 1,338 (1,173)
Interest expense(35,483)(32,818)(2,665)
Net interest income$24,263 $23,280 $983 

For the three months ended June 30, 2023, net interest income of our Infrastructure Lending Segment increased $1.0 million to $24.3 million, compared to $23.3 million for the three months ended March 31, 2023. The increase reflects the net increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

During the three months ended June 30, 2023 and March 31, 2023, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 10.0% and 9.4%, respectively.

During the three months ended June 30, 2023 and March 31, 2023, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.6% and 7.1%, respectively.

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Other Income

For the three months ended June 30, 2023, other income of our Infrastructure Lending Segment increased $0.5 million to $2.3 million, compared to $1.8 million for the three months ended March 31, 2023.

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$— $36 $— $— $(36)
Medical Office Portfolio(352)653 6,325 — 5,320 
Woodstar Fund59 2 — 210,858 210,915 
Other/Corporate18 55 — (28)(65)
Total$(275)$746 $6,325 $210,830 $216,134 
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 June 30, 2023, revenues of our Property Segment decreased $0.3 million to $23.5 million for the three months ended June 30, 2023, compared to $23.8 million for the three months ended March 31, 2023.

Costs and Expenses

For the three months ended June 30, 2023, costs and expenses of our Property Segment increased $0.8 million to $28.0 million, compared to $27.2 million for the three months ended March 31, 2023. The increase is primarily due to an increase of $0.9 million in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other Income

For the three months ended June 30, 2023, other income of our Property Segment increased $217.1 million to $228.9 million compared to $11.8 million for the three months ended March 31, 2023. The increase is primarily due to (i) a $210.9 million increase in income attributable to investments of the Woodstar Fund, mainly reflecting higher unrealized increases in fair value during the second quarter of 2023, and (ii) a $6.3 million favorable change in gain (loss) 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 June 30, 2023, revenues of our Investing and Servicing Segment increased $0.5 million to $40.7 million, compared to $40.2 million for the three months ended March 31, 2023.

Costs and Expenses

For the three months ended June 30, 2023, costs and expenses of our Investing and Servicing Segment increased $1.5 million to $35.4 million, compared to $33.9 million for the three months ended March 31, 2023. The increase reflects a $1.4 million increase in interest expense on borrowings primarily due to higher average balances of conduit loans held for sale.

Other Income (Loss)

For the three months ended June 30, 2023, other income (loss) of our Investing and Servicing Segment improved $31.5 million to income of $15.0 million, compared to a loss of $16.5 million for the three months ended March 31, 2023. The improvement in other income (loss) was primarily due to (i) an $11.2 million greater increase in fair value of conduit loans, (ii) a $7.3 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and
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CMBS investments, (iii) a $6.6 million increase in earnings from unconsolidated entities and (iv) a $4.6 million increased gain on sales of operating properties.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended June 30, 2023, corporate expenses decreased $11.4 million to $89.4 million, compared to $100.8 million for the three months ended March 31, 2023. This decrease was primarily due to (i) an $8.6 million decrease in management fees, primarily reflecting lower incentive fees, and (ii) a $2.0 million decrease in general and administrative expenses.

Corporate Other (Loss) Income

For the three months ended June 30, 2023, corporate other income decreased $26.4 million to a loss of $20.1 million, compared to income of $6.3 million for the three months ended March 31, 2023. This decrease was due to an unfavorable change in the gain (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 (Provision) Benefit

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 June 30, 2023, our income taxes increased $10.0 million to a provision of $1.2 million compared to a benefit of $8.8 million for the three months ended March 31, 2023 due to taxable income of our TRSs in the second quarter of 2023 compared to tax losses in the first quarter of 2023. The tax losses in the first quarter of 2023 were primarily attributable to net unrealized losses on our residential loans.

Net Income Attributable to Non-controlling Interests

During the three months ended June 30, 2023, net income attributable to non-controlling interests increased $45.7 million to $53.5 million, compared to $7.8 million during the three months ended March 31, 2023. The increase was primarily due to non-controlling interests in increased income, reflecting higher unrealized gains in fair value, of the Woodstar Fund in the second quarter of 2023.

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Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Commercial and Residential Lending Segment
Revenues
For the six months ended June 30, 2023, revenues of our Commercial and Residential Lending Segment increased $364.8 million to $841.4 million, compared to $476.6 million for the six months ended June 30, 2022. This increase was primarily due to increases in interest income from loans of $339.7 million and investment securities of $22.9 million. The increase in interest income from loans reflects (i) a $328.5 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) an $11.2 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations. The increase in interest income from investment securities was primarily due to higher RMBS yields and average investment balances and the effect of higher index rates on certain commercial investments.
Costs and Expenses
For the six months ended June 30, 2023, costs and expenses of our Commercial and Residential Lending Segment increased $470.6 million to $662.3 million, compared to $191.7 million for the six months ended June 30, 2022. This increase was primarily due to (i) a $319.9 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) a $144.3 million increase in credit loss provision. The increase in interest expense was primarily due to higher average index rates and higher average borrowings outstanding. The credit loss provision in the first half of 2023 was primarily due to a deterioration in modeled macroeconomic forecasts.

