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 March 31, 2021

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)

Maryland	27-0247747
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	STWD	New 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 April 30, 2021 was 286,985,112.

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, 2020 and this Quarterly Report on Form 10-Q, including those set forth under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

● the severity and duration of the pandemic of the novel strain of coronavirus (“COVID-19”), actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact and the adverse impacts that the COVID-19 pandemic has had, and will likely continue to have, on the global economy, on the borrowers underlying our real estate-related assets and infrastructure loans and tenants of our owned properties, including their ability to make payments on their loans or to pay rent, as the case may be, and on our operations and financial performance;

● defaults by borrowers in paying debt service on outstanding indebtedness;

● impairment in the value of real estate property securing our loans or in which we invest;

● availability of mortgage origination and acquisition opportunities acceptable to us;

● potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;

● our ability to integrate our prior acquisition of the project finance origination, underwriting and capital markets business of GE Capital Global Holdings, LLC into our business and to achieve the benefits that we anticipate from the acquisition;

● national and local economic and business conditions, including continued disruption from the COVID-19 pandemic;

● 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

2

● 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.

3

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income	7
	Condensed Consolidated Statements of Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
	Note 1 Business and Organization	11
	Note 2 Summary of Significant Accounting Policies	12
	Note 3 Acquisitions and Divestitures	18
	Note 4 Loans	19
	Note 5 Investment Securities	24
	Note 6 Properties	27
	Note 7 Investment in Unconsolidated Entities	29
	Note 8 Goodwill and Intangibles	30
	Note 9 Secured Borrowings	32
	Note 10 Unsecured Senior Notes	35
	Note 11 Loan Securitization/Sale Activities	36
	Note 12 Derivatives and Hedging Activity	37
	Note 13 Offsetting Assets and Liabilities	39
	Note 14 Variable Interest Entities	39
	Note 15 Related-Party Transactions	41
	Note 16 Stockholders’ Equity and Non-Controlling Interests	43
	Note 17 Earnings per Share	45
	Note 18 Accumulated Other Comprehensive Income	46
	Note 19 Fair Value	46
	Note 20 Income Taxes	53
	Note 21 Commitments and Contingencies	54
	Note 22 Segment Data	55
	Note 23 Subsequent Events	59
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	97
Item 4.	Controls and Procedures	99
Part II	Other Information
Item 1.	Legal Proceedings	100
Item 1A.	Risk Factors	100
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	100
Item 3.	Defaults Upon Senior Securities	100
Item 4.	Mine Safety Disclosures	100
Item 5.	Other Information	100
Item 6.	Exhibits	101

4

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		As of
	March 31, 2021		December 31, 2020
Assets:
Cash and cash equivalents	$	351,190	$	563,217
Restricted cash		118,724		158,945
Loans held-for-investment, net of credit loss allowances of $72,284 and $77,444 ($150,712 and $90,684 held at fair value)		12,321,493		11,087,073
Loans held-for-sale ($613,061 and $932,295 held at fair value)		844,631		1,052,835
Investment securities, net of credit loss allowances of $5,387 and $5,675 ($190,212 and $198,053 held at fair value)		678,287		736,658
Properties, net		2,244,748		2,271,153
Intangible assets ($12,406 and $13,202 held at fair value)		66,772		70,117
Investment in unconsolidated entities		100,907		108,054
Goodwill		259,846		259,846
Derivative assets		38,029		40,555
Accrued interest receivable		101,713		95,980
Other assets		208,873		190,748
Variable interest entity (“VIE”) assets, at fair value		62,367,110		64,238,328
Total Assets	$	79,702,323	$	80,873,509
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	178,215	$	206,845
Related-party payable		36,135		39,170
Dividends payable		138,906		137,959
Derivative liabilities		34,805		41,324
Secured financing agreements, net		10,895,932		10,146,190
Collateralized loan obligations, net		931,178		930,554
Unsecured senior notes, net		1,735,658		1,732,520
VIE liabilities, at fair value		60,896,709		62,776,371
Total Liabilities		74,847,538		76,010,933
Commitments and contingencies (Note 21)
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, 294,300,251 issued and 286,851,560 outstanding as of March 31, 2021 and 292,091,601 issued and 284,642,910 outstanding as of December 31, 2020		2,943		2,921
Additional paid-in capital		5,225,037		5,209,739
Treasury stock (7,448,691 shares)		(138,022)		(138,022)
Accumulated other comprehensive income		41,654		43,993
Accumulated deficit		(654,750)		(629,733)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,476,862		4,488,898
Non-controlling interests in consolidated subsidiaries		377,923		373,678
Total Equity		4,854,785		4,862,576
Total Liabilities and Equity	$	79,702,323	$	80,873,509

Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 include assets of $1.1 billion and liabilities of $0.9 billion related to a consolidated collateralized loan obligation (“CLO”), which is considered to be a VIE.  The CLO’s assets can only be used to settle obligations of the CLO, and the CLO’s liabilities do not have recourse to Starwood Property Trust, Inc. Refer to Note 14 for additional discussion of VIEs.

See notes to condensed consolidated financial statements.

5

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited, amounts in thousands, except per share data)

	For the Three Months Ended
	March 31,
	2021		2020
Revenues:
Interest income from loans	$	190,575	$	217,427
Interest income from investment securities		11,610		15,240
Servicing fees		8,402		4,793
Rental income		76,338		74,146
Other revenues		305		954
Total revenues		287,230		312,560
Costs and expenses:
Management fees		38,736		40,728
Interest expense		103,374		120,025
General and administrative		38,636		38,702
Acquisition and investment pursuit costs		185		909
Costs of rental operations		28,745		28,214
Depreciation and amortization		22,474		23,980
Credit loss provision, net		44		48,669
Other expense		685		388
Total costs and expenses		232,879		301,615
Other income (loss):
Change in net assets related to consolidated VIEs		39,745		(45,493)
Change in fair value of servicing rights		(796)		(393)
Change in fair value of investment securities, net		(306)		2,504
Change in fair value of mortgage loans, net		(9,478)		(16,134)
Earnings from unconsolidated entities		1,734		97
Gain on sale of investments and other assets, net		17,693		296
Gain on derivative financial instruments, net		33,989		9,710
Foreign currency loss, net		(11,681)		(34,486)
Loss on extinguishment of debt		(516)		(170)
Other income, net		21		126
Total other income (loss)		70,405		(83,943)
Income (loss) before income taxes		124,756		(72,998)
Income tax (provision) benefit		(2,230)		6,729
Net income (loss)		122,526		(66,269)
Net income attributable to non-controlling interests		(11,148)		(500)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	111,378	$	(66,769)
Earnings (loss) per share data attributable to Starwood Property Trust, Inc.:
Basic	$	0.39	$	(0.24)
Diluted	$	0.38	$	(0.24)

See notes to condensed consolidated financial statements.

6

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, amounts in thousands)

	For the Three Months Ended
	March 31,
	2021		2020
Net income (loss)	$	122,526	$	(66,269)
Other comprehensive (loss) income (net change by component):
Available-for-sale securities		(2,403)		(15,048)
Foreign currency translation		64		—
Other comprehensive loss		(2,339)		(15,048)
Comprehensive income (loss)		120,187		(81,317)
Less: Comprehensive income attributable to non-controlling interests		(11,148)		(500)
Comprehensive income (loss) attributable to Starwood Property Trust, Inc.	$	109,039	$	(81,817)

See notes to condensed consolidated financial statements.

7

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

For the Three Months Ended March 31, 2021 and 2020

(Unaudited, amounts in thousands, except share data)

													Total
													Starwood
											Accumulated		Property
	Common stock			Additional							Other		Trust, Inc.		Non-
		Par		Paid-in		Treasury Stock			Accumulated		Comprehensive		Stockholders’		Controlling		Total
	Shares	Value		Capital		Shares	Amount		Deficit		Income		Equity		Interests		Equity
Balance, December 31, 2020	292,091,601	$	2,921	$	5,209,739	7,448,691	$	(138,022)	$	(629,733)	$	43,993	$	4,488,898	$	373,678	$	4,862,576
Cumulative effect of convertible notes accounting standard update adopted January 1, 2021	—		—		(3,755)	—		—		2,219		—		(1,536)		—		(1,536)
Proceeds from DRIP Plan	12,234		—		262	—		—		—		—		262		—		262
Redemption of Class A Units	50,000		1		1,038	—		—		—		—		1,039		(1,039)		—
Equity offering costs	—		—		(22)	—		—		—		—		(22)		—		(22)
Share-based compensation	1,814,414		18		10,292	—		—		—		—		10,310		—		10,310
Manager fees paid in stock	332,002		3		7,483	—		—		—		—		7,486		—		7,486
Net income	—		—		—	—		—		111,378		—		111,378		11,148		122,526
Dividends declared, $0.48 per share	—		—		—	—		—		(138,614)		—		(138,614)		—		(138,614)
Other comprehensive loss, net	—		—		—	—		—		—		(2,339)		(2,339)		—		(2,339)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		2,969		2,969
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(8,833)		(8,833)
Balance, March 31, 2021	294,300,251	$	2,943	$	5,225,037	7,448,691	$	(138,022)	$	(654,750)	$	41,654	$	4,476,862	$	377,923	$	4,854,785
Balance, December 31, 2019	287,380,891	$	2,874	$	5,132,532	5,180,140	$	(104,194)	$	(381,719)	$	50,932	$	4,700,425	$	436,589	$	5,137,014
Cumulative effect of credit loss accounting standard effective January 1, 2020	—		—		—	—		—		(32,286)		—		(32,286)		—		(32,286)
Proceeds from DRIP Plan	7,718		—		153	—		—		—		—		153		—		153
Redemption of Class A Units	409,712		4		8,534	—		—		—		—		8,538		(8,538)		—
Equity offering costs	—		—		(14)	—		—		—		—		(14)		—		(14)
Common stock repurchased	—		—		—	1,925,421		(28,830)		—		—		(28,830)		—		(28,830)
Share-based compensation	1,195,208		12		8,788	—		—		—		—		8,800		—		8,800
Manager fees paid in stock	355,910		4		9,076	—		—		—		—		9,080		—		9,080
Net loss	—		—		—	—		—		(66,769)		—		(66,769)		500		(66,269)
Dividends declared, $0.48 per share	—		—		—	—		—		(135,991)		—		(135,991)		—		(135,991)
Other comprehensive loss, net	—		—		—	—		—		—		(15,048)		(15,048)		—		(15,048)
VIE non-controlling interests	—		—		—	—		—		—		—		—		(2,188)		(2,188)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		9,406		9,406
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(66,476)		(66,476)
Balance, March 31, 2020	289,349,439	$	2,894	$	5,159,069	7,105,561	$	(133,024)	$	(616,765)	$	35,884	$	4,448,058	$	369,293	$	4,817,351

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 Three Months Ended
	March 31,
	2021		2020
Cash Flows from Operating Activities:
Net income (loss)	$	122,526	$	(66,269)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings		10,515		9,634
Amortization of discounts and deferred financing costs on unsecured senior notes		1,726		1,962
Accretion of net discount on investment securities		(3,476)		(2,783)
Accretion of net deferred loan fees and discounts		(16,745)		(12,080)
Share-based compensation		10,310		8,800
Manager fees paid in stock		7,486		9,080
Change in fair value of investment securities		306		(2,504)
Change in fair value of consolidated VIEs		(7,042)		80,683
Change in fair value of servicing rights		796		393
Change in fair value of loans		9,478		16,134
Change in fair value of derivatives		(34,768)		(7,617)
Foreign currency loss, net		11,681		34,486
Gain on sale of investments and other assets		(17,693)		(296)
Credit loss provision, net		44		48,669
Depreciation and amortization		22,528		23,864
Earnings from unconsolidated entities		(1,734)		(97)
Distributions of earnings from unconsolidated entities		17		27
Loss on extinguishment of debt		516		170
Origination and purchase of loans held-for-sale, net of principal collections		(327,352)		(621,832)
Proceeds from sale of loans held-for-sale		571,927		751,140
Changes in operating assets and liabilities:
Related-party payable, net		(3,035)		(1,659)
Accrued and capitalized interest receivable, less purchased interest		(41,833)		(31,465)
Other assets		(19,467)		(40,944)
Accounts payable, accrued expenses and other liabilities		(25,945)		(6,764)
Net cash provided by operating activities		270,766		190,732
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment		(2,296,124)		(1,252,745)
Proceeds from principal collections on loans		1,051,695		812,187
Proceeds from loans sold		—		39,019
Purchase and funding of investment securities		—		(5,729)
Proceeds from sales of investment securities		—		7,940
Proceeds from principal collections on investment securities		59,514		13,559
Proceeds from sales of real estate		30,566		—
Purchases and additions to properties and other assets		(3,512)		(7,056)
Investment in unconsolidated entities		—		(3,100)
Distribution of capital from unconsolidated entities		15,980		153
Payments for purchase or termination of derivatives		(851)		(67,323)
Proceeds from termination of derivatives		23,527		8,912
Net cash used in investing activities		(1,119,205)		(454,183)