Net Interest Income (amounts in thousands)
For the Six Months Ended June 30,
20232022Change
Interest income from loans$769,713 $430,025 $339,688 
Interest income from investment securities66,284 43,427 22,857 
Interest expense(476,725)(156,828)(319,897)
Net interest income$359,272 $316,624 $42,648 
For the six months ended June 30, 2023, net interest income of our Commercial and Residential Lending Segment increased $42.7 million to $359.3 million, compared to $316.6 million for the six 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 six months ended June 30, 2023 and 2022, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:
For the Six Months Ended June 30,
20232022
Commercial9.2 %5.3 %
Residential5.0 %4.5 %
Overall8.6 %5.3 %
The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates. The unlevered yield on our residential loans increased primarily due to a decline in fair value of the residential loans.
During the six months ended June 30, 2023 and 2022, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.2% and 2.7%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of adjusting these weighted average borrowing costs to 6.4% and 2.8% during the six months ended June 30, 2023 and 2022, respectively.
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Other Income (Loss)
For the six months ended June 30, 2023, other income (loss) of our Commercial and Residential Lending Segment improved $93.3 million to income of $27.6 million, compared to a loss of $65.7 million for the six months ended June 30, 2022. This improvement primarily reflects (i) a $180.6 million favorable change in fair value of residential loans, (ii) a $143.8 million favorable change in foreign currency gain (loss) and (iii) a $62.7 million favorable change in fair value of primarily RMBS investment securities, partially offset by (iv) a $212.6 million decreased net gain on derivatives and (v) the nonrecurrence of an $86.6 million gain on sale of a foreclosed property in the first quarter of 2022. The decreased net gain on derivatives during the six months ended June 30, 2023 reflects (i) a $144.8 million unfavorable change in foreign currency hedges and (ii) a $67.8 million decreased gain on interest rate swaps principally related to residential loans, which partially offsets the favorable change in fair value of those loans. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The favorable change in foreign currency gain (loss) and the unfavorable change in foreign currency hedges reflect the weakening of the U.S. dollar against the GBP and EUR, partially offset by a strengthening against the AUD, during the first half of 2023 compared to a strengthening of the U.S. dollar against each of those currencies in the first half of 2022.
Infrastructure Lending Segment
Revenues
For the six months ended June 30, 2023, revenues of our Infrastructure Lending Segment increased $57.2 million to $116.4 million, compared to $59.2 million for the six months ended June 30, 2022. This increase was primarily due to an increase in interest income from loans of $57.3 million, principally due to higher average index rates and loan balances.
Costs and Expenses
For the six months ended June 30, 2023, costs and expenses of our Infrastructure Lending Segment increased $57.8 million to $92.2 million, compared to $34.4 million for the six months ended June 30, 2022. The increase was primarily due to (i) a $41.4 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and (ii) a $16.0 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 specific allowances for a credit-deteriorated loan and investment security provided during the first half of 2023.
Net Interest Income (amounts in thousands)
For the Six Months Ended June 30,
20232022Change
Interest income from loans$114,341 $57,079 $57,262 
Interest income from investment securities1,503 1,920 (417)
Interest expense(68,301)(26,931)(41,370)
Net interest income$47,543 $32,068 $15,475 
For the six months ended June 30, 2023, net interest income of our Infrastructure Lending Segment increased $15.4 million to $47.5 million, compared to $32.1 million for the six months ended June 30, 2022. The increase reflects the net increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.
During the six months ended June 30, 2023 and 2022, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 9.7% and 5.3%, respectively.
During the six months ended June 30, 2023 and 2022, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.3% and 3.1%, respectively.
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Other Income
For the six months ended June 30, 2023 and 2022, other income of our Infrastructure Lending Segment increased $3.2 million to $4.1 million, compared to $0.9 million for the six months ended June 30, 2022. The increase primarily reflects a $3.0 million increase in earnings from unconsolidated entities.
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$1,382 $20 $— $— $1,362 
Medical Office Portfolio655 13,390 (19,009)— (31,744)
Woodstar Fund88 (11)— (304,418)(304,319)
Other/Corporate105 (100)— (19)186 
Total$2,230 $13,299 $(19,009)$(304,437)$(334,515)
Revenues
For the six months ended June 30, 2023, revenues of our Property Segment increased $2.2 million to $47.3 million, compared to $45.1 million for the six months ended June 30, 2022, primarily due to rent increases in our Master Lease Portfolio.
Costs and Expenses
For the six months ended June 30, 2023, costs and expenses of our Property Segment increased $13.3 million to $55.2 million, compared to $41.9 million for the six months ended June 30, 2022. The increase is primarily due to an increase of $12.9 million in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.
Other Income
For the six months ended June 30, 2023, other income of our Property Segment decreased $323.4 million to $240.7 million, compared to $564.1 million for the six months ended June 30, 2022. The decrease is primarily due to (i) a $304.4 million decrease in income attributable to investments of the Woodstar Fund, mainly reflecting lower unrealized increases in fair value during the first half of 2023, and (ii) a $19.0 million decreased 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 six months ended June 30, 2023, revenues of our Investing and Servicing Segment decreased $29.7 million to $80.9 million, compared to $110.6 million for the six months ended June 30, 2022. The decrease in revenues was primarily due to (i) a $10.4 million decrease in servicing fees, (ii) a $9.0 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions and (iii) a $9.0 million decrease in interest income reflecting lower CMBS interest recoveries and conduit loan inventories.
Costs and Expenses
For the six months ended June 30, 2023, costs and expenses of our Investing and Servicing Segment decreased $2.7 million to $69.3 million, compared to $72.0 million for the six months ended June 30, 2022. The decrease in costs and expenses primarily reflects decreased incentive compensation principally due to lower securitization volume, partially offset by an increase in interest expense reflecting higher average index rates on borrowings which finance our CMBS investments.
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Other (Loss) Income
For the six months ended June 30, 2023, other income of our Investing and Servicing Segment decreased $33.2 million to a loss of $1.5 million, compared to income of $31.7 million for the six months ended June 30, 2022. The decrease in other income was primarily due to (i) a $36.5 million decreased net gain on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments, (ii) an $8.0 million greater decrease in fair value of CMBS investments and (iii) a $6.9 million decreased gain on sales of operating properties, all partially offset by (iv) a $14.2 million favorable change in fair value of conduit loans and (v) a $6.1 million increase in earnings from unconsolidated entities.
Corporate and Other Items
Corporate Costs and Expenses
For the six months ended June 30, 2023, corporate expenses increased $23.9 million to $190.2 million, compared to $166.3 million for the six months ended June 30, 2022. This increase was primarily due to (i) an increase of $41.7 million in interest expense reflecting higher average outstanding term loan balances, as well as higher index rates, partially offset by (ii) a $16.3 million decrease in management fees, primarily reflecting lower incentive fees attributable to nonrecurring transactions in the first half of 2022.
Corporate Other Loss
For the six months ended June 30, 2023, corporate other loss decreased $36.6 million to $13.8 million, compared to $50.4 million for the six months ended June 30, 2022. This was due to a decreased 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 June 30, 2023 to the three months ended March 31, 2023 for a discussion of the effect of securitization VIE eliminations.
Income Tax Benefit
Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the six months ended June 30, 2023, our income tax benefit increased $7.4 million to $7.6 million, compared to $0.2 million for the six months ended June 30, 2022 due to higher tax losses of our TRSs in the first half of 2023 compared to the first half of 2022. The tax losses were primarily attributable to net unrealized losses on our residential loans.
Net Income Attributable to Non-controlling Interests
For the six months ended June 30, 2023, net income attributable to non-controlling interests decreased $67.8 million to $61.3 million, compared to $129.1 million for the six months ended June 30, 2022. The decrease was primarily due to non-controlling interests in lower income, reflecting lower unrealized gains in fair value, of the Woodstar Fund in the first half of 2023.
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Non-GAAP Financial Measures
Distributable Earnings is a non-GAAP financial measure. We calculate Distributable Earnings as GAAP net income (loss) excluding the following:
(i)non-cash equity compensation expense;
(ii)incentive fees due under our management agreement;
(iii)depreciation and amortization of real estate and associated intangibles;
(iv)acquisition costs associated with successful acquisitions;
(v)any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; and
(vi)any deductions for distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein.
The CECL reserve has been excluded from Distributable Earnings consistent with other unrealized gains (losses) pursuant to our existing policy for reporting Distributable Earnings. We expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the book value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan.
We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations, and is a performance metric we consider when declaring our dividends. We also use Distributable Earnings (previously defined as “Core Earnings”) to compute the incentive fee due under our management agreement.
Distributable Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of our GAAP cash flows from operations, a measure of our liquidity, taxable income, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.
As discussed in Note 2 to the Consolidated Financial Statements, consolidation of securitization variable interest entities (“VIEs”) results in the elimination of certain key financial statement line items, particularly within revenues and other income, including unrealized changes in fair value of loans and investment securities. These line items are essential to understanding the true financial performance of our business segments and the Company as a whole. For this reason, as referenced in Note 2 to our 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 Six Months Ended
June 30, 2023March 31, 2023
June 30, 2023
June 30, 2022
Diluted weighted average shares - GAAP EPS310,055 308,996 309,413 313,908 
Add: Unvested stock awards3,925 4,193 4,044 3,590 
Add: Woodstar II Class A Units9,773 9,773 9,773 9,773 
Less: Convertible Notes dilution— — — (9,649)
Diluted weighted average shares - Distributable EPS323,753 322,962 323,230 317,622 
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 six months ended June 30, 2023.
The following table summarizes our quarterly Distributable Earnings per weighted average diluted share for the six months ended June 30, 2023 and 2022:
Distributable Earnings For the Three-Month Periods Ended
March 31,June 30,
2023
$0.49 $0.49 
2022
0.76 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, 2023, by business segment (amounts in thousands, except per share data). Refer to the footnotes following the Distributable Earnings reconciliation table for the six months ended June 30, 2022.
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$430,810 $60,056 $23,523 $40,704 $391 $555,484 
Costs and expenses(387,923)(43,012)(27,954)(35,400)(89,374)(583,663)
Other income (loss) 25,582 2,328 228,917 14,991 (20,063)251,755 
Income (loss) before income taxes68,469 19,372 224,486 20,295 (109,046)223,576 
Income tax (provision) benefit (399)292 — (1,090)— (1,197)
Income attributable to non-controlling interests(4)— (50,359)(3,173)— (53,536)
Net income (loss) attributable to Starwood Property Trust, Inc.68,066 19,664 174,127 16,032 (109,046)168,843 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 4,691 — — 4,691 
Non-controlling interests attributable to unrealized gains/losses— — 43,063 (1,229)— 41,834 
Non-cash equity compensation expense2,222 383 78 1,575 5,240 9,498 
Management incentive fee— — — — 3,814 3,814 
Acquisition and investment pursuit costs(59)— (82)(228)— (369)
Depreciation and amortization1,855 18 8,092 2,675 — 12,640 
Interest income adjustment for securities5,937 — — 7,594 — 13,531 
Consolidated income tax provision (benefit) associated with fair value adjustments399 (292)— 1,090 — 1,197 
Other non-cash items3 — 395 74 — 472 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans65,202 — — (11,860)— 53,342 
Credit loss provision, net118,162 3,763 — — — 121,925 
Securities(26,444)— — 11,001 — (15,443)
Woodstar Fund investments— — (223,823)— — (223,823)
Derivatives(67,314)(197)(5,108)(3,820)20,063 (56,376)
Foreign currency(23,261)(82)9 — — (23,334)
Earnings from unconsolidated entities(1,482)(2,043)— (7,314)— (10,839)
Sales of properties— — — (4,768)— (4,768)
Unrealized impairment of properties23,833 — — — — 23,833 
Recognition of Distributable realized gains / (losses) on:
Loans (2)
(621)— — 10,522 — 9,901 
Realized credit loss (3)
(14,662)— — — — (14,662)
Securities (4)
10 — — (5,396)— (5,386)
Woodstar Fund investments (5)
— — 14,419 — — 14,419 
Derivatives (6)
30,363 99 5,462 300 (7,996)28,228 
Foreign currency (7)
(1,910)14 (9)— — (1,905)
Earnings (loss) from unconsolidated entities (8)
1,482 (1,040)— 5,781 — 6,223 
Sales of properties (9)
— — — 44 — 44 
Distributable Earnings (Loss)$181,781 $20,287 $21,314 $22,073 $(87,925)$157,530 
Distributable Earnings (Loss) per Weighted Average Diluted Share$0.56 $0.06 $0.07 $0.07 $(0.27)$0.49 
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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended March 31, 2023, by business segment (amounts in thousands, except per share data). Refer to the footnotes following the Distributable Earnings reconciliation table for the six months ended June 30, 2022.
Commercial
and
Residential
Lending
Segment		Infrastructure
Lending
Segment		Property
Segment		Investing
and Servicing
Segment		CorporateTotal
Revenues$410,606 $56,314 $23,798 $40,162 $278 $531,158 
Costs and expenses(274,415)(49,224)(27,208)(33,859)(100,846)(485,552)
Other income (loss)2,032 1,764 11,762 (16,468)6,270 5,360 
Income (loss) before income taxes138,223 8,854 8,352 (10,165)(94,298)50,966 
Income tax benefit6,557 46 — 2,192 — 8,795 
Income attributable to non-controlling interests(3)— (6,978)(806)— (7,787)
Net income (loss) attributable to Starwood Property Trust, Inc.144,777 8,900 1,374 (8,779)(94,298)51,974 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 4,691 — — 4,691 
Non-controlling interests attributable to unrealized gains/losses— — (263)(2,798)— (3,061)
Non-cash equity compensation expense2,087 312 74 1,595 6,868 10,936 
Management incentive fee— — — — 12,365 12,365 
Acquisition and investment pursuit costs(22)— (82)— — (104)
Depreciation and amortization1,742 20 8,185 2,771 — 12,718 
Interest income adjustment for securities5,220 — — 5,420 — 10,640 
Extinguishment of debt, net— — — — (246)(246)
Consolidated income tax benefit associated with fair value adjustments(6,557)(46)— (2,192)— (8,795)
Other non-cash items3 — 352 74 — 429 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans(8,262)— — (639)— (8,901)
Credit loss provision, net30,790 12,404 — — — 43,194 
Securities(14,866)— — 14,459 — (407)
Woodstar Fund investments— — (12,965)— — (12,965)
Derivatives34,363 51 1,217 3,467 (6,270)32,828 
Foreign currency(14,930)(75)(14)— — (15,019)
Earnings from unconsolidated entities(939)(1,740)— (679)— (3,358)
Sales of properties— — — (190)— (190)
Recognition of Distributable realized gains /
(losses) on:
Loans (2)
(1,720)— — 1,763 — 43 
Securities (4)
— — — (2,076)— (2,076)
Woodstar Fund investments (5)
— — 14,243 — — 14,243 
Derivatives (6)
19,946 91 4,212 (111)(6,529)17,609 
Foreign currency (7)
(714)(30)14 — — (730)
Earnings (loss) from unconsolidated entities (8)
939 (96)— 497 — 1,340 
Sales of properties (9)
— — — 79 — 79 
Distributable Earnings (Loss)$191,857 $19,791 $21,038 $12,661 $(88,110)$157,237 
Distributable Earnings (Loss) per Weighted Average Diluted Share$0.60 $0.06 $0.06 $0.04 $(0.27)$0.49 