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 Three Months Ended
	March 31,
	2021		2020
Cash Flows from Financing Activities:
Proceeds from borrowings	$	2,748,317	$	2,756,915
Principal repayments on and repurchases of borrowings		(2,001,336)		(1,923,754)
Payment of deferred financing costs		(5,052)		(3,577)
Proceeds from common stock issuances		262		153
Payment of equity offering costs		(22)		(14)
Payment of dividends		(137,667)		(135,889)
Contributions from non-controlling interests		2,969		9,406
Distributions to non-controlling interests		(8,833)		(66,476)
Purchase of treasury stock		—		(28,830)
Issuance of debt of consolidated VIEs		11,604		24,376
Repayment of debt of consolidated VIEs		(27,490)		(36,953)
Distributions of cash from consolidated VIEs		14,481		24,723
Net cash provided by financing activities		597,233		620,080
Net (decrease) increase in cash, cash equivalents and restricted cash		(251,206)		356,629
Cash, cash equivalents and restricted cash, beginning of period		722,162		574,031
Effect of exchange rate changes on cash		(1,042)		733
Cash, cash equivalents and restricted cash, end of period	$	469,914	$	931,393
Supplemental disclosure of cash flow information:
Cash paid for interest	$	80,624	$	109,341
Income taxes paid		425		569
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid	$	139,113	$	135,994
Consolidation of VIEs (VIE asset/liability additions)		393,373		2,477,422
Reclassification of loans held-for-investment to loans held-for-sale		166,901		422,691
Reclassification of loans held-for-sale to loans held-for-investment		124,935		—
Loan principal collections temporarily held at master servicer		31,965		9,779
Net assets acquired through conversion to equity interest		7,320		—
Redemption of Class A Units for common stock		1,039		8,538

See notes to condensed consolidated financial statements.

10

Starwood Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of March 31, 2021

(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 both the United States (“U.S.”) and Europe. 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 March 31, 2021 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 both the U.S. and Europe (including distressed or non-performing loans). Our residential loans are secured by a first mortgage lien on residential property and 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, 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 22 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, 2020 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three months ended March 31, 2021 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, 2020 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 a pool of our loans through a collateralized loan obligation (“CLO”) which is considered a VIE. 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.

12

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 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.

13

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 REO would be consolidated at fair value. Once an asset becomes REO, its disposition time is relatively short. As a result, the carrying value of an REO generally approximates fair value under GAAP.

In addition to sharing a similar measurement method as the loans in a trust, the securitization VIE assets as a whole can only be used to settle the obligations of the consolidated VIE. The assets of our securitization VIEs are not individually accessible by the bondholders, which creates inherent limitations from a valuation perspective. Also creating limitations from a valuation perspective is our role as special servicer, which provides us very limited visibility, if any, into the performing loans of a trust.

REO assets generally represent a very small percentage of the overall asset pool of a trust. In new issue trusts there are no REO assets. We estimate that REO assets constitute approximately 1% of our consolidated securitization VIE assets, with the remaining 99% representing loans. However, it is important to note that the fair value of our securitization VIE assets is determined by reference to our securitization VIE liabilities as permitted under ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. In other words, our VIE liabilities are more reliably measurable than the VIE assets, resulting in our current measurement methodology which utilizes this value to determine the fair value of our securitization VIE assets as a whole. As a result, these percentages are not necessarily indicative of the relative fair values of each of these asset categories if the assets were to be valued individually.

Due to our accounting policy election under ASU 2014-13, separately presenting two different asset categories would result in an arbitrary assignment of value to each, with one asset category representing a residual amount, as opposed to its fair value. However, as a pool, the fair value of the assets in total is equal to the fair value of the liabilities.

For these reasons, the assets of our securitization VIEs are presented in the aggregate.

Fair Value Option

The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.

We have elected the fair value option for certain eligible financial assets and liabilities of our consolidated securitization VIEs, residential loans held-for-investment, loans held-for-sale originated or acquired for future securitization and purchased CMBS issued by VIEs we could consolidate in the future. The fair value elections for VIE and securitization related items were made in order to mitigate accounting mismatches between the carrying value of the instruments and the related assets and liabilities that we consolidate at fair value. The fair value elections for residential loans held-for-investment were made in order to maintain consistency across all our residential loans. The fair value elections for mortgage loans held-for-sale were made due to the expected short-term holding period of these instruments.

14

Fair Value Measurements

We measure our mortgage-backed securities, 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 19 for further discussion regarding our fair value measurements.

Loans Held-for-Investment

Loans that are held for investment (“HFI”) are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable, and net of credit loss allowances as discussed below, unless the loans are credit deteriorated or we have elected to apply the fair value option at purchase.

Loans Held-For-Sale

Our loans that we intend to sell or liquidate in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value, unless we have elected to apply the fair value option at origination or purchase.

Investment Securities

We designate our debt investment securities as held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading depending on our investment strategy and ability to hold such securities to maturity. HTM debt securities where we have not elected to apply the fair value option are stated at cost plus any premiums or discounts, which are amortized or accreted through the condensed consolidated statements of operations using the effective interest method. Debt securities we (i) do not hold for the purpose of selling in the near-term, or (ii) may dispose of prior to maturity, are classified as AFS and are carried at fair value in the accompanying financial statements. Unrealized gains or losses on AFS debt securities where we have not elected the fair value option are reported as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity. Our HTM and AFS debt securities are also subject to credit loss allowances as discussed below.

Our only equity investment security is carried at fair value, with unrealized holding gains and losses recorded in earnings.

Credit Losses

Loans and Debt Securities Measured at Amortized Cost

ASC 326, Financial Instruments – Credit Losses, became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our HFI loans and our HTM debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities. However, as permitted by ASC 326, we have elected not to measure an allowance for credit losses on accrued interest receivable (which is classified separately on our condensed consolidated balance sheet), but rather write off in a timely manner by reversing interest income and/or cease accruing interest that would likely be uncollectible. Our adoption of the CECL model resulted in a $32.3 million increase to our total allowance for credit losses, which was recognized as a cumulative-effect adjustment to accumulated deficit as of January 1, 2020.

15

As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. See Note 4 for further discussion of our methodologies.

We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.

Available-for-Sale Debt Securities

Separate provisions of ASC 326 apply to our AFS debt securities, which are carried at fair value with unrealized gains and losses reported as a component of AOCI. We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration (“PCD”) by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis. As of the January 1, 2020 effective date, no such credit loss allowance gross-up was required on our AFS debt securities with PCD due to their individual unrealized gain positions as of that date.

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.

Convertible Senior Notes

Effective January 1, 2021, the Company early adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation into a debt component and an equity or derivative component. Consequently, our convertible senior notes (the “Convertible Notes”), which were previously accounted for as having separate liability and equity components, are now accounted for as a single liability measured at amortized cost. The standard was adopted using the modified restrospective method of transition, which resulted in a cumulative decrease to additional paid-in capital of $3.7 million, partially offset by a cumulative decrease to accumulated deficit of $2.2 million as of January 1, 2021.

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.

16

We cease accruing interest on non-performing loans at the earlier of (i) the loan becoming significantly past due or (ii) management concluding that a full recovery of all interest and principal is doubtful. Interest income on non-accrual loans in which management expects a full recovery of the loan’s outstanding principal balance is only recognized when received in cash. If a full recovery of principal is doubtful, the cost recovery method is applied whereby any cash received is applied to the outstanding principal balance of the loan. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and management believes all future principal and interest will be received according to the contractual loan terms.

For loans acquired with deteriorated credit quality, interest income is only recognized to the extent that our estimate of undiscounted expected principal and interest exceeds our investment in the loan. Such excess, if any, is recognized as interest income on a level-yield basis over the life of the loan.

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.

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 (“RSAs”) and restricted stock units (“RSUs”), (ii) shares contingently issuable to our Manager, (iii) the conversion options associated with our Convertible Notes (see Notes 10 and 17) and (iv) non-controlling interests that are redeemable with our common stock (see Note 16). 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 16). 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 months ended March 31, 2021 and 2020, the two-class method resulted in the most dilutive EPS calculation.

17

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 financial 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.

The outbreak of COVID-19 beginning in the first quarter of 2020 has had, and is expected to continue to have, an adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021. However, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.

Recent Accounting Developments

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and on January 11, 2021, issued ASU 2021-01, Reference Rate Reform (Topic 848) – Scope, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. These ASUs are effective through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

3. Acquisitions and Divestitures

During the three months ended March 31, 2021, we sold an operating property within the Commercial and Residential Lending Segment relating to a grocery distribution facility located in Montgomery, Alabama that was previously acquired in March 2019 through foreclosure of a loan with a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount) at the foreclosure date. The operating property was sold for $30.6 million and we recognized a gain of $17.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the three months ended March 31, 2021 and 2020, we had no significant acquisitions of properties or businesses.

18

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 March 31, 2021 and December 31, 2020 (dollars in thousands):

							Weighted
					Weighted		Average Life
	Carrying		Face		Average		(“WAL”)
March 31, 2021	Value		Amount		Coupon (1)		(years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3), (8)	$	9,955,674	$	10,003,057	5.1	%	1.7
Subordinated mortgages (4)		70,457		71,428	8.8	%	2.5
Mezzanine loans (3)		603,119		601,080	10.1	%	1.4
Other		18,200		20,267	8.2	%	2.6
Total commercial loans		10,647,450		10,695,832
Infrastructure first priority loans (5)		1,595,615		1,616,716	4.3	%	4.1
Residential loans, fair value option (6)		150,712		149,404	6.2	%	N/A	(7)
Total loans held-for-investment		12,393,777		12,461,952
Loans held-for-sale:
Residential, fair value option (6)		444,835		435,025	5.7	%	N/A	(7)
Commercial, $168,226 under fair value option (8)		310,428		314,917	4.3	%	5.7
Infrastructure, lower of cost or fair value (5)		89,368		89,601	2.9	%	2.6
Total loans held-for-sale		844,631		839,543
Total gross loans		13,238,408	$	13,301,495
Credit loss allowances:
Commercial loans held-for-investment		(63,477)
Infrastructure loans held-for-investment		(8,807)
Total allowances		(72,284)
Total net loans	$	13,166,124
December 31, 2020
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	8,931,772	$	8,978,373	5.3	%	1.5
Subordinated mortgages (4)		71,185		72,257	8.8	%	2.8
Mezzanine loans (3)		620,319		619,352	10.1	%	1.6
Other		30,284		33,626	8.9	%	1.8
Total commercial loans		9,653,560		9,703,608
Infrastructure first priority loans		1,420,273		1,439,940	4.4	%	4.3
Residential loans, fair value option		90,684		86,796	6.0	%	N/A	(7)
Total loans held-for-investment		11,164,517		11,230,344
Loans held-for-sale:
Residential, fair value option		841,963		820,807	6.0	%	N/A	(7)
Commercial, fair value option		90,332		90,789	3.9	%	10.0
Infrastructure, lower of cost or fair value		120,540		120,900	3.1	%	3.2
Total loans held-for-sale		1,052,835		1,032,496
Total gross loans		12,217,352	$	12,262,840
Credit loss allowances:
Commercial loans held-for-investment		(69,611)
Infrastructure loans held-for-investment		(7,833)
Total allowances		(77,444)
Total net loans	$	12,139,908

19

(1) Calculated using LIBOR or other applicable index rates as of March 31, 2021 and December 31, 2020 for variable rate loans.

(2) Represents the WAL of each respective group of loans 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 $917.8 million and $877.3 million being classified as first mortgages as of March 31, 2021 and December 31, 2020, respectively.

(4) Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.

(5) During the three months ended March 31, 2021, $30.7 million of infrastructure loans held-for-sale were reclassified into loans held-for-investment.

(6) During the three months ended March 31, 2021, a net amount of $69.5 million of residential loans held-for-sale were reclassified into loans held-for-investment.

(7) Residential loans have a weighted average remaining contractual life of 28.9 years and 27.9 years as of March 31, 2021 and December 31, 2020, respectively.

(8) During the three months ended March 31, 2021, $142.2 million of commercial loans held-for-investment were reclassified into loans held-for-sale.

As of March 31, 2021, our variable rate loans held-for-investment were as follows (dollars in thousands):

	Carrying		Weighted-average
March 31, 2021	Value		Spread Above Index
Commercial loans	$	9,969,387	4.3	%
Infrastructure loans		1,595,615	3.8	%
Total variable rate loans held-for-investment	$	11,565,002	4.2	%

Credit Loss Allowances

As discussed in Note 2, we do not have a history of realized credit losses on our HFI loans and HTM securities, so we have subscribed to third party database services to provide us with industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios.

For our commercial loans, we utilize a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading CMBS data analytics provider. It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We provide specific loan-level inputs which include loan-to-stabilized-value (“LTV”) and debt service coverage ratio (DSCR) metrics, as well as principal balances, property type, location, coupon, origination year, term, subordination, expected repayment dates and future fundings. We also select from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends. We categorize the results by LTV range, which we consider the most significant indicator of credit quality for our commercial loans, as set forth in the credit quality indicator table below. A lower LTV ratio typically indicates a lower credit loss risk.

The macroeconomic forecasts do not differentiate among property types or asset classes. Instead, these forecasts reference general macroeconomic growth factors which apply broadly across all assets. However, the COVID-19 pandemic has had a more negative impact on certain property types, principally retail and hospitality, which have

20

withstood extended government mandated closures, and more recently office, which is experiencing lower demand due to remote working arrangements. The broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to these property types in determining our credit loss allowance.

For our infrastructure loans, we utilize a database of historical infrastructure loan performance that is shared among a consortium of banks and other lenders and compiled by a major bond credit rating agency. The database is representative of industry-wide project finance activity dating back to 1983. We derive historical loss rates from the database filtered by industry, sub-industry, term and construction status for each of our infrastructure loans. Those historical loss rates reflect global economic cycles over a long period of time as well as average recovery rates. We categorize the results between the power and oil and gas industries, which we consider the most significant indicator of credit quality for our infrastructure loans, as set forth in the credit quality indicator table below.

As discussed in Note 2, we use a discounted cash flow or collateral value approach, rather than the industry loan loss approach described above, to determine credit loss allowances for any credit deteriorated loans.

We regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, as well as the financial and operating capability of the borrower. Specifically, the collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the collateral’s liquidation value. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the collateral. In addition, we consider the overall economic environment, real estate or industry sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.

The significant credit quality indicators for our loans measured at amortized cost, which excludes loans held-for-sale, were as follows as of March 31, 2021 (dollars in thousands):

	Term Loans												Revolving Loans		Total		Credit
	Amortized Cost Basis by Origination Year												Amortized Cost		Amortized		Loss
As of March 31, 2021	2021		2020		2019		2018		2017		Prior		Total		Cost Basis		Allowance
Commercial loans:
Credit quality indicator:
LTV < 60%	$	1,152,309	$	709,735	$	1,314,912	$	1,225,605	$	729,227	$	425,570	$	—	$	5,557,358	$	7,015
LTV 60% - 70%		859,035		480,542		1,530,002		825,212		39,916		82,088		—		3,816,795		31,535
LTV > 70%		—		240,217		599,518		312,972		—		61,426		—		1,214,133		16,661
Credit deteriorated		—		—		—		28,986		—		11,977		—		40,963		8,266
Defeased and other		—		—		—		—		—		18,201		—		18,201		—
Total commercial	$	2,011,344	$	1,430,494	$	3,444,432	$	2,392,775	$	769,143	$	599,262	$	—	$	10,647,450	$	63,477
Infrastructure loans:
Credit quality indicator:
Power	$	—	$	77,525	$	220,901	$	397,619	$	124,959	$	371,072	$	10,057	$	1,202,133	$	5,074
Oil and gas		—		19,902		267,727		100,803		—		—		5,050		393,482		3,733
Total infrastructure	$	—	$	97,427	$	488,628	$	498,422	$	124,959	$	371,072	$	15,107	$	1,595,615	$	8,807
Residential loans held-for-investment, fair value option																150,712		—
Loans held-for-sale																844,631		—
Total gross loans															$	13,238,408	$	72,284

21

As of March 31, 2021, we had credit deteriorated commercial loans with an amortized cost basis of $41.0 million, of which $29.0 million had no credit loss allowance.  These loans were on nonaccrual status, with the cost recovery method of interest income recognition applied. In addition to these credit deteriorated loans, we had a $187.6 million commercial loan and $20.2 million of residential loans that were 90 days or greater past due at March 31, 2021. In March 2021, $7.3 million relating to the $187.6 million commercial loan that was 90 days or greater past due was converted to equity interests pursuant to a consensual transfer under pre-existing equity pledges of additional collateral (see Note 7). The $187.6 million commercial loan, along with a $14.8 million infrastructure loan in forbearance, were placed on nonaccrual status during the three months ended March 31, 2021, but are not considered credit deteriorated as we presently expect to recover all amounts due. Any loans which are modified to provide for the deferral of interest are not considered past due and are accounted for in accordance with our revenue recognition policy on interest income.

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-Investment					Total
Three Months Ended March 31, 2021	Commercial			Infrastructure		Funded Loans
Credit loss allowance at December 31, 2020	$	69,611		$	7,833	$	77,444
Credit loss provision (reversal), net		1,880			717		2,597
Charge-offs		(7,757)	(1)		—		(7,757)
Recoveries		—			—		—
Transfers		(257)			257		—
Credit loss allowance at March 31, 2021	$	63,477		$	8,807	$	72,284

	Unfunded Commitments Credit Loss Allowance (2)
	Loans Held-for-Investment
Three Months Ended March 31, 2021	Commercial		Infrastructure		Total
Credit loss allowance at December 31, 2020	$	5,258	$	812	$	6,070
Credit loss reversal, net		(2,122)		(143)		(2,265)
Credit loss allowance at March 31, 2021	$	3,136	$	669	$	3,805
Memo: Unfunded commitments as of March 31, 2021 (3)	$	1,291,304	$	65,791	$	1,357,095

(1) Relates to an unsecured promissory note deemed uncollectible in connection with a residential conversion project located in New York City. The note was previously considered credit deteriorated and was fully reserved.

(2) Included in accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheets.

(3) Represents amounts expected to be funded (see Note 21).

22

Loan Portfolio Activity

The activity in our loan portfolio was as follows (amounts in thousands):

	Held-for-Investment Loans
Three Months Ended March 31, 2021	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2020	$	9,583,949	$	1,412,440	$	90,684	$	1,052,835	$	12,139,908
Acquisitions/originations/additional funding		2,196,813		99,311		—		375,270		2,671,394
Capitalized interest (1)		36,646		—		—		—		36,646
Basis of loans sold (2)		—		—		—		(571,927)		(571,927)
Loan maturities/principal repayments		(1,021,393)		(18,055)		(9,210)		(44,326)		(1,092,984)
Discount accretion/premium amortization		15,824		921		—		—		16,745
Changes in fair value		—		—		(290)		(9,188)		(9,478)
Unrealized foreign currency translation loss		(14,082)		(181)		—		—		(14,263)
Credit loss provision, net		(1,880)		(717)		—		—		(2,597)
Transfer to/from other asset classifications or between segments		(211,904)		93,089		69,528		41,967		(7,320)
Balance at March 31, 2021	$	10,583,973	$	1,586,808	$	150,712	$	844,631	$	13,166,124

	Held-for-Investment Loans
Three Months Ended March 31, 2020	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2019	$	8,517,054	$	1,397,448	$	671,572	$	884,150	$	11,470,224
Cumulative effect of ASC 326 effective January 1, 2020		(10,112)		(10,328)		—		—		(20,440)
Acquisitions/originations/additional funding		1,089,096		62,929		100,720		646,160		1,898,905
Capitalized interest (1)		36,072		—		—		—		36,072
Basis of loans sold (2)		—		—		(604)		(789,259)		(789,863)
Loan maturities/principal repayments		(689,972)		(37,051)		(48,620)		(20,680)		(796,323)
Discount accretion/premium amortization		11,559		411		—		110		12,080
Changes in fair value		—		—		(25,619)		9,485		(16,134)
Unrealized foreign currency translation loss		(83,263)		—		—		(4,056)		(87,319)
Credit loss provision, net		(37,527)		(5,805)		—		—		(43,332)
Transfer to/from other asset classifications		—		(26,333)		(422,691)		449,024		—
Balance at March 31, 2020	$	8,832,907	$	1,381,271	$	274,758	$	1,174,934	$	11,663,870

(1)     Represents accrued interest income on loans whose terms do not require current payment of interest.

(2)     See Note 11 for additional disclosure on these transactions.

23

5. Investment Securities

Investment securities were comprised of the following as of March 31, 2021 and December 31, 2020 (amounts in thousands):

	Carrying Value as of
	March 31, 2021		December 31, 2020
RMBS, available-for-sale	$	160,301	$	167,349
RMBS, fair value option (1)		249,005		235,997
CMBS, fair value option (1), (2)		1,202,883		1,209,030
HTM debt securities, amortized cost net of credit loss allowance of $5,387 and $5,675		488,075		538,605
Equity security, fair value		10,655		11,247
Subtotal—Investment securities		2,110,919		2,162,228
VIE eliminations (1)		(1,432,632)		(1,425,570)
Total investment securities	$	678,287	$	736,658

(1) Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.

(2) Includes $180.9 million and $179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of March 31, 2021 and December 31, 2020, respectively.

Purchases, sales and principal collections for all investment securities were as follows (amounts in thousands):

	RMBS,		RMBS, fair		CMBS, fair		HTM		Securitization
	available-for-sale		value option		value option		Securities		VIEs (1)		Total
Three Months Ended March 31, 2021
Purchases	$	—	$	27,333	$	—	$	—	$	(27,333)	$	—
Sales		—		—		11,604		—		(11,604)		—
Principal collections		7,251		13,344		1,710		51,690		(14,481)		59,514
Three Months Ended March 31, 2020
Purchases/fundings	$	—	$	29,292	$	7,661	$	5,729	$	(36,953)	$	5,729
Sales		—		—		32,316		—		(24,376)		7,940
Principal collections		6,549		8,572		16,523		6,638		(24,723)		13,559

(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 condensed consolidated statements of cash flows.

RMBS, Available-for-Sale

The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of March 31, 2021 and December 31, 2020. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).

24

The tables below summarize various attributes of our investments in available-for-sale RMBS as of March 31, 2021 and December 31, 2020 (amounts in thousands):

							Unrealized Gains or (Losses)
							Recognized in AOCI
			Credit				Gross		Gross		Net
	Amortized		Loss		Net		Unrealized		Unrealized		Fair Value
	Cost		Allowance		Basis		Gains		Losses		Adjustment		Fair Value
March 31, 2021
RMBS	$	118,647	$	—	$	118,647	$	41,688	$	(34)	$	41,654	$	160,301
December 31, 2020
RMBS	$	123,292	$	—	$	123,292	$	44,123	$	(66)	$	44,057	$	167,349

	Weighted Average Coupon (1)		WAL  (Years) (2)
March 31, 2021
RMBS	1.2	%	5.9

(1) Calculated using the March 31, 2021 one-month LIBOR rate of 0.111% 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 March 31, 2021, approximately $139.4 million, or 87.0%, 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 $0.3 million and $0.4 million for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020, and for which an allowance for credit losses has not been recorded (amounts in thousands):

	Estimated Fair Value				Unrealized Losses
	Securities with a		Securities with a		Securities with a		Securities with a
	loss less than		loss greater than		loss less than		loss greater than
	12 months		12 months		12 months		12 months
As of March 31, 2021
RMBS	$	—	$	1,170	$	—	$	(34)
As of December 31, 2020
RMBS	$	438	$	1,195	$	(25)	$	(41)

As of March 31, 2021 and December 31, 2020, there were one and two securities, respectively, with unrealized losses reflected in the table above. After evaluating the securities and recording adjustments for credit losses, we concluded that the remaining 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 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.

25

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 March 31, 2021, 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 $2.7 billion, respectively. As of March 31, 2021, 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 $249.0 million and $160.1 million, respectively. The $1.5 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 $19.3 million at March 31, 2021) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.