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Three Months Ended June 30, 2023 Compared to the Three Months Ended March 31, 2023

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $10.1 million, from $191.9 million during the first quarter of 2023 to $181.8 million in the second quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $436.9 million, costs and expenses were $280.5 million, other income was $25.4 million and there was no income tax provision or benefit.

Revenues, consisting principally of interest income on loans, increased by $20.9 million in the second quarter of 2023, primarily due to an increase in interest income from loans of $18.5 million and investment securities of $2.0 million. The increase in interest income from loans reflects (i) an $18.8 million increase from commercial loans, reflecting higher average index rates, slightly offset by (ii) a $0.3 million decrease from residential loans. The increase in interest income from investment securities was primarily due to higher average index rates on certain commercial investments.

Costs and expenses increased by $40.6 million in the second quarter of 2023, primarily due to (i) a $23.9 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, reflecting higher average index rates and borrowings outstanding, and (ii) a $14.7 million realized credit loss on a commercial loan.

Other income increased by $9.6 million in the second quarter of 2023, primarily due to an increase in net realized gains on derivatives which hedge our interest rate and foreign currency risks.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $0.5 million, from $19.8 million during the first quarter of 2023 to $20.3 million in the second quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $60.1 million, costs and expenses were $38.9 million and other loss was $0.9 million.

Revenues, consisting principally of interest income on loans, increased by $3.8 million in the second quarter of 2023, primarily due to an increase in interest income from loans of $4.8 million reflecting higher average index rates, partially offset by a $1.2 million decrease in interest income from investment securities reflecting lower average balances and prepayment related income.

Costs and expenses increased by $2.4 million in the second quarter of 2023, primarily due to an increase in interest expense reflecting higher average index rates.

Other loss increased by $0.9 million in the second quarter of 2023, primarily due to an increased loss from unconsolidated entities.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)
For the Three Months Ended
June 30, 2023March 31, 2023Change
Master Lease Portfolio$4,993 $5,029 $(36)
Medical Office Portfolio5,228 5,034 194 
Woodstar Fund, net of non-controlling interests11,864 11,667 197 
Other/Corporate(771)(692)(79)
Distributable Earnings$21,314 $21,038 $276 

The Property Segment’s Distributable Earnings increased by $0.3 million, from $21.0 million during the first quarter of 2023 to $21.3 million in the second quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $23.9 million, costs and expenses were $20.5 million, other income was $20.5 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $2.6 million.