As of March 31, 2021, $96.9 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 March 31, 2021 and December 31, 2020 (amounts in thousands):

	Amortized		Credit Loss		Net Carrying		Gross Unrealized		Gross Unrealized
	Cost Basis		Allowance		Amount		Holding Gains		Holding Losses		Fair Value
March 31, 2021
CMBS	$	339,120	$	—	$	339,120	$	—	$	(25,169)	$	313,951
Preferred interests		116,466		(2,462)		114,004		3,346		—		117,350
Infrastructure bonds		37,876		(2,925)		34,951		435		—		35,386
Total	$	493,462	$	(5,387)	$	488,075	$	3,781	$	(25,169)	$	466,687
December 31, 2020
CMBS	$	339,059	$	—	$	339,059	$	—	$	(23,286)	$	315,773
Preferred interests		166,614		(2,749)		163,865		432		(913)		163,384
Infrastructure bonds		38,607		(2,926)		35,681		415		—		36,096
Total	$	544,280	$	(5,675)	$	538,605	$	847	$	(24,199)	$	515,253

The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):

					Total HTM
	Preferred		Infrastructure		Credit Loss
	Interests		Bonds		Allowance
Three Months Ended March 31, 2021
Credit loss allowance at December 31, 2020	$	2,749	$	2,926	$	5,675
Credit loss reversal, net		(287)		(1)		(288)
Credit loss allowance at March 31, 2021	$	2,462	$	2,925	$	5,387

The table below summarizes the maturities of our HTM debt securities by type as of March 31, 2021 (amounts in thousands):

			Preferred		Infrastructure
	CMBS		Interests		Bonds		Total
Less than one year	$	313,863	$	—	$	—	$	313,863
One to three years		25,257		114,004		—		139,261
Three to five years		—		—		—		—
Thereafter		—		—		34,951		34,951
Total	$	339,120	$	114,004	$	34,951	$	488,075

26

Equity Security, Fair Value Option

During 2012, we acquired 9,140,000 ordinary shares from a related-party in Starwood European Real Estate Finance Limited (“SEREF”), a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange. The fair value of the investment remeasured in USD was $10.7 million and $11.2 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, our shares represent an approximate 2% interest in SEREF.

6. Properties

Our properties are held within the following portfolios:

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 total gross properties and lease intangibles of $636.7 million and debt of $572.8 million as of March 31, 2021.

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 total gross properties and lease intangibles of $610.6 million and debt of $512.6 million as of March 31, 2021.

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 $760.3 million and debt of $592.9 million as of March 31, 2021.

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 $192.8 million as of March 31, 2021.

Investing and Servicing Segment Property Portfolio

The Investing and Servicing Segment Property Portfolio (“REIS Equity Portfolio”) is comprised of 15 commercial real estate properties and one equity interest in an unconsolidated commercial real estate property which were acquired from CMBS trusts during the previous five years. The REIS Equity Portfolio includes total gross properties and lease intangibles of $270.4 million and debt of $192.6 million as of March 31, 2021.

27

The table below summarizes our properties held as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Depreciable Life	March 31, 2021		December 31, 2020
Property Segment
Land and land improvements	0 – 15 years	$	485,026	$	484,846
Buildings and building improvements	5 – 45 years		1,691,423		1,690,701
Furniture & fixtures	3 – 7 years		60,926		59,632
Investing and Servicing Segment
Land and land improvements	0 – 15 years		50,617		50,585
Buildings and building improvements	3 – 40 years		179,813		179,014
Furniture & fixtures	2 – 5 years		2,804		2,606
Commercial and Residential Lending Segment (1)
Land and land improvements	0 – 7 years		9,691		11,416
Buildings and building improvements	10 – 20 years		9,927		19,251
Construction in progress	N/A		75,245		75,245
Properties, cost			2,565,472		2,573,296
Less: accumulated depreciation			(320,724)		(302,143)
Properties, net		$	2,244,748	$	2,271,153

(1) Represents properties acquired through loan foreclosure or exercise of control over loan borrower pledged equity interests.

During the three months ended March 31, 2021, we sold an operating property within the Commercial and Residential Lending Segment for $30.6 million and recognized a gain of $17.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. Refer to Note 3 for further discussion. No operating properties were sold during the three months ended March 31, 2020.

28

7. Investment in Unconsolidated Entities

The table below summarizes our investments in unconsolidated entities as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Participation /	Carrying value as of
	Ownership % (1)	March 31, 2021		December 31, 2020
Equity method investments:
Equity interest in a natural gas power plant	10%	$	24,840	$	25,095
Investor entity which owns equity in an online real estate company	50%		9,573		9,397
Equity interests in commercial real estate	50%		1,368		1,543
Equity interest in and advances to a residential mortgage originator (2)	N/A		18,458		17,852
Various (3)	15% - 50%		16,896		8,831
			71,135		62,718
Other equity investments:
Equity interest in a servicing and advisory business	2%		17,584		17,584
Investment funds which own equity in a loan servicer and other real estate assets	4% - 6%		7,267		7,267
Various, including Federal Home Loan Bank stock	0% - 2%		4,921		20,485
			29,772		45,336
		$	100,907	$	108,054

(1) None of these investments are publicly traded and therefore quoted market prices are not available.

(2) Includes a $4.5 million subordinated loan as of both March 31, 2020 and December 31, 2020.

(3) In March 2021, we obtained 15% equity interests in two investor entities that own 49% equity interests in two entertainment and retail centers in satisfaction of $7.3 million principal amount of a commercial loan. As discussed in Note 4, the equity interests in the entertainment and retail centers were transferred under pre-existing equity pledges of additional collateral for the commercial loan.

As of March 31, 2021, the carrying value of our equity investment in a residential mortgage originator exceeded the underlying equity in net assets of such investee by $1.6 million. This difference is the result of the Company recording its investment in the investee at its acquisition date fair value, which included certain non-amortizing intangible assets not recognized by the investee. Should the Company determine these intangible assets held by the investee are impaired, the Company will recognize such impairment loss through earnings from unconsolidated entities in our consolidated statement of operations, otherwise, such difference between the carrying value of our equity investment in the residential mortgage originator and the underlying equity in the net assets of the residential mortgage originator will continue to exist.

Other than our equity interest in the residential mortgage originator, 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 March 31, 2021.

During the three months ended March 31, 2021, 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.

29

8. 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. Management considered the general economic decline and the impact of the COVID-19 pandemic, but did not identify any such event or circumstances. However, future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s goodwill of $119.4 million at both March 31, 2021 and December 31, 2020 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 March 31, 2021 and December 31, 2020 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 March 31, 2021 and December 31, 2020, the balance of the domestic servicing intangible was net of $42.9 million and $41.4 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 March 31, 2021 and December 31, 2020, the domestic servicing intangible had a balance of $55.3 million and $54.6 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 March 31, 2021 and December 31, 2020 (amounts in thousands):

	As of March 31, 2021						As of December 31, 2020
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Value		Amortization		Value		Value		Amortization		Value
Domestic servicing rights, at fair value	$	12,406	$	—	$	12,406	$	13,202	$	—	$	13,202
In-place lease intangible assets		133,203		(94,726)		38,477		133,203		(92,540)		40,663
Favorable lease intangible assets		24,181		(8,292)		15,889		24,181		(7,929)		16,252
Total net intangible assets	$	169,790	$	(103,018)	$	66,772	$	170,586	$	(100,469)	$	70,117

30

The following table summarizes the activity within intangible assets for the three months ended March 31, 2021 (amounts in thousands):

	Domestic		In-place Lease		Favorable Lease
	Servicing		Intangible		Intangible
	Rights		Assets		Assets		Total
Balance as of January 1, 2021	$	13,202	$	40,663	$	16,252	$	70,117
Amortization		—		(2,186)		(363)		(2,549)
Changes in fair value due to changes in inputs and assumptions		(796)		—		—		(796)
Balance as of March 31, 2021	$	12,406	$	38,477	$	15,889	$	66,772

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):

2021 (remainder of)	$	7,094
2022		7,862
2023		6,115
2024		4,722
2025		3,846
Thereafter		24,727
Total	$	54,366

31

9. Secured Borrowings

Secured Financing Agreements

The following table is a summary of our secured financing agreements in place as of March 31, 2021 and December 31, 2020 (dollars in thousands):

												Outstanding Balance at
	Current		Extended		Weighted Average	Pledged Asset			Maximum			March 31,			December 31,
	Maturity		Maturity (a)		Pricing	Carrying Value			Facility Size			2021			2020
Repurchase Agreements:
Commercial Loans	May 2021 to Aug 2025	(b)	May 2023 to Mar 2029	(b)	(c)	$	8,088,081		$	9,164,525	(d)	$	5,592,652		$	4,878,939
Residential Loans	Jan 2022 to Oct 2023		N/A		LIBOR + 2.09%		428,877			1,750,000			328,620			22,590
Infrastructure Loans	Feb 2022		N/A		LIBOR + 2.00%		295,516			500,000			246,136			232,961
Conduit Loans	Feb 2022 to Jun 2023		Feb 2023 to Jun 2024		LIBOR + 2.15%		147,523			350,000			111,087			53,554
CMBS/RMBS	Dec 2021 to Oct 2030	(e)	Mar 2022 to Apr 2031	(e)	(f)		1,112,819			823,365			668,993	(g)		620,763
Total Repurchase Agreements							10,072,816			12,587,890			6,947,488			5,808,807
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25%		304,076			650,000	(h)		223,302			43,014
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75%		101,559			81,847			81,847			81,218
Residential Financing Facility	Sep 2022		Sep 2025		3.50%		163,545			250,000			1,515			215,024
Infrastructure Acquisition Facility	Sep 2021		Sep 2022		(i)		525,611			517,498			414,503			467,450
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.04%		699,684			1,250,000			548,956			538,645
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(j)	N/A		4.03%		1,271,385			1,155,306			1,155,306			1,077,528
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		(k)		929,800			985,453			960,901			960,903
Term Loan and Revolver	(l)		N/A		(l)		N/A	(l)		763,375			643,375			645,000
Federal Home Loan Bank	N/A		N/A		N/A		—			—			—			396,000
Total Other Secured Financing							3,995,660			5,653,479			4,029,705			4,424,782
						$	14,068,476		$	18,241,369			10,977,193			10,233,589
Unamortized net discount													(13,149)			(13,569)
Unamortized deferred financing costs													(68,112)			(73,830)
												$	10,895,932		$	10,146,190

(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 $1.9 billion as of March 31, 2021 are indexed to GBP LIBOR and EURIBOR. The remainder have a weighted average rate of LIBOR + 2.01%.

(d) The aggregate initial maximum facility size may be increased at our option, subject to certain conditions. The $9.2 billion amount includes such upsizes.

(e) Certain facilities with an outstanding balance of $280.3 million as of March 31, 2021 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 $212.0 million as of March 31, 2021 has a weighted average fixed annual interest rate of 3.29%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.92%.

(g) Includes: (i) $212.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $38.3 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 14).

(h) The initial maximum facility size of $300.0 million may be increased to $650.0 million, subject to certain conditions.

(i) Consists of an annual interest rate of the applicable currency benchmark index + 2.00%.

(j) The weighted average maturity is 6.5 years as of March 31, 2021.

32

(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 LIBOR + 2.59%.

(l) Consists of: (i) a 643.4 million term loan facility that matures in July 2026, of which $394.0 million has an annual interest rate of LIBOR + 2.50% and $249.4 million has an annual interest rate of LIBOR + 3.50%, subject to a 75 bps LIBOR floor, and (ii) a $120.0 million revolving credit facility that matures in July 2024 with an annual interest rate of LIBOR + 3.00%. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $4.2 billion as of March 31, 2021.

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

In January 2021, we entered into a Residential Loans repurchase facility to finance residential loans. The facility carries a one-year term, which we intend to extend every three months, and an annual interest rate of one-month LIBOR + 2.00% to 2.50%, subject to a 25 bps LIBOR floor. The maximum facility size was initially $375.0 million and was increased to $1.0 billion in March 2021.

In March 2021, we entered into mortgage loans with total borrowings of $82.9 million to refinance our Woodstar II Portfolio. The loans carry seven-year terms and a weighted average fixed annual interest rate of 4.36%. A portion of the net proceeds from the mortgage loans was used to repay $4.9 million of outstanding government sponsored mortgage loans.

Our secured financing agreements contain certain financial tests and covenants. As of March 31, 2021, 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 72% of these agreements, do not permit valuation adjustments based on capital markets activity. Instead, margin calls on these facilities are limited to collateral-specific credit marks. 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 28% of repurchase agreements containing margin call provisions for general capital markets activity, approximately 15% of these pertain to our loans held-for-sale, for which we manage credit risk through the purchase of credit index 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 months ended March 31, 2021 and 2020, approximately $9.5 million and $8.8 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations.

Collateralized Loan Obligations

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 principal amount of notes, of which $936.4 million was purchased by third party investors. We retained $86.6 million of notes, along with preferred shares with a liquidation preference of $77.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the three months ended March 31, 2021, we utilized the reinvestment feature, contributing $98.6 million of additional interests into the CLO.

33

The following table is a summary of our CLO as of March 31, 2021 and December 31, 2020 (amounts in thousands):

		Face		Carrying		Weighted
March 31, 2021	Count	Amount		Value		Average Spread		Maturity
Collateral assets	25	$	1,099,693	$	1,099,639	LIBOR + 4.21%	(a)	May 2024	(b)
Financing	1		936,375		931,178	LIBOR + 1.63%	(c)	July 2038	(d)
December 31, 2020
Collateral assets	23	$	1,002,445	$	1,099,439	LIBOR + 3.93%	(a)	Apr 2024	(b)
Financing	1		936,375		930,554	LIBOR + 1.64%	(c)	July 2038	(d)

(a) Represents the weighted-average coupon earned on variable rate loans during the respective year-to-date period. There were no fixed-rate loans financed by the CLO as of March 31, 2021 and December 31, 2020.

(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 CLO are tied to timing of the related collateral asset repayments. The term of the CLO financing obligation represents the legal final maturity date.

We incurred $9.2 million of issuance costs in connection with the CLO, which are amortized on an effective yield basis over the estimated life of the CLO. For both the three months ended March 31, 2021 and 2020, approximately $0.6 million of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, our unamortized issuance costs were $5.2 million and $5.8 million, respectively.

The CLO is considered a VIE, for which we are deemed the primary beneficiary. We therefore consolidate the CLO. Refer to Note 14 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		Other Secured
	Agreements		Financing		CLO			Total
2021 (remainder of)	$	302,200	$	58,768	$	—		$	360,968
2022		1,548,791		419,128		—			1,967,919
2023		1,450,262		803,315		—			2,253,577
2024		1,480,044		475,383		—			1,955,427
2025		1,510,607		248,376		—			1,758,983
Thereafter		655,584		2,024,735		936,375	(a)		3,616,694
Total	$	6,947,488	$	4,029,705	$	936,375		$	11,913,568

(a) Assumes utilization of the reinvestment feature.

34

10. Unsecured Senior Notes

The following table is a summary of our unsecured senior notes outstanding as of March 31, 2021 and December 31, 2020 (dollars in thousands):

							Remaining
	Coupon			Effective		Maturity	Period of		Carrying Value at
	Rate			Rate (1)		Date	Amortization		March 31, 2021		December 31, 2020
2021 Senior Notes	5.00	%		5.32	%	12/15/2021	0.7	years	$	700,000	$	700,000
2023 Senior Notes	5.50	%		5.71	%	11/1/2023	2.6	years		300,000		300,000
2023 Convertible Notes	4.38	%		4.57	%	4/1/2023	2.0	years		250,000		250,000
2025 Senior Notes	4.75	%	(2)	5.04	%	3/15/2025	4.0	years		500,000		500,000
Total principal amount										1,750,000		1,750,000
Unamortized discount—Convertible Notes										(910)		(2,559)
Unamortized discount—Senior Notes										(8,356)		(9,332)
Unamortized deferred financing costs										(5,076)		(5,589)
Carrying amount of debt components									$	1,735,658	$	1,732,520
Carrying amount of conversion option equity components recorded in additional paid-in capital for outstanding convertible notes										N/A	$	3,755

(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%.  

Our unsecured senior notes contain certain financial tests and covenants. As of March 31, 2021, 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 “2023 Convertible Notes”) which remain outstanding at March 31, 2021 and mature on April 1, 2023.

We recognized interest expense of $2.9 million and $3.0 million during the three months ended March 31, 2021 and 2020, respectively, from our Convertible Notes.

The following table details the conversion attributes of our Convertible Notes outstanding as of March 31, 2021 (amounts in thousands, except rates):

	March 31, 2021
	Conversion	Conversion
	Rate (1)	Price (2)
2023 Convertible Notes	38.5959	$	25.91

(1) The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount of 2023 Convertible Notes converted, as adjusted in accordance with the indenture governing the 2023 Convertible Notes (including the applicable supplemental indenture).

(2) As of March 31, 2021, the market price of the Company’s common stock was $24.74.

The if-converted value of the 2023 Convertible Notes was less than their principal amount by $11.3 million at March 31, 2021 as the closing market price of the Company’s common stock of $24.74 was less than the implicit conversion price of $25.91 per share. The if-converted value of the principal amount of the 2023 Convertible Notes was $238.7 million as of March 31, 2021. As of March 31, 2021, the net carrying amount and fair value of the 2023 Convertible Notes was $248.6 million and $255.8 million, respectively.

35

Upon conversion of the 2023 Convertible Notes, settlement may be made in common stock, cash or a combination of both, at the option of the Company.

Conditions for Conversion

Prior to October 1, 2022, the 2023 Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is at least 110% of the conversion price of the 2023 Convertible Notes for at least 20 out of 30 trading days prior to the end of the preceding fiscal quarter, (2) the trading price of the 2023 Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10% or (4) certain other specified corporate events (significant consolidation, sale, merger, share exchange, fundamental change, etc.) occur.

On or after October 1, 2022, holders of the 2023 Convertible Notes may convert each of their notes at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

11. 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 months ended March 31, 2021 and 2020 (amounts in thousands):

	Commercial Loans				Residential Loans
	Face Amount		Proceeds		Face Amount		Proceeds
For the Three Months Ended March 31,
2021	$	85,037	$	89,710	$	383,549	$	389,798
2020		335,835		352,393		381,279		398,747

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.

36

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):

	Residential
	Face Amount		Proceeds
For the Three Months Ended March 31,
2021	$	89,418	$	92,419
2020		550		604

There were no sales of commercial loans within the Commercial and Residential Lending Segment during the three months ended March 31, 2021 and 2020.

Infrastructure Loan Sales

During the three months ended March 31, 2020, the Infrastructure Lending Segment sold loans held-for-sale with an aggregate face amount of $38.7 million for proceeds of $38.4 million, recognizing gains of $0.3 million. There were no sales of loans within the Infrastructure Lending Segment during the three months ended March 31, 2021.

12. 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 13 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 March 31, 2021 and December 31, 2020, 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 and properties;

● Interest rate contracts which hedge a portion of our exposure to changes in interest rates;

● Credit index 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.

37

The following table summarizes our non-designated derivatives as of March 31, 2021 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros ("EUR")	2	3,973	EUR	November 2022
Fx contracts – Buy Pounds Sterling ("GBP")	8	16,675	GBP	April 2021 – July 2022
Fx contracts – Sell EUR	208	252,796	EUR	April 2021 – November 2025
Fx contracts – Sell GBP	156	556,798	GBP	April 2021 – May 2024
Fx contracts – Sell Australian dollar ("AUD")	19	188,554	AUD	August 2021 – June 2022
Interest rate swaps – Paying fixed rates	46	1,791,332	USD	May 2023 – April 2031
Interest rate swaps – Receiving fixed rates	1	470,000	USD	March 2025
Interest rate caps	22	985,635	USD	April 2021 – April 2025
Credit index instruments	3	49,000	USD	September 2058 – August 2061
Interest rate swap guarantees	6	371,890	USD	March 2022 – June 2025
Total	471

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 March 31, 2021 and December 31, 2020 (amounts in thousands):

	Fair Value of Derivatives				Fair Value of Derivatives
	in an Asset Position (1) as of				in a Liability Position (2) as of
	March 31,		December 31,		March 31,		December 31,
	2021		2020		2021		2020
Interest rate contracts	$	25,331	$	33,841	$	4	$	4
Interest rate swap guarantees		—		—		498		849
Foreign exchange contracts		12,617		6,585		34,002		39,951
Credit index instruments		81		129		301		520
Total derivatives	$	38,029	$	40,555	$	34,805	$	41,324

(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 months ended March 31, 2021 and 2020 (amounts in thousands):

		Amount of Gain (Loss)
		Recognized in Income for the
Derivatives Not Designated	Location of Gain (Loss)	Three Months Ended March 31,
as Hedging Instruments	Recognized in Income	2021		2020
Interest rate contracts	Gain on derivative financial instruments	$	20,158	$	(45,125)
Interest rate swap guarantees	Gain on derivative financial instruments		351		(675)
Foreign exchange contracts	Gain on derivative financial instruments		13,602		53,265
Credit index instruments	Gain on derivative financial instruments		(122)		2,245
		$	33,989	$	9,710

38

13. 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):

							(iv)
							Gross Amounts Not
							Offset in the Statement
			(ii)		(iii) = (i) - (ii)		of Financial Position
			Gross Amounts		Net Amounts				Cash
	(i)		Offset in the		Presented in				Collateral
	Gross Amounts		Statement of		the Statement of		Financial		Received /		(v) = (iii) - (iv)
	Recognized		Financial Position		Financial Position		Instruments		Pledged		Net Amount
As of March 31, 2021
Derivative assets	$	38,029	$	—	$	38,029	$	11,491	$	24,235	$	2,303
Derivative liabilities	$	34,805	$	—	$	34,805	$	11,491	$	22,618	$	696
Repurchase agreements		6,947,488		—		6,947,488		6,947,488		—		—
	$	6,982,293	$	—	$	6,982,293	$	6,958,979	$	22,618	$	696
As of December 31, 2020
Derivative assets	$	40,555	$	—	$	40,555	$	6,716	$	33,772	$	67
Derivative liabilities	$	41,324	$	—	$	41,324	$	6,716	$	27,416	$	7,192
Repurchase agreements		5,808,807		—		5,808,807		5,808,807		—		—
	$	5,850,131	$	—	$	5,850,131	$	5,815,523	$	27,416	$	7,192

14. 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.

During the year ended December 31, 2019, we refinanced a pool of our commercial loans held-for-investment through a CLO, which is considered to be a VIE. We are the primary beneficiary of, and therefore consolidate, the CLO in our financial statements as we have both (i) the power to direct the activities in our role as collateral manager that most significantly impact the CLO’s economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the CLO that could be potentially significant through the subordinate interests we own.

39

The following table details the assets and liabilities of our consolidated CLO as of March 31, 2021 and December 31, 2020 (amounts in thousands):

	March 31, 2021		December 31, 2020
Assets:
Cash and cash equivalents	$	—	$	96,998
Loans held-for-investment		1,099,639		1,002,441
Accrued interest receivable		4,068		5,454
Other assets		307		557
Total Assets	$	1,104,014	$	1,105,450
Liabilities
Accounts payable, accrued expenses and other liabilities	$	640	$	663
Collateralized loan obligations, net		931,178		930,554
Total Liabilities	$	931,818	$	931,217

Assets held by this CLO are restricted and can be used only to settle obligations of the CLO, including the subordinate interests owned by us. The liabilities of this CLO are non-recourse to us and can only be satisfied from the assets of the CLO.

We also hold controlling interests in other non-securitization entities that are considered VIEs. SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which holds the Woodstar II Portfolio, is a VIE 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 the VIE because we possess both the power to direct the activities of the VIE that most significantly impact its economic performance and a significant economic interest in the entity. This VIE had total assets of $685.4 million and liabilities of $520.6 million as of March 31, 2021.

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 $335.4 million and liabilities of $78.9 million as of March 31, 2021. Refer to Note 16 for further discussion.

In addition to the above non-securitization entities, we have smaller VIEs with total assets of $98.7 million and liabilities of $53.8 million as of March 31, 2021.

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 of March 31, 2021, five of our six collateralized debt obligation (“CDO”) structures within our Investing and Servicing Segment were in default or imminent default, which, pursuant to the underlying indentures, changes the rights of the variable interest holders. Two of the five CDOs defaulted during the year ended December 31, 2020. Upon default of a CDO, the trustee or senior note holders are allowed to exercise certain rights, including liquidation of the collateral, which at that time, is the activity which would most significantly impact the CDO’s economic performance. Further, when the CDO is in default, the collateral administrator no longer has the option to purchase securities from the CDO. In cases where the CDO is in default and we do not have the ability to exercise rights which would most significantly impact the CDO’s economic performance, we do not consolidate the VIE. As of March 31, 2021, none of these five CDO structures were consolidated.

40

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 March 31, 2021, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $19.3 million on a fair value basis.

As of March 31, 2021, 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 $3.9 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 $25.7 million as of March 31, 2021, within investment in unconsolidated entities on our condensed consolidated balance sheet. Our maximum risk of loss is limited to our carrying value of the investments.

15. 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 16 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 March 31, 2021 and 2020, approximately $19.2 million and $19.1 million, respectively, was incurred for base management fees. As of both March 31, 2021 and December 31, 2020, there were $19.2 million of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.

Incentive Fee. For the three months ended March 31, 2021 and 2020, approximately $13.1 million and $15.8 million, respectively, was incurred for incentive fees. As of March 31, 2021 and December 31, 2020, there were $13.1 million and $15.0 million of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.