Revenues decreased by $0.3 million in the second quarter of 2023.

Costs and expenses increased by $0.8 million in the second quarter of 2023, primarily due to an increase in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

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Other income increased by $1.4 million in the second quarter of 2023 primarily due to an increase in realized gain 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 was relatively unchanged in the second quarter of 2023.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings increased by $9.4 million, from $12.7 million during the first quarter of 2023 to $22.1 million in the second quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $48.5 million, costs and expenses were $31.5 million, other income was $9.5 million, there was no income tax provision and the deduction of income attributable to non-controlling interests was $4.4 million.

Revenues increased by $2.7 million in the second quarter of 2023, primarily due to an increase in interest income on CMBS investments and 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 increased by $1.9 million in the second quarter of 2023, primarily due to a $1.4 million increase in interest expense principally on borrowings related to higher average balances of conduit loans held for sale.

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 $9.4 million in the second quarter of 2023, primarily due to an $8.8 million increase in realized gains on conduit loans and a $5.3 million increase in distributable earnings from unconsolidated entities, partially offset by a $3.4 million increase in recognized credit losses on CMBS.

Income attributable to non-controlling interests increased $0.8 million, primarily due to non-controlling interests related to the sale of an operating property in the second quarter of 2023.

Corporate

Corporate loss decreased by $0.2 million, from $88.1 million during the first quarter of 2023 to $87.9 million in the second quarter of 2023.

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the six months ended June 30, 2023, 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$841,416 $116,370 $47,321 $80,866 $669 $1,086,642 
Costs and expenses(662,338)(92,236)(55,162)(69,259)(190,220)(1,069,215)
Other income (loss)27,614 4,092 240,679 (1,477)(13,793)257,115 
Income (loss) before income taxes206,692 28,226 232,838 10,130 (203,344)274,542 
Income tax benefit6,158 338 — 1,102 — 7,598 
Income attributable to non-controlling interests(7)— (57,337)(3,979)— (61,323)
Net income (loss) attributable to Starwood Property Trust, Inc.212,843 28,564 175,501 7,253 (203,344)220,817 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 9,382 — — 9,382 
Non-controlling interests attributable to unrealized gains/losses— — 42,800 (4,027)— 38,773 
Non-cash equity compensation expense4,309 695 152 3,170 12,108 20,434 
Management incentive fee— — — — 16,179 16,179 
Acquisition and investment pursuit costs(81)— (164)(228)— (473)
Depreciation and amortization3,597 38 16,277 5,446 — 25,358 
Interest income adjustment for securities11,157 — — 13,014 — 24,171 
Extinguishment of debt, net— — — — (246)(246)
Consolidated income tax benefit associated with 
fair value adjustments
(6,158)(338)— (1,102)— (7,598)
Other non-cash items6 — 747 148 — 901 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans56,940 — — (12,499)— 44,441 
Credit loss provision, net148,952 16,167 — — — 165,119 
Securities(41,310)— — 25,460 — (15,850)
Woodstar Fund investments— — (236,788)— — (236,788)
Derivatives(32,951)(146)(3,891)(353)13,793 (23,548)
Foreign currency(38,191)(157)(5)— — (38,353)
Earnings from unconsolidated entities(2,421)(3,783)— (7,993)— (14,197)
Sales of properties— — — (4,958)— (4,958)
Unrealized impairment of properties23,833 — — — — 23,833 
Recognition of Distributable realized gains / (losses) on:
Loans (2)
(2,341)— — 12,285 — 9,944 
Realized credit loss (3)
(14,662)— — — — (14,662)
Securities (4)
10 — — (7,472)— (7,462)
Woodstar Fund investments (5)
— — 28,662 — — 28,662 
Derivatives (6)
50,309 190 9,674 189 (14,525)45,837 
Foreign currency (7)
(2,624)(16)5 — — (2,635)
Earnings (loss) from unconsolidated entities (8)
2,421 (1,136)— 6,278 — 7,563 
Sales of properties (9)
— — — 123 — 123 
Distributable Earnings (Loss)$373,638 $40,078 $42,352 $34,734 $(176,035)$314,767 
Distributable Earnings (Loss) per Weighted Average Diluted Share$1.16 $0.12 $0.13 $0.11 $(0.54)$0.98 


84

The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the six months ended June 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$476,573 $59,157 $45,091 $110,620 $3 $691,444 
Costs and expenses(191,742)(34,437)(41,863)(71,988)(166,342)(506,372)
Other income (loss) (65,660)850 564,125 31,685 (50,351)480,649 
Income (loss) before income taxes219,171 25,570 567,353 70,317 (216,690)665,721 
Income tax benefit (provision)4,583 5 — (4,344)— 244 
Income attributable to non-controlling interests(7)— (119,893)(9,179)— (129,079)
Net income (loss) attributable to Starwood Property Trust, Inc.223,747 25,575 447,460 56,794 (216,690)536,886 
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units— — 9,382 — — 9,382 
Non-controlling interests attributable to unrealized gains/losses— — 104,945 646 — 105,591 
Non-cash equity compensation expense4,453 642 134 2,699 12,072 20,000 
Management incentive fee— — — — 34,226 34,226 
Acquisition and investment pursuit costs(337)— (160)(169)— (666)
Depreciation and amortization1,463 191 16,542 6,047 — 24,243 
Interest income adjustment for securities5,063 — — 2,015 — 7,078 
Extinguishment of debt, net— — — — (493)(493)
Other non-cash items32,669 — 792 202 — 33,663 
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans237,584 — — 1,679 — 239,263 
Credit loss reversal, net4,626 154 — — — 4,780 
Securities21,417 — — 17,441 — 38,858 
Woodstar Fund investments— — (541,206)— — (541,206)
Derivatives(245,535)(897)(22,900)(36,870)50,351 (255,851)
Foreign currency105,585 317 (19)— — 105,883 
Earnings from unconsolidated entities(1,446)(739)— (1,899)— (4,084)
Sales of properties(86,610)— — (11,858)— (98,468)
Recognition of Distributable realized gains / (losses) on:
Loans (2)
(72,551)— — (2,808)— (75,359)
Securities (4)
(3,101)— — (4,387)— (7,488)
Woodstar Fund investments(5)
— — 30,834 — — 30,834 
Derivatives (6)
73,021 (78)(2,447)30,849 6,115 107,460 
Foreign currency (7)
(2,295)81 19 — — (2,195)
(Loss) earnings from unconsolidated entities (8)
1,664 739 — 2,845 — 5,248 
Sales of properties (9)
84,738 — — 177 — 84,915 
Distributable Earnings (Loss)$384,155 $25,985 $43,376 $63,403 $(114,419)$402,500 
Distributable Earnings (Loss) per Weighted Average Diluted Share$1.21 $0.08 $0.14 $0.20 $(0.36)$1.27 
______________________________________________________________________________________________________________________

(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).”
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(2)Represents the realized portion of GAAP gains (losses) on residential and commercial conduit loans carried under the fair value option that were sold during the period. The amount is calculated as the difference between (i) the net proceeds received in connection with a securitization or sale of loans and (ii) such loans’ historical cost basis.
(3)Represents loan losses that are deemed nonrecoverable, which is generally upon a realization event, such as when a loan is repaid, or in the case of foreclosure, when the underlying asset is sold. Non-recoverability may also be determined if, in our determination, it is nearly certain that amounts due will not be collected. The amount is calculated as the difference between the cash received or expected to be 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.


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Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Commercial and Residential Lending Segment
The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $10.6 million, from $384.2 million during the first half of 2022 to $373.6 million in the first half of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $852.9 million, costs and expenses were $520.6 million, other income was $41.3 million and there was no income tax provision or benefit.
Revenues, consisting principally of interest income on loans, increased by $371.2 million in the first half of 2023, primarily due to increases in interest income from loans of $339.7 million and investment securities of $29.0 million. The increase in interest income from loans reflects (i) a $328.5 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) an $11.2 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations. The increase in interest income from investment securities was primarily due to higher RMBS yields and average investment balances and the effect of higher index rates on certain commercial investments.
Costs and expenses increased by $339.0 in the first half of 2023, primarily due to (i) a $319.9 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, reflecting higher average index rates and borrowings outstanding, and (ii) a $14.7 million realized credit loss on a commercial loan.
Other income decreased by $38.2 million in the first half of 2023, primarily due to (i) the nonrecurrence of an $84.7 million gain on sale of a foreclosed property in the first quarter of 2022, partially offset by (ii) a $37.9 million decrease in realized losses on residential loans, net of related interest rate derivatives and (iii) a $9.6 million increase in net realized gains on derivatives which hedge our interest rate and foreign currency risks related to commercial loans,
Income taxes principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in a TRS. The income tax benefit decreased from $4.6 million in the first half of 2022 to none in the first half of 2023. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, income tax benefits are generally not recognized in Distributable Earnings until they are realized.
Infrastructure Lending Segment
The Infrastructure Lending Segment’s Distributable Earnings increased by $14.1 million, from $26.0 million during the first half of 2022 to $40.1 million in the first half of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $116.4 million, costs and expenses were $75.3 million and other loss was $1.0 million.
Revenues, consisting principally of interest income on loans, increased by $57.2 million in the first half of 2023, primarily due to an increase in interest income from loans of $57.3 million, reflecting higher average index rates and loan balances.
Costs and expenses increased by $41.9 million in the first half of 2023, primarily due to a $41.4 million increase in interest expense reflecting higher average index rates and borrowings outstanding.
Other income decreased by $1.2 million to a loss in the first half of 2023, primarily due to a $1.9 million unfavorable change in distributable (loss) earnings from unconsolidated entities, partially offset by a $0.5 million lower loss on extinguishment of debt.
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Property Segment
Distributable Earnings by Portfolio (amounts in thousands)
For the Six Months Ended
June 30,
20232022Change
Master Lease Portfolio$10,022 $8,659 $1,363 
Medical Office Portfolio10,261 11,187 (926)
Woodstar Fund, net of non-controlling interests23,531 25,019 (1,488)
Other/Corporate(1,462)(1,489)27 
Distributable Earnings$42,352 $43,376 $(1,024)
The Property Segment’s Distributable Earnings decreased by $1.0 million, from $43.4 million during the first half of 2022 to $42.4 million in the first half of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $48.1 million, costs and expenses were $40.2 million, other income was $39.7 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $5.2 million.
Revenues increased by $2.2 million in the first half of 2023, primarily due to rent increases in our Master Lease Portfolio.
Costs and expenses increased by $14.8 million in the first half of 2023, primarily due to a $14.2 million increase in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.
Other income increased by $11.2 million in the first half of 2023 primarily due to a $13.4 million favorable change in realized gain (loss) on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio, partially offset by a $2.2 million decrease in Distributable Earnings from the Woodstar Fund investments.
Income attributable to non-controlling interests in the Woodstar Fund decreased $0.4 million in the second quarter of 2023.
Investing and Servicing Segment
The Investing and Servicing Segment’s Distributable Earnings decreased by $28.7 million from $63.4 million during the first half of 2022 to $34.7 million in the first half of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $94.2 million, costs and expenses were $61.0 million, other income was $9.5 million, there was no income tax provision or benefit and the deduction of income attributable to non-controlling interests was $8.0 million.
Revenues decreased by $18.8 million in the first half of 2023, primarily due to a $10.4 million decrease in servicing fees and a $9.0 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions.
Costs and expenses decreased by $2.6 million in the first half of 2023, primarily reflecting decreased incentive compensation principally due to lower securitization volume, partially offset by an increase in interest expense reflecting higher average index rates on borrowings which finance our CMBS investments.
Other income decreased by $17.3 million in the first half of 2023, primarily due to (i) a $30.7 million decreased net gain on derivatives, principally related to conduit loans, partially offset by (ii) a $15.1 million favorable change in realized gains (losses) on conduit loans.
Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in a TRS, decreased $4.3 million. Effective January 1, 2023, the TRS which houses these businesses was combined with the TRS which houses our residential loan securitization business into a single TRS. The combined TRS was in a net loss position during the first half of 2023, versus a net income position of the individual Investing and Servicing Segment TRS during the first half of 2022. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, the income tax benefit of the combined TRS will not be recognized in Distributable Earnings until realized.
Income attributable to non-controlling interests decreased $0.5 million.
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Corporate
Corporate loss increased by $61.6 million, from $114.4 million during the first half of 2022 to $176.0 million in the first half of 2023, primarily due to (i) a $41.7 million increase in interest expense reflecting higher average outstanding term loan balances, as well as higher index rates, and (ii) a $20.6 million unfavorable change in realized (loss) gain on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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Liquidity and Capital Resources
Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay dividends to our stockholders, and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months. Our strategy for managing liquidity and capital resources has not changed since December 31, 2022. Refer to our Form 10-K for a description of these strategies.
Sources of Liquidity
Our primary sources of liquidity are as follows:
Cash Flows for the Six Months Ended June 30, 2023 (amounts in thousands)
GAAPVIE
Adjustments		Excluding Securitization VIEs
Net cash provided by operating activities
$160,356 $(10)$160,346 
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment(1,039,139)— (1,039,139)
Proceeds from principal collections and sale of loans1,530,193 — 1,530,193 
Purchase and funding of investment securities(1,452)— (1,452)
Proceeds from collections, sales and redemptions of investment securities51,643 40,447 92,090 
Proceeds from sales of real estate19,037 — 19,037 
Purchases and additions to properties and other assets(14,314)— (14,314)
Net cash flows from other investments and assets6,114 — 6,114 
Net cash provided by investing activities
552,082 40,447 592,529 
Cash Flows from Financing Activities:
Proceeds from borrowings2,342,276 — 2,342,276 
Principal repayments on and repurchases of borrowings(2,700,729)(206)(2,700,935)
Payment of deferred financing costs(5,093)— (5,093)
Proceeds from common stock issuances, net of offering costs1,897 — 1,897 
Payment of dividends(300,001)— (300,001)
Distributions to non-controlling interests(19,109)— (19,109)
Repayment of debt of consolidated VIEs(216)216 — 
Distributions of cash from consolidated VIEs40,447 (40,447)— 
Net cash used in financing activities
(640,528)(40,437)(680,965)
Net increase in cash, cash equivalents and restricted cash
71,910 — 71,910 
Cash, cash equivalents and restricted cash, beginning of period382,133 — 382,133 
Effect of exchange rate changes on cash169 — 169 
Cash, cash equivalents and restricted cash, end of period$454,212 $— $454,212 
The discussion below is on a non-GAAP basis, after removing adjustments principally resulting from the consolidation of the securitization VIEs under ASC 810. These adjustments principally relate to (i) the purchase of CMBS, RMBS, loans and real estate from consolidated VIEs, which are reflected as repayments of VIE debt on a GAAP basis and (ii) sales, principal collections and redemptions of CMBS and RMBS related to consolidated VIEs, which are reflected as VIE distributions on a GAAP basis. There is no net impact to overall cash resulting from these consolidations. Refer to Note 2 to the Condensed Consolidated Financial Statements for further discussion.
Cash and cash equivalents increased by $71.9 million during the six months ended June 30, 2023, reflecting net cash provided by investing activities of $592.5 million and net cash provided by operating activities of $160.3 million, partially offset by net cash used in financing activities of $680.9 million.
90