Expense Reimbursement. For the three months ended March 31, 2021 and 2020, approximately $1.5 million and $2.2 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. As of March 31, 2021 and December 31, 2020, there were $3.8 million and $5.0 million, respectively, of unpaid reimbursable executive compensation and other expenses included in related-party payable in our condensed consolidated balance sheets.

Equity Awards. In certain instances, we issue RSAs to certain employees of affiliates of our Manager who perform services for us. During the three months ended March 31, 2021 and 2020, we granted 981,951 and 341,635 RSAs, respectively, at grant date fair values of $19.6 million and $3.9 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $2.4 million and $1.1 million during the three months ended March 31, 2021 and 2020, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. These shares generally vest over a three-year period.

41

Manager Equity Plan

In May 2017, the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”), which replaced the Starwood Property Trust, Inc. Manager Equity Plan (“Manager Equity Plan”). In November 2020, we granted 1,800,000 RSUs to our Manager under the 2017 Manager Equity Plan. In September 2019, we granted 1,200,000 RSUs to our Manager under the 2017 Manager Equity Plan. In April 2018, we granted 775,000 RSUs to our Manager under the 2017 Manager Equity Plan. In March 2017, we granted 1,000,000 RSUs to our Manager under the Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $5.9 million and $5.2 million within management fees in our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020, respectively. Refer to Note 16 for further discussion of these grants.

Investments in Loans and Securities

During the three months ended March 31, 2021, the Company acquired $141.6 million of loans from a residential mortgage originator in which it holds an equity interest. Additionally, as of March 31, 2021, the Company had outstanding residential mortgage loan purchase commitments of $27.4 million to this residential mortgage originator. Refer to Note 7 for further discussion.

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 are currently under construction and will serve as our new Miami Beach office when our existing lease in Miami Beach expires on December 31, 2021. The lease will commence after delivery of the office space to us, but no earlier than July 30, 2021. The lease is for approximately 74,000 square feet of office space, has an initial term of 15 years and requires monthly lease payments starting in the tenth month after lease commencement. 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. In April 2020, we provided a $1.9 million cash security deposit to the landlord. 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 were approved by our independent directors.

Other Related-Party Arrangements

Highmark Residential (“Highmark”), an affiliate of our Manager, provides property management services for the properties within our Woodstar I Portfolio. Fees paid to Highmark are calculated as a percentage of gross receipts and are at market terms. During the three months ended March 31, 2021 and 2020, property management fees to Highmark of $0.7 million and $0.5 million, respectively, were recognized in our condensed consolidated statements of operations.

Refer to Note 16 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.

42

16. Stockholders’ Equity and Non-Controlling Interests

During the three months ended March 31, 2021, our board of directors declared the following dividends:

Declaration Date	Record Date	Ex-Dividend Date	Payment Date	Amount		Frequency
3/11/21	3/31/21	3/30/21	4/15/21		0.48	Quarterly

During the three months ended March 31, 2021 and 2020, there were no shares issued under our At-The-Market Equity Offering Sales Agreement. During the three months ended March 31, 2021 and 2020, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.

Equity Incentive Plans

In May 2017, the Company’s shareholders approved the 2017 Manager Equity Plan and the Starwood Property Trust, Inc. 2017 Equity Plan (the “2017 Equity Plan”), which allow for the issuance of up to 11,000,000 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 2017 Manager Equity Plan succeeds and replaces the Manager Equity Plan and the 2017 Equity Plan succeeds and replaces the Starwood Property Trust, Inc. Equity Plan (the “Equity Plan”) and the Starwood Property Trust, Inc. Non-Executive Director Stock Plan (the “Non-Executive Director Stock Plan”).

The table below summarizes our share awards granted or vested under the Manager Equity Plan and the 2017 Manager Equity Plan during the three months ended March 31, 2021 and 2020 (dollar amounts in thousands):

Grant Date	Type	Amount Granted	Grant Date Fair Value		Vesting Period
November 2020	RSU	1,800,000	$	30,078	3 years
September 2019	RSU	1,200,000		29,484	(1)
April 2018	RSU	775,000		16,329	3 years
March 2017	RSU	1,000,000		22,240	3 years

(1) Of the amount granted, 218,898 vested immediately on the grant date and the remaining amount vests over a three-year period.

Schedule of Non-Vested Shares and Share Equivalents

		2017		Weighted Average
	2017	Manager		Grant Date Fair
	Equity Plan	Equity Plan	Total	Value (per share)
Balance as of January 1, 2021	1,594,605	2,286,896	3,881,501	$	17.26
Granted	1,518,072	—	1,518,072		21.81
Vested	(633,893)	(296,342)	(930,235)		17.48
Balance as of March 31, 2021	2,478,784	1,990,554	4,469,338		18.76

As of March 31, 2021, there were 3.2 million shares of common stock available for future grants under the 2017 Manager Equity Plan and the 2017 Equity Plan.

43

Non-Controlling Interests in Consolidated Subsidiaries

In connection with our Woodstar II Portfolio acquisitions, we issued 10.2 million Class A Units in our consolidated subsidiary, SPT Dolphin, and rights to receive an additional 1.9 million Class A Units if certain contingent events occur. As of March 31, 2021, 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. During the three months ended March 31, 2021, redemptions of 0.1 million of the Class A Units were received and settled in common stock, leaving 10.6 million Class A Units outstanding as of March 31, 2021. In consolidation, the outstanding Class A Units are reflected as non-controlling interests in consolidated subsidiaries on our condensed consolidated balance sheets, the balance of which was $225.6 million and $226.7 million as of March 31, 2021 and December 31, 2020, respectively.

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 both the three months ended March 31, 2021 and 2020, we recognized net income attributable to non-controlling interests of $5.1 million associated with these Class A Units.

As discussed in Note 14, 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 consolidated statement of operations. The non-controlling interests in the CMBS JV were $132.4 million and $126.7 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, net income (loss) attributable to non-controlling interests was $5.4 million and $(6.0) million, respectively.

44

17. Earnings per Share

The following table provides a reconciliation of net income (loss) 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
	March 31,
	2021		2020
Basic Earnings (Loss)
Income (loss) attributable to STWD common stockholders	$	111,378	$	(66,769)
Less: Income attributable to participating shares not already deducted as non-controlling interests		(1,925)		(1,222)
Basic earnings (loss)	$	109,453	$	(67,991)
Diluted Earnings (Loss)
Income (loss) attributable to STWD common stockholders	$	111,378	$	(66,769)
Less: Income attributable to participating shares not already deducted as non-controlling interests		(1,925)		(1,222)
Add: Interest expense on Convertible Notes		2,916		*
Diluted earnings (loss)	$	112,369	$	(67,991)
Number of Shares:
Basic — Average shares outstanding		283,319		280,990
Effect of dilutive securities — Convertible Notes		9,649		*
Effect of dilutive securities — Contingently issuable shares		263		—
Diluted — Average shares outstanding		293,231		280,990
Earnings (Loss) Per Share Attributable to STWD Common Stockholders:
Basic	$	0.39	$	(0.24)
Diluted	$	0.38	$	(0.24)

*Our Convertible Notes were not dilutive for the three months ended March 31, 2020.

As of March 31, 2021 and 2020, participating shares of 14.6 million and 13.2 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above. Such participating shares at both March 31, 2021 and 2020 included 10.6 million potential shares of our common stock issuable upon redemption of the Class A Units in SPT Dolphin, as discussed in Note 16.

45

18. Accumulated Other Comprehensive Income

The changes in AOCI by component are as follows (amounts in thousands):

	Cumulative
	Unrealized Gain
	(Loss) on		Foreign
	Available-for-		Currency
	Sale Securities		Translation		Total
Three Months Ended March 31, 2021
Balance at January 1, 2021	$	44,057	$	(64)	$	43,993
OCI before reclassifications		(2,403)		—		(2,403)
Amounts reclassified from AOCI		—		64		64
Net period OCI		(2,403)		64		(2,339)
Balance at March 31, 2021	$	41,654	$	—	$	41,654
Three Months Ended March 31, 2020
Balance at January 1, 2020	$	50,996	$	(64)	$	50,932
OCI before reclassifications		(15,048)		—		(15,048)
Amounts reclassified from AOCI		—		—		—
Net period OCI		(15,048)		—		(15,048)
Balance at March 31, 2020	$	35,948	$	(64)	$	35,884

19. 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.

46

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.

Loans held-for-sale and loans held-for-investment, residential

We measure the fair value of our residential loans held-for-sale and held-for-investment based on the net present value of expected future cash flows using a combination of observable and unobservable inputs. Observable market participant assumptions include pricing related to trades of residential loans with similar characteristics. Unobservable inputs include the expectation of future cash flows, which involves judgments about the underlying collateral, the creditworthiness of the borrower, estimated prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements and certain other factors. At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs, these loans have been classified within Level III.

RMBS

RMBS are valued utilizing observable and unobservable market inputs. The observable market inputs include recent transactions, broker quotes and vendor prices (“market data”). However, given the implied price dispersion amongst the market data, the fair value determination for RMBS has also utilized significant unobservable inputs in discounted cash flow models including prepayments, default and severity estimates based on the recent performance of the collateral, the underlying collateral characteristics, industry trends, as well as expectations of macroeconomic events (e.g., housing price curves, interest rate curves, etc.). At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs these securities have been classified within Level III.

CMBS

CMBS are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar securities and the spreads used in the prior valuation. We obtain current market spread information where available and use this information in evaluating and validating the market price of all CMBS. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are classified in either Level II or Level III of the fair value hierarchy. CMBS may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the CMBS become or cease to be observable.

47

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.

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 index 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 March 31, 2021 and December 31, 2020, 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.

48

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 and loans held-for-sale

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 and CLO

The fair value of the secured financing agreements and CLO 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.

49

Fair Value Disclosures

The following tables present our financial assets and liabilities carried at fair value on a recurring basis in the condensed consolidated balance sheets by their level in the fair value hierarchy as of March 31, 2021 and December 31, 2020 (amounts in thousands):

	March 31, 2021
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	763,773	$	—	$	—	$	763,773
RMBS		160,301		—		—		160,301
CMBS		19,256		—		—		19,256
Equity security		10,655		10,655		—		—
Domestic servicing rights		12,406		—		—		12,406
Derivative assets		38,029		—		38,029		—
VIE assets		62,367,110		—		—		62,367,110
Total	$	63,371,530	$	10,655	$	38,029	$	63,322,846
Financial Liabilities:
Derivative liabilities	$	34,805	$	—	$	34,805	$	—
VIE liabilities		60,896,709		—		58,669,281		2,227,428
Total	$	60,931,514	$	—	$	58,704,086	$	2,227,428

	December 31, 2020
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	1,022,979	$	—	$	—	$	1,022,979
RMBS		167,349		—		—		167,349
CMBS		19,457		—		—		19,457
Equity security		11,247		11,247		—		—
Domestic servicing rights		13,202		—		—		13,202
Derivative assets		40,555		—		40,555		—
VIE assets		64,238,328		—		—		64,238,328
Total	$	65,513,117	$	11,247	$	40,555	$	65,461,315
Financial Liabilities:
Derivative liabilities	$	41,324	$	—	$	41,324	$	—
VIE liabilities		62,776,371		—		60,756,495		2,019,876
Total	$	62,817,695	$	—	$	60,797,819	$	2,019,876

50

The changes in financial assets and liabilities classified as Level III are as follows for the three months ended March 31, 2021 and 2020 (amounts in thousands):

							Domestic
	Loans at						Servicing				VIE
Three Months Ended March 31, 2021	Fair Value		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2021 balance	$	1,022,979	$	167,349	$	19,457	$	13,202	$	64,238,328	$	(2,019,876)	$	63,441,439
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale		(9,478)		—		372		(796)		(2,264,591)		65,681		(2,208,812)
Net accretion		—		2,606		—		—		—		—		2,606
Included in OCI		—		(2,403)		—		—		—		—		(2,403)
Purchases / Originations		375,270		—		—		—		—		—		375,270
Sales		(571,927)		—		—		—		—		—		(571,927)
Issuances		—		—		—		—		—		(11,604)		(11,604)
Cash repayments / receipts		(53,071)		(7,251)		(573)		—		—		(1,137)		(62,032)
Transfers into Level III		—		—		—		—		—		(409,267)		(409,267)
Transfers out of Level III		—		—		—		—		—		148,775		148,775
Consolidation of VIEs		—		—		—		—		393,373		—		393,373
March 31, 2021 balance	$	763,773	$	160,301	$	19,256	$	12,406	$	62,367,110	$	(2,227,428)	$	61,095,418
Amount of unrealized gains (losses) attributable to assets still held at March 31, 2021:
Included in earnings	$	(7,708)	$	2,606	$	372	$	(796)	$	(2,264,591)	$	65,681	$	(2,204,436)
Included in OCI	$	—	$	(2,403)	$	—	$	—	$	—	$	—	$	(2,403)

							Domestic
	Loans at						Servicing				VIE
Three Months Ended March 31, 2020	Fair Value		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2020 balance	$	1,436,194	$	189,576	$	25,008	$	16,917	$	62,187,175	$	(2,537,392)	$	61,317,478
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale		(16,134)		—		5,738		(393)		(3,506,792)		146,282		(3,371,299)
Net accretion		—		2,661		—		—		—		—		2,661
Included in OCI		—		(15,048)		—		—		—		—		(15,048)
Purchases / Originations		746,880		—		—		—		—		—		746,880
Sales		(751,746)		—		(7,940)		—		—		—		(759,686)
Issuances		—		—		—		—		—		(24,376)		(24,376)
Cash repayments / receipts		(67,397)		(6,549)		(371)		—		—		(8,916)		(83,233)
Transfers into Level III		—		—		—		—		—		(101,265)		(101,265)
Transfers out of Level III		—		—		—		—		—		1,090,325		1,090,325
Consolidation of VIEs		—		—		—		—		2,477,422		(71,095)		2,406,327
March 31, 2020 balance	$	1,347,797	$	170,640	$	22,435	$	16,524	$	61,157,805	$	(1,506,437)	$	61,208,764
Amount of unrealized (losses) gains attributable to assets still held at March 31, 2020:
Included in earnings	$	(39,070)	$	2,661	$	(647)	$	(393)	$	(3,506,792)	$	146,282	$	(3,397,959)
Included in OCI	$	—	$	(15,048)	$	—	$	—	$	—	$	—	$	(15,048)

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 condensed consolidated balance sheets (amounts in thousands):

	March 31, 2021				December 31, 2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets not carried at fair value:
Loans held-for-investment and loans held-for-sale	$	12,402,351	$	12,460,388	$	11,116,929	$	11,107,316
HTM debt securities		488,075		466,687		538,605		515,253
Financial liabilities not carried at fair value:
Secured financing agreements and CLO	$	11,827,110	$	11,900,381	$	11,076,744	$	11,108,364
Unsecured senior notes		1,735,658		1,803,224		1,732,520		1,786,667

51

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		Valuation	Unobservable	Range (Weighted Average) as of (1)
	March 31, 2021		Technique	Input	March 31, 2021	December 31, 2020
Loans under fair value option	$	763,773	Discounted cash flow, market pricing	Coupon (d)	3.4% - 9.5% (5.5%)	3.3% - 9.7% (5.9%)
				Remaining contractual term (d)	7.0 - 39.0 years (24.7 years)	7.3 - 39.3 years (26.3 years)
				FICO score (a)	519 - 823 (732)	519 - 823 (727)
				LTV (b)	15% - 94% (66%)	5% - 94% (68%)
				Purchase price (d)	85.6% - 104.8% (101.7%)	84.4% - 104.8% (99.8%)
RMBS		160,301	Discounted cash flow	Constant prepayment rate (a)	3.5% - 17.3% (7.4%)	3.6% - 19.4% (7.6%)
				Constant default rate (b)	0.7% - 5.0% (2.2%)	0.7% - 5.4% (2.4%)
				Loss severity (b)	0% - 84% (17%) (f)	0% - 85% (20%) (f)
				Delinquency rate (c)	9% - 32% (18%)	10% - 32% (19%)
				Servicer advances (a)	23% - 84% (53%)	23% - 82% (54%)
				Annual coupon deterioration (b)	0.0% - 1.2% (0.1%)	0.0% - 0.9% (0.1%)
				Putback amount per projected total collateral loss (e)	0% -17% (0.8%)	0% -17% (0.8%)
CMBS		19,256	Discounted cash flow	Yield (b)	0% - 298.5% (5.9%)	0% - 536.6% (7.1%)
				Duration (c)	0 - 7.6 years (6.0 years)	0 - 7.6 years (5.3 years)
Domestic servicing rights		12,406	Discounted cash flow	Debt yield (a)	7.25% (7.25%)	7.50% (7.50%)
				Discount rate (b)	15% (15%)	15% (15%)
VIE assets		62,367,110	Discounted cash flow	Yield (b)	0% - 752.4% (16.9%)	0% - 312.2% (14.3%)
				Duration (c)	0 - 20.6 years (3.8 years)	0 - 16.3 years (3.8 years)
VIE liabilities		(2,227,428)	Discounted cash flow	Yield (b)	0% - 752.4% (17.3%)	0% - 312.2% (14.4%)
				Duration (c)	0 - 11.0 years (3.7 years)	0 - 10.8 years (3.8 years)

(1) Unobservable inputs were weighted by the relative carrying value of the instruments as of March 31, 2021 and December 31, 2020.

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) 14% and 23% of the portfolio falls within a range of 45% - 80% as of March 31, 2021 and December 31, 2020, respectively.

52

20. 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 March 31, 2021 and December 31, 2020, approximately $959.6 million and $1.4 billion, respectively, of assets were owned by TRS entities. Our TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

The following table is a reconciliation of our U.S. federal income tax provision (benefit) determined using our statutory federal tax rate to our reported income tax (benefit) provision for the three months ended March 31, 2021 and 2020 (dollars in thousands):

	For the Three Months Ended March 31,
	2021				2020
Federal statutory tax rate	$	26,199	21.0	%	$	(15,329)	21.0	%
REIT and other non-taxable loss		(24,501)	(19.6)	%		9,914	(13.6)	%
State income taxes		558	0.4	%		(1,779)	2.4	%
Federal benefit of state tax deduction		(117)	(0.1)	%		374	(0.5)	%
Other		91	0.1	%		91	(0.1)	%
Effective tax rate	$	2,230	1.8	%	$	(6,729)	9.2	%

In response to the COVID-19 pandemic, the U.S. and many other governments have enacted, or are contemplating enacting, measures to provide aid and economic stimulus.  These measures included deferring the due dates of tax payments and other changes to their income and non-income-based tax laws.  The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., included measures to assist companies, including temporary changes to income and non-income-based tax laws, and allowed companies to carry back tax net operating losses (“NOLs”) generated in 2018 to 2020 to the five preceding tax years. The Company plans to carry back its NOL generated in 2020 to a year in which the federal tax rate was 35%. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

The Company used the discrete tax approach in calculating the tax benefit for the three months ended March 31, 2020 due to the fact that a relatively small change in the Company’s projected pre-tax net loss could have resulted in a volatile effective tax rate. Under the discrete method, the tax benefit was determined based upon actual results as if the interim period was an annual period.

53

21. Commitments and Contingencies

As of March 31, 2021, our Commercial and Residential Lending Segment had future commercial loan funding commitments totaling $1.5 billion, of which we expect to fund $1.3 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Additionally, as of March 31, 2021, our Commercial and Residential Lending Segment had outstanding residential mortgage loan purchase commitments of $82.7 million.

As of March 31, 2021, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $192.5 million, including $126.7 million under revolvers and letters of credit (“LCs”), and $65.8 million under delayed draw term loans. As of March 31, 2021, $15.6 million of revolvers and LCs were outstanding.

In connection with the Infrastructure Lending Segment acquisition, we assumed guarantees of certain borrowers’ performance under existing interest rate swaps.  As of March 31, 2021, we had six outstanding guarantees on interest rate swaps maturing between March 2022 and June 2025. Refer to Note 12 for further discussion.

Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios or executions of new leases before advances are made to the borrower.

Management is not aware of any other contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our condensed consolidated financial statements.

54

22. 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 March 31, 2021 by business segment (amounts in thousands):

	Commercial and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing						Securitization
	Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	170,593	$	18,808	$	—	$	1,174	$	—	$	190,575	$	—	$	190,575
Interest income from investment securities		18,385		564		—		20,940		—		39,889		(28,279)		11,610
Servicing fees		124		—		—		12,456		—		12,580		(4,178)		8,402
Rental income		1,339		—		65,104		9,895		—		76,338		—		76,338
Other revenues		90		93		40		82		—		305		—		305
Total revenues		190,531		19,465		65,144		44,547		—		319,687		(32,457)		287,230
Costs and expenses:
Management fees		315		—		—		222		38,188		38,725		11		38,736
Interest expense		44,295		8,841		15,832		5,449		29,148		103,565		(191)		103,374
General and administrative		11,333		3,442		1,023		18,440		4,311		38,549		87		38,636
Acquisition and investment pursuit costs		185		—		—		—		—		185		—		185
Costs of rental operations		477		—		23,960		4,308		—		28,745		—		28,745
Depreciation and amortization		307		100		18,100		3,967		—		22,474		—		22,474
Credit loss (reversal) provision, net		(529)		573		—		—		—		44		—		44
Other expense		31		—		583		71		—		685		—		685
Total costs and expenses		56,414		12,956		59,498		32,457		71,647		232,972		(93)		232,879
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		39,745		39,745
Change in fair value of servicing rights		—		—		—		745		—		745		(1,541)		(796)
Change in fair value of investment securities, net		(2,050)		—		—		7,170		—		5,120		(5,426)		(306)
Change in fair value of mortgage loans, net		(10,714)		—		—		1,236		—		(9,478)		—		(9,478)
Earnings (loss) from unconsolidated entities		1,753		(254)		—		589		—		2,088		(354)		1,734
Gain on sale of investments and other assets, net		17,693		—		—		—		—		17,693		—		17,693
Gain (loss) on derivative financial instruments, net		26,141		684		4,724		9,283		(6,843)		33,989		—		33,989
Foreign currency (loss) gain, net		(11,594)		(49)		25		(63)		—		(11,681)		—		(11,681)
Loss on extinguishment of debt		(68)		(307)		(141)		—		—		(516)		—		(516)
Other income, net		—		21		—		—		—		21		—		21
Total other income (loss)		21,161		95		4,608		18,960		(6,843)		37,981		32,424		70,405
Income (loss) before income taxes		155,278		6,604		10,254		31,050		(78,490)		124,696		60		124,756
Income tax provision		(1,505)		(92)		—		(633)		—		(2,230)		—		(2,230)
Net income (loss)		153,773		6,512		10,254		30,417		(78,490)		122,466		60		122,526
Net income attributable to non-controlling interests		(3)		—		(5,077)		(6,008)		—		(11,088)		(60)		(11,148)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	153,770	$	6,512	$	5,177	$	24,409	$	(78,490)	$	111,378	$	—	$	111,378

55

The table below presents our results of operations for the three months ended March 31, 2020 by business segment (amounts in thousands):

	Commercial and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing						Securitization
	Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	192,381	$	22,413	$	—	$	2,633	$	—	$	217,427	$	—	$	217,427
Interest income from investment securities		18,628		701		—		24,800		—		44,129		(28,889)		15,240
Servicing fees		172		—		—		6,442		—		6,614		(1,821)		4,793
Rental income		78		—		63,961		10,107		—		74,146		—		74,146
Other revenues		178		143		122		513		—		956		(2)		954
Total revenues		211,437		23,257		64,083		44,495		—		343,272		(30,712)		312,560
Costs and expenses:
Management fees		351		—		—		239		40,107		40,697		31		40,728
Interest expense		53,950		13,117		17,121		7,194		28,805		120,187		(162)		120,025
General and administrative		8,132		4,423		1,078		20,684		4,301		38,618		84		38,702
Acquisition and investment pursuit costs		860		17		12		20		—		909		—		909
Costs of rental operations		778		—		22,852		4,584		—		28,214		—		28,214
Depreciation and amortization		415		70		19,288		4,207		—		23,980		—		23,980
Credit loss provision, net		40,217		8,452		—		—		—		48,669		—		48,669
Other expense		77		—		311		—		—		388		—		388
Total costs and expenses		104,780		26,079		60,662		36,928		73,213		301,662		(47)		301,615
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		(45,493)		(45,493)
Change in fair value of servicing rights		—		—		—		318		—		318		(711)		(393)
Change in fair value of investment securities, net		(27,879)		—		—		(47,216)		—		(75,095)		77,599		2,504
Change in fair value of mortgage loans, net		(35,517)		—		—		19,383		—		(16,134)		—		(16,134)
Earnings (loss) from unconsolidated entities		51		—		—		620		—		671		(574)		97
Gain on sale of investments and other assets, net		—		296		—		—		—		296		—		296
Gain (loss) on derivative financial instruments, net		30,805		(1,001)		(30,223)		(19,106)		29,235		9,710		—		9,710
Foreign currency (loss) gain, net		(34,001)		(473)		(19)		7		—		(34,486)		—		(34,486)
Loss on extinguishment of debt		—		(170)		—		—		—		(170)		—		(170)
Other income, net		—		—		50		76		—		126		—		126
Total other income (loss)		(66,541)		(1,348)		(30,192)		(45,918)		29,235		(114,764)		30,821		(83,943)
Income (loss) before income taxes		40,116		(4,170)		(26,771)		(38,351)		(43,978)		(73,154)		156		(72,998)
Income tax benefit		4,422		145		—		2,162		—		6,729		—		6,729
Net income (loss)		44,538		(4,025)		(26,771)		(36,189)		(43,978)		(66,425)		156		(66,269)
Net (income) loss attributable to non-controlling interests		(3)		—		(5,111)		4,770		—		(344)		(156)		(500)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	44,535	$	(4,025)	$	(31,882)	$	(31,419)	$	(43,978)	$	(66,769)	$	—	$	(66,769)