Net cash provided by operating activities of $160.3 million during the six months ended June 30, 2023 related primarily to cash interest income of $781.5 million from our loans and $94.8 million from our investment securities, net rental income of $40.0 million, receipts from our interest rate derivatives of $36.9 million, servicing fees of $21.0 million, distributions from our affordable housing fund investments of $20.8 million, and sales and principal collections, net of originations and purchases of loans held-for-sale of $9.1 million. Offsetting these cash inflows was cash interest expense of $662.0 million, general and administrative expenses of $133.1 million and a net change in operating assets and liabilities of $54.6 million.
Net cash provided by investing activities of $592.5 million for the six months ended June 30, 2023 related primarily to proceeds received from principal collections and sale of loans of $1.5 billion and investment securities of $92.1 million, partially offset by the origination, purchase and funding of loans held-for-investment of $1.0 billion.
Net cash used in financing activities of $680.9 million for the six months ended June 30, 2023 related primarily to payments on our debt and deferred financing costs, net of borrowings, of $363.8 million and dividend distributions of $300.0 million.
91

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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Face
Amount		Carrying
Value		Asset Specific
Financing		Net
Investment		Unlevered
Return on
Asset (6)
June 30, 2023
First mortgages (1)$15,333,574 $15,253,485 $10,742,543 $4,510,942 9.3 %
Subordinated mortgages (2)74,870 74,177 — 74,177 15.7 %
Mezzanine loans (1)323,764 327,532 — 327,532 13.8 %
Other loans74,351 73,644 — 73,644 12.2 %
Loans held-for-sale, fair value option, residential3,008,047 2,621,642 2,362,551 259,091 4.5 %(5)
Loans held-for-sale, commercial
41,517 41,392 — 41,392 14.3 %
RMBS, available-for-sale197,502 107,216 17,816 89,400 10.3 %
RMBS, fair value option326,274 443,274 (3)164,769 278,505 16.4 %
CMBS, fair value option102,900 97,806 (3)49,798 48,008 9.4 %
HTM debt securities (4)602,800 608,640 133,143 475,497 10.7 %
Credit loss allowance— (217,607)— (217,607)
Equity security11,328 10,037 — 10,037 
Investments in unconsolidated entities N/A 24,815 — 24,815 
Properties, net N/A 476,847 204,387 272,460 
$20,096,927 $19,942,900 $13,675,007 $6,267,893 
December 31, 2022
First mortgages (1)$15,638,781 $15,552,875 $10,883,417 $4,669,458 8.2 %
Subordinated mortgages (2)72,118 71,100 — 71,100 14.6 %
Mezzanine loans (1)442,339 445,363 — 445,363 14.1 %
Other loans59,393 58,393 — 58,393 12.0 %
Loans held-for-sale, fair value option, residential3,092,915 2,763,458 2,155,078 608,380 4.5 %(5)
RMBS, available-for-sale202,818 113,386 74,798 38,588 11.0 %
RMBS, fair value option326,274 423,183 (3)166,560 256,623 12.1 %
CMBS, fair value option102,900 97,218 (3)49,798 47,420 8.4 %
HTM debt securities (4)603,497 607,438 133,143 474,295 9.4 %
Credit loss allowanceN/A(88,973)— (88,973)
Equity security11,057 9,840 — 9,840 
Investments in unconsolidated entitiesN/A25,326 — 25,326 
Properties, netN/A463,492 204,387 259,105 
$20,552,092 $20,542,099 $13,667,181 $6,874,918 
__________________________________________
(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 methodology resulted in mezzanine loans with carrying values of $1.1 billion and $1.3 billion being classified as first mortgages as of June 30, 2023 and December 31, 2022, 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.
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(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. In addition to cash coupon, unlevered return includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees.
As of June 30, 2023 and December 31, 2022, 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 TypeJune 30, 2023December 31, 2022
Multifamily34.3 %33.3 %
Office23.2 %23.1 %
Hotel16.3 %16.5 %
Mixed Use7.9 %9.7 %
Industrial7.3 %6.0 %
Residential1.9 %1.8 %
Retail1.5 %1.6 %
Other7.6 %8.0 %
100.0 %100.0 %

Geographic LocationJune 30, 2023December 31, 2022
U.S. Regions:
South East16.8 %16.7 %
North East16.0 %16.0 %
South West15.3 %15.6 %
West10.2 %10.3 %
Mid Atlantic9.3 %9.3 %
Midwest2.5 %2.7 %
International:
United Kingdom13.1 %13.8 %
Other Europe7.5 %6.4 %
Australia7.4 %7.4 %
Bahamas/Bermuda1.9 %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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Face
Amount		Carrying
Value		Asset Specific
Financing		Net
Investment		Unlevered
Return on
Asset (1)
June 30, 2023
First priority infrastructure loans and HTM securities$2,282,594 $2,241,947 $1,789,450 $452,497 9.9 %
Credit loss allowanceN/A(29,817)— (29,817)
Investments in unconsolidated entitiesN/A50,352 — 50,352 
$2,282,594 $2,262,482 $1,789,450 $473,032 
December 31, 2022
First priority infrastructure loans and HTM securities$2,474,994 $2,432,758 $1,856,692 $576,066 9.1 %
Credit loss allowanceN/A(13,622)— (13,622)
Investments in unconsolidated entitiesN/A47,078 — 47,078 
$2,474,994 $2,466,214 $1,856,692 $609,522 
__________________________________________
(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. In addition to cash coupon, unlevered return includes the amortization of deferred purchase discounts.
As of June 30, 2023 and December 31, 2022, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:
Collateral TypeJune 30, 2023December 31, 2022
Natural gas power57.1 %61.2 %
Midstream/downstream oil & gas39.5 %37.5 %
Renewables2.1 %— %
Other thermal power1.3 %1.3 %
100.0 %100.0 %

Geographic LocationJune 30, 2023December 31, 2022
U.S. Regions:
North East39.4 %39.0 %
South West24.2 %21.9 %
Midwest19.3 %21.9 %
South East8.6 %7.4 %
West3.5 %4.6 %
Mid-Atlantic2.1 %1.8 %
Other2.2 %2.1 %
International:
Mexico0.5 %0.5 %
Other0.2 %0.8 %
100.0 %100.0 %
94

Property Segment
The following table sets forth the amount of each category of investments held within our Property Segment as of June 30, 2023 and December 31, 2022 (amounts in thousands):
June 30, 2023December 31, 2022
Properties, net$857,354 $864,778 
Lease intangibles, net26,370 28,470 
Woodstar Fund1,976,985 1,761,002 
$2,860,709 $2,654,250 
The following table sets forth our net investment and other information regarding the Property Segment’s properties and lease intangibles as of June 30, 2023 (dollars in thousands):
Carrying
Value		Asset
Specific
Financing		Net
Investment		Occupancy
Rate		Weighted Average
Remaining
Lease Term
Office—Medical Office Portfolio$774,986 $597,351 $177,635 90.2 %5.7 years
Retail—Master Lease Portfolio343,790 193,529 150,261 100.0 %18.8 years
Subtotal—undepreciated carrying value1,118,776 790,880 327,896 
Accumulated depreciation and amortization(235,052)— (235,052)
Net carrying value$883,724 $790,880 $92,844 
As of June 30, 2023 and December 31, 2022, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:

Geographic LocationJune 30, 2023December 31, 2022
South East82.4 %81.2 %
South West4.8 %5.2 %
Midwest4.8 %5.0 %
North East4.4 %4.7 %
West3.6 %3.9 %
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 June 30, 2023 and December 31, 2022 (amounts in thousands):
Face
Amount		Carrying
Value		Asset
Specific
Financing		Net
Investment
June 30, 2023
CMBS, fair value option$2,711,212 $1,127,934 (1)$397,086 (2)$730,848 
Intangible assets - servicing rightsN/A55,146 (3)— 55,146 
Lease intangibles, netN/A7,064 — 7,064 
Loans held-for-sale, fair value option, commercial112,280 111,354 75,775 35,579 
Loans held-for-investment9,406 9,406 — 9,406 
Investments in unconsolidated entitiesN/A32,947 (4)— 32,947 
Properties, netN/A108,562 118,109 (9,547)
$2,832,898 $1,452,413 $590,970 $861,443 
December 31, 2022
CMBS, fair value option$2,753,810 $1,165,628 (1)$405,665 (2)$759,963 
Intangible assets - servicing rightsN/A56,848 (3)— 56,848 
Lease intangibles, netN/A8,791 — 8,791 
Loans held-for-sale, fair value option, commercial23,900 21,136 7,519 13,617 
Loans held-for-investment9,577 9,577 — 9,577 
Investments in unconsolidated entitiesN/A33,030 (4)— 33,030 
Properties, netN/A121,716 130,072 (8,356)
$2,787,287 $1,416,726 $543,256 $873,470 
______________________________________________

(1)Includes $1.11 billion and $1.15 billion of CMBS eliminated in consolidation against VIE liabilities pursuant to ASC 810 as of June 30, 2023 and December 31, 2022. Also includes $195.5 million and $198.9 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of June 30, 2023 and December 31, 2022, respectively.
(2)Includes $41.5 million and $42.8 million of non-controlling interests in the consolidated entities which hold certain debt balances as of June 30, 2023 and December 31, 2022, respectively.
(3)Includes $36.9 million and $39.1 million of servicing rights intangibles eliminated in consolidation against VIE assets pursuant to ASC 810 as of June 30, 2023 and December 31, 2022, respectively.
(4)Includes $14.5 million and $13.5 million of investments in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of June 30, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022, respectively:
Property TypeJune 30, 2023December 31, 2022
Retail44.3 %49.3 %
Office32.0 %29.6 %
Mixed Use13.3 %11.7 %
Multifamily7.6 %6.8 %
Hotel2.8 %2.6 %
100.0 %100.0 %

Geographic LocationJune 30, 2023December 31, 2022
Mid Atlantic24.4 %21.9 %
West24.0 %22.0 %
North East21.2 %28.8 %
Midwest13.4 %12.2 %
South West9.3 %6.8 %
South East7.7 %8.3 %
100.0 %100.0 %

97

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, 2022.
Secured Borrowings
The following table is a summary of our secured borrowings as of June 30, 2023 (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 LoansAug 2023 to Jun 2028
(d)
Oct 2025 to Dec 2030
(d)
Index + 2.10%
(e)
$10,811,471 $12,131,598 
(f)
$7,628,663 $309,737 $4,193,198 
Residential LoansOct 2023 to Apr 2024Oct 2023 to Jun 2024
SOFR + 2.30%
2,393,914 3,037,862 2,149,527 587 887,748 
Infrastructure LoansSep 2024Sep 2026
SOFR + 2.07%
339,751 650,000 274,570 — 375,430 
Conduit LoansDec 2023 to Jun 2025Feb 2024 to Jun 2027
SOFR + 2.13%
102,186 381,500 76,884 — 304,616 
CMBS/RMBSOct 2023 to Apr 2032
(g)
Oct 2023 to Oct 2032
(g)
(h)1,490,154 1,080,413 776,494 
(i)
53,295 250,624 
Total Repurchase Agreements15,137,476 17,281,373 10,906,138 363,619 6,011,616 
Other Secured Financing:
Borrowing Base FacilityNov 2024Oct 2026
SOFR + 2.11%
— 750,000 
(j)
— — 750,000 
Commercial Financing FacilitiesDec 2023 to Aug 2025Jul 2025 to Dec 2030
Index + 2.03%
407,821 483,570 
(k)
293,371 — 190,199 
Residential Financing FacilitySep 2023N/A
SOFR + 2.45%
223,790 213,530 213,530 — — 
Infrastructure Financing FacilitiesJun 2025 to Oct 2025Jun 2027 to Jul 2032
Index + 2.15%
915,553 1,550,000 709,821 24,855 815,324 
Property Mortgages - Fixed rateNov 2024 to Sep 2029
(l)
N/A4.45%351,137 249,566 249,566 — — 
Property Mortgages - Variable rateNov 2023 to Dec 2027N/A(m) 973,119 849,328 847,317 — 2,011 
Term Loans and Revolver(n)N/A(n) N/A
(n)
1,523,772 1,373,772 150,000 — 
STWD 2022-FL3 CLONov 2038N/A
SOFR + 1.64%
1,009,428 842,500 842,500 — — 
STWD 2021-HTS SASBApr 2034N/A
LIBOR + 2.22%
231,257 210,091 210,091 — — 
STWD 2021-FL2 CLOApr 2038N/A
LIBOR + 1.50%
1,286,589 1,077,375 1,077,375 — — 
STWD 2019-FL1 CLOJul 2038N/A
SOFR + 1.42%
889,185 720,370 720,370 — — 
STWD 2021-SIF2 CLOJan 2033N/A
SOFR + 1.89%
512,808 410,000 410,000 — — 
STWD 2021-SIF1 CLOApr 2032N/A
LIBOR + 1.81%
513,083 410,000 410,000 — — 
Total Other Secured Financing7,313,770 9,290,102 7,357,713 174,855 1,757,534 
$22,451,246 $26,571,475 $18,263,851 $538,474 $7,769,150 
Unamortized net discount(24,504)
Unamortized deferred financing costs(74,507)
$18,164,840 
___________________________________________
(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 $2.9 billion as of June 30, 2023 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to SOFR.
(f)Certain facilities with an aggregate initial maximum facility size of $12.0 billion may be increased to $12.1 billion, subject to certain conditions. The $12.1 billion amount includes such upsizes.
(g)Certain facilities with an outstanding balance of $353.8 million as of June 30, 2023 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 $260.0 million as of June 30, 2023 has a weighted average fixed annual interest rate of 3.27%. All other facilities are variable rate with a weighted average rate of SOFR + 2.22%.
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(i)Includes: (i) $260.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $41.5 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 June 30, 2023 of $450.0 million may be increased to $750.0 million, subject to certain conditions.
(k)Certain facilities with an aggregate initial maximum facility size of $383.6 million may be increased to $483.6 million, subject to certain conditions. The $483.6 million amount includes such upsizes.
(l)The weighted average maturity is 4.0 years as of June 30, 2023.
(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 SOFR + 3.36%.
(n)Consists of: (i) a $776.8 million term loan facility that matures in July 2026, of which $385.0 million has an annual interest rate of SOFR + 2.60% and $391.8 million has an annual interest rate of SOFR + 3.35%, subject to a 0.75% SOFR floor, (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.60%, and (iii) a $597.0 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.3 billion as of June 30, 2023.

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, 202218,299,267 18,084,425 214,842 (a)
March 31, 202318,630,290 18,331,322 298,968 (b)
June 30, 202318,263,851 18,625,814 (361,963)(c)
_____________________________________________
(a)Variance primarily related to late quarter pledge of a Euro denominated loan and exchange rate fluctuations.
(b)Variance primarily related to late quarter draws to fund $250 million convertible notes repayment on April 1, 2023.
(c)Variance primarily related to late quarter pay downs resulting from repayments on the underlying secured financing collateral.

Borrowings under Unsecured Senior Notes
During the three months ended June 30, 2023 and 2022, the weighted average effective borrowing rate on our unsecured senior notes was 4.2% and 4.7%, respectively. During the six months ended June 30, 2023 and 2022, the weighted average effective borrowing rate on our unsecured senior notes was 4.5% and 4.8%, 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 June 30, 2023. 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
Third Quarter 2023$818,643 $3,198 $(679,592)$142,249 
Fourth Quarter 2023795,399 3,282 (1,731,827)(933,146)(1)
First Quarter 2024206,032 3,055 (648,310)(439,223)(2)
Second Quarter 2024347,484 33,650 (1,339,009)(957,875)(3)
Total$2,167,558 $43,185 $(4,398,738)$(2,187,995)
__________________________________________________
(1)Shortfall primarily relates to (i) $830.7 million of maturities under a repurchase facility that we are working to either extend or refinance with another counterparty and (ii) $300.0 million of our unsecured senior notes that mature in November 2023 that we intend to repay with funds generated in the normal course of business.

(2)Shortfall primarily relates to $548.5 million of maturities under a repurchase facility that we are working to either extend or refinance with another counterparty.

(3)Shortfall primarily relates to (i) $537.9 million of maturities under a repurchase facility that we are working to either extend or refinance with another counterparty and (ii) $351.3 million of repayments under a securities facility which carries a rolling 12-month term that we have historically extended, and intend to continue to extend with lender’s consent.
In the normal course of business, the Company is in discussions with its lenders to extend, amend or replace any financing facilities which contain near term expirations.
Issuances of Equity Securities
We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At June 30, 2023, we had 100,000,000 shares of preferred stock available for issuance and 187,231,502 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, 2022. 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
100

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.

The Company’s board of directors declared the following dividends during the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateAmountFrequency
6/15/236/30/237/17/23$0.48 Quarterly
3/16/233/31/234/14/230.48 Quarterly
Contractual Obligations and Commitments
Our material contractual obligations and commitments as of June 30, 2023 are as follows (amounts in thousands):
TotalLess than
1 year		1 to 3 years3 to 5 yearsMore than
5 years
Secured financings (a)$14,593,515 $2,898,639 $1,388,328 $8,349,218 $1,957,330 
CLOs and SASB (b)3,670,336 601,054 1,893,385 1,083,027 92,870 
Unsecured senior notes2,100,000 300,000 900,000 900,000 — 
Future loan commitments:
Commercial Lending (c)1,756,228 1,208,949 545,866 1,413 — 
Infrastructure Lending (d)123,114 123,114 — — — 
__________________________________________________

(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 Condensed Consolidated Financial Statements for the expected maturities by year.

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

(c)Excludes $290.6 million of loan funding commitments in which management projects the Company will not be obligated to fund in the future due to repayments made by the borrower earlier than, or in excess of, expectations.

(d)Represents contractual commitments of $111.9 million under revolvers and letters of credit and $11.2 million under delayed draw term loans.
The table above does not include interest payable, amounts due under our management agreement, amounts due under our derivative agreements or amounts due under guarantees as those contracts do not have fixed and determinable payments.
Our secured financings, CLOs and SASB consist primarily of matched-term funding for our loans and investment securities and long-term mortgages on our owned properties. Repayments of such facilities are generally made from proceeds from maturities, prepayments or sales of such investments and operating cash flows from owned properties. In the normal course of business, we are in discussions with our lenders to extend, amend or replace any financing facilities which contain near term expirations.
Our unsecured senior notes are expected to be repaid from a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements, and/or equity issuances or other potential sources of financing, as discussed above, including issuances of new unsecured senior notes.
Our future loan commitments are expected to be primarily matched-term funded under secured financing agreements with any difference funded from available cash on hand or other potential sources of financing discussed above.
Critical Accounting Estimates
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, 2022.
101

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, 2022 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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Face Value of
Loans Held-for-Sale		Aggregate Notional Value of
Credit Instruments		Number of
Credit Instruments
June 30, 2023$55,480 $49,000 3
December 31, 2022$23,900 $49,000 3

102

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 June 30, 2023 and December 31, 2022 (dollars in thousands):
Face Value of
Hedged Instruments		Aggregate Notional Value of
Credit Instruments		Number of
Credit Instruments
Instrument hedged as of June 30, 2023
Loans held-for-sale$3,093,497 $3,532,600 44
RMBS, available-for-sale197,502 85,000 2
CMBS, fair value option84,676 58,800 2
HTM debt securities10,737 10,737 1
Secured financing agreements702,988 1,359,835 8
Unsecured senior notes1,000,000 970,000 2
$5,089,400 $6,016,972 59
Instrument hedged as of December 31, 2022
Loans held-for-sale$3,116,815 $2,718,900 36
RMBS, available-for-sale202,818 85,000 2
CMBS, fair value option42,793 58,800 2
HTM debt securities12,005 12,005 1
Secured financing agreements681,823 1,471,446 9
Unsecured senior notes1,000,000 970,000 2
$5,056,254 $5,316,151 52
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 SOFR 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)		1.00% Decrease0.50% Decrease0.50% Increase1.00% Increase
Investment income from variable rate investments$18,068,973 $(179,912)$(89,957)$89,957 $179,915 
Interest expense from variable rate debt, net of interest rate derivatives(13,527,533)142,844 71,996 (70,865)(141,730)
Net investment income from variable rate instruments$4,541,440 $(37,068)$(17,961)$19,092 $38,185 
______________________________________________________________________________________________________________________
(1)Includes the notional value of interest rate derivatives.
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.
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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 Pounds Sterling (“GBP”), Euros (“EUR”), Australian dollars (“AUD”) and Swiss Francs (“CHF”), as well as our expected future net interest receipts (amounts in thousands):
June 30, 2023
GBPEURAUDCHF
Foreign currency assets£1,741,813 €1,077,018 A$1,856,267 Fr.63,981 
Foreign currency liabilities(1,257,568)(375,355)(1,331,813)(47,472)
Foreign currency contracts - notional, net(536,879)(778,653)(709,691)(21,355)
Expected future net interest cash flows52,634 76,990 185,237 4,846 
Net exposure to exchange rate fluctuations£— €— A$— Fr.— 
Net exposure to exchange rate fluctuations in USD (1)$— $— $— $— 
______________________________________________________________________________________________________________________

(1)     Represents the U.S. dollar equivalent using the GBP closing rate of 1.2704, EUR closing rate of 1.0913, AUD closing rate of 0.6666 and CHF closing rate of 1.1169 as of June 30, 2023.

Substantially all of our net asset exposure to the GBP, EUR, AUD and CHF has been hedged with foreign currency forward contracts as of June 30, 2023, 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 June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 June 30, 2023.
Issuer Purchases of Equity Securities
There were no purchases of common stock during the three months ended June 30, 2023.
Item 3.    Defaults Upon Senior Securities.
None.
Item 4.    Mine Safety Disclosures.
Not applicable.
Item 5.    Other Information.
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Table of Contents

Item 6.    Exhibits.
(a)Index to Exhibits
INDEX TO EXHIBITS
Exhibit No.Description
4.1 
4.2 
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)
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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: August 3, 2023By:
/s/ BARRY S. STERNLICHT
Barry S. Sternlicht
Chief Executive Officer
Principal Executive Officer
Date: August 3, 2023By:
/s/ RINA PANIRY
Rina Paniry
Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

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