56

The table below presents our condensed consolidated balance sheet as of March 31, 2021 by business segment (amounts in thousands):

	Commercial and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing						Securitization
	Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	56,629	$	7,873	$	39,791	$	29,064	$	217,049	$	350,406	$	784	$	351,190
Restricted cash		69,882		27,973		6,672		14,197		—		118,724		—		118,724
Loans held-for-investment, net		10,733,752		1,586,808		—		933		—		12,321,493		—		12,321,493
Loans held-for-sale		587,037		89,368		—		168,226		—		844,631		—		844,631
Investment securities		969,968		34,951		—		1,106,000		—		2,110,919		(1,432,632)		678,287
Properties, net		93,718		—		1,954,880		196,150		—		2,244,748		—		2,244,748
Intangible assets		—		—		38,833		70,857		—		109,690		(42,918)		66,772
Investment in unconsolidated entities		47,514		24,840		—		44,435		—		116,789		(15,882)		100,907
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		13,088		—		162		320		24,459		38,029		—		38,029
Accrued interest receivable		97,853		3,310		—		274		408		101,845		(132)		101,713
Other assets		61,677		7,107		85,740		44,719		9,646		208,889		(16)		208,873
VIE assets, at fair value		—		—		—		—		—		—		62,367,110		62,367,110
Total Assets	$	12,731,118	$	1,901,639	$	2,126,078	$	1,815,612	$	251,562	$	18,826,009	$	60,876,314	$	79,702,323
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	37,206	$	16,010	$	44,184	$	24,110	$	56,614	$	178,124	$	91	$	178,215
Related-party payable		—		—		—		—		36,135		36,135		—		36,135
Dividends payable		—		—		—		—		138,906		138,906		—		138,906
Derivative liabilities		33,190		1,310		—		305		—		34,805		—		34,805
Secured financing agreements, net		6,502,059		1,259,813		1,871,026		653,222		631,655		10,917,775		(21,843)		10,895,932
Collateralized loan obligations, net		931,178		—		—		—		—		931,178		—		931,178
Unsecured senior notes, net		—		—		—		—		1,735,658		1,735,658		—		1,735,658
VIE liabilities, at fair value		—		—		—		—		—		—		60,896,709		60,896,709
Total Liabilities		7,503,633		1,277,133		1,915,210		677,637		2,598,968		13,972,581		60,874,957		74,847,538
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock		—		—		—		—		2,943		2,943		—		2,943
Additional paid-in capital		1,074,553		599,666		25,905		(298,098)		3,823,011		5,225,037		—		5,225,037
Treasury stock		—		—		—		—		(138,022)		(138,022)		—		(138,022)
Accumulated other comprehensive income		41,654		—		—		—		—		41,654		—		41,654
Retained earnings (accumulated deficit)		4,111,160		24,840		(40,641)		1,285,229		(6,035,338)		(654,750)		—		(654,750)
Total Starwood Property Trust, Inc. Stockholders’ Equity		5,227,367		624,506		(14,736)		987,131		(2,347,406)		4,476,862		—		4,476,862
Non-controlling interests in consolidated subsidiaries		118		—		225,604		150,844		—		376,566		1,357		377,923
Total Equity		5,227,485		624,506		210,868		1,137,975		(2,347,406)		4,853,428		1,357		4,854,785
Total Liabilities and Equity	$	12,731,118	$	1,901,639	$	2,126,078	$	1,815,612	$	251,562	$	18,826,009	$	60,876,314	$	79,702,323

57

The table below presents our condensed consolidated balance sheet as of December 31, 2020 by business segment (amounts in thousands):

	Commercial and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing						Securitization
	Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	160,007	$	4,440	$	32,080	$	19,546	$	346,372	$	562,445	$	772	$	563,217
Restricted cash		93,445		45,113		7,192		13,195		—		158,945		—		158,945
Loans held-for-investment, net		9,673,625		1,412,440		—		1,008		—		11,087,073		—		11,087,073
Loans held-for-sale		841,963		120,540		—		90,332		—		1,052,835		—		1,052,835
Investment securities		1,014,402		35,681		—		1,112,145		—		2,162,228		(1,425,570)		736,658
Properties, net		103,896		—		1,969,414		197,843		—		2,271,153		—		2,271,153
Intangible assets		—		—		40,370		71,123		—		111,493		(41,376)		70,117
Investment in unconsolidated entities		54,407		25,095		—		44,664		—		124,166		(16,112)		108,054
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		6,595		—		41		147		33,772		40,555		—		40,555
Accrued interest receivable		87,922		2,091		—		123		5,978		96,114		(134)		95,980
Other assets		61,638		4,531		69,859		44,579		10,148		190,755		(7)		190,748
VIE assets, at fair value		—		—		—		—		—		—		64,238,328		64,238,328
Total Assets	$	12,097,900	$	1,769,340	$	2,118,956	$	1,735,142	$	396,270	$	18,117,608	$	62,755,901	$	80,873,509
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	41,104	$	12,144	$	43,630	$	45,309	$	64,583	$	206,770	$	75	$	206,845
Related-party payable		—		—		—		5		39,165		39,170		—		39,170
Dividends payable		—		—		—		—		137,959		137,959		—		137,959
Derivative liabilities		39,082		1,718		—		524		—		41,324		—		41,324
Secured financing agreements, net		5,893,999		1,240,763		1,794,609		606,100		632,719		10,168,190		(22,000)		10,146,190
Collateralized loan obligations, net		930,554		—		—		—		—		930,554		—		930,554
Unsecured senior notes, net		—		—		—		—		1,732,520		1,732,520		—		1,732,520
VIE liabilities, at fair value		—		—		—		—		—		—		62,776,371		62,776,371
Total Liabilities		6,904,739		1,254,625		1,838,239		651,938		2,606,946		13,256,487		62,754,446		76,010,933
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock		—		—		—		—		2,921		2,921		—		2,921
Additional paid-in capital		1,192,584		496,387		98,882		(322,992)		3,744,878		5,209,739		—		5,209,739
Treasury stock		—		—		—		—		(138,022)		(138,022)		—		(138,022)
Accumulated other comprehensive income (loss)		44,057		—		—		(64)		—		43,993		—		43,993
Retained earnings (accumulated deficit)		3,956,405		18,328		(44,832)		1,260,819		(5,820,453)		(629,733)		—		(629,733)
Total Starwood Property Trust, Inc. Stockholders’ Equity		5,193,046		514,715		54,050		937,763		(2,210,676)		4,488,898		—		4,488,898
Non-controlling interests in consolidated subsidiaries		115		—		226,667		145,441		—		372,223		1,455		373,678
Total Equity		5,193,161		514,715		280,717		1,083,204		(2,210,676)		4,861,121		1,455		4,862,576
Total Liabilities and Equity	$	12,097,900	$	1,769,340	$	2,118,956	$	1,735,142	$	396,270	$	18,117,608	$	62,755,901	$	80,873,509

58

23. Subsequent Events

Our significant events subsequent to March 31, 2021 were as follows:

Collateralized Loan Obligations

In April 2021, we refinanced a pool of our infrastructure loans held-for-investment through a $500.0 million new issue CLO, STWD 2021-SIF1, with $410.0 million of third party financing at an average coupon of LIBOR + 181 bps. 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.

In May 2021, we refinanced a pool of our commercial loans held-for-investment through a $1.3 billion CLO, STWD 2021-FL2, with $1.1 billion of third party financing at an average coupon of LIBOR + 150 bps. 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.

59

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, 2020 (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 both the United States (“U.S.”) and Europe. 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 March 31, 2021 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 both the U.S. and Europe (including distressed or non-performing loans). Our residential loans are secured by a first mortgage lien on residential property and 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.

60

COVID-19 Pandemic

The outbreak of the COVID-19 pandemic beginning in the first quarter of 2020 and its continuing impact on the financial, economic and capital markets environment, and future developments in these and other areas, present uncertainty and risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even longer. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown.

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

Asset Performance and Collections

We maintain an in-house team of asset management professionals who oversee our commercial loans and are in regular communication with these borrowers. We have utilized these relationships to address the potential impacts of the COVID-19 pandemic on the assets which secure our loans, particularly hospitality assets. Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences which have led to cash flow pressures at the underlying properties. In some cases, these borrowers have requested temporary interest deferral or forbearance, or other modifications of their loans.

Since the outbreak of the COVID-19 pandemic, we have granted certain payment related loan modifications to our commercial borrowers, consisting principally of partial and temporary deferrals of interest and the repurposing of reserves, many of which were coupled with additional equity commitments from sponsors. We are generally encouraged by our borrowers’ response to the COVID-19 pandemic’s impacts on their properties. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments. As of March 31, 2021, we had one commercial loan held-for-investment with an aggregate principal balance of $40.8 million which remained on its post-COVID partial interest deferral.

In response to the impact of COVID-19 on certain of our residential borrowers, we began offering short-term relief starting in the first quarter of 2020. Under the terms of these plans, borrowers were granted up to a three to six-month “zero pay” forbearance with payments required to resume at the conclusion of the plan.  Since their peak last summer, we have seen the majority of these borrowers resume making payments, with some fully prepaying their loans.  We continue to see loans in forbearance decrease, with strong home price appreciation keeping any estimated credit losses low.  For those loans which have not yet resumed payments, we continue to evaluate loss mitigation options, including forbearance, repayment plans, loan modification and foreclosure.  In accordance with our policies, we placed any residential loans that were more than 90 days delinquent on nonaccrual.  

In our property segment, we collected 98% of rents due during the three months ended March 31, 2021. Collections were particularly strong in our Woodstar I and Woodstar II affordable housing portfolios, where 98% of rent due was collected. Given current demographic trends, which tend to favor flexible rental arrangements, we continue to see sustained demand in multifamily properties and decreased turnover.

61

In our infrastructure segment, during the three months ended March 31, 2021, we collected 100% of interest due and did not grant any payment related loan modifications.

Goodwill and Intangible Assets

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.  Management considered the general economic decline and the impact of the COVID-19 pandemic, but did not identify any such event or circumstances.  However, future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.

Developments During the First Quarter of 2021

Commercial and Residential Lending Segment

● Originated $2.2 billion of commercial loans during the quarter, including the following:

o £360.0 million ($504.5 million) first mortgage loan to finance the acquisition of a portfolio of vacation cottages, caravan homes and resorts across the United Kingdom, which the Company fully funded.

o £227.6 million ($317.5 million) first mortgage loan for the refinancing of 14 assisted living facilities located across the United Kingdom, which the Company fully funded.

o $295.0 million first mortgage and mezzanine loan for the refinancing of a 666 unit Class A high-rise multifamily property and 70,873 square foot office building located in California, of which the Company funded $280.0 million.

o $230.0 million first mortgage and mezzanine loan on a 41 property extended stay portfolio located across the U.S., which the Company fully funded.

o $155.0 million first mortgage and mezzanine loan for the refinancing of a 4.7 acre, industrially-zoned development parcel located in New York, of which the Company funded $104.3 million.

o $151.0 million first mortgage loan for the refinancing of a 368 unit student housing property located in Pennsylvania, which the Company fully funded.

o $120.0 million first mortgage loan for the refinancing of a 369,852 square foot Class A office building located in Washington, DC, which the Company fully funded.

o $109.8 million first mortgage and mezzanine loan for the acquisition of four 6-story office buildings located in Georgia, of which the Company funded $95.9 million.

● Funded $174.9 million of previously originated commercial loan commitments.

● Received gross proceeds of $1.1 billion ($354.0 million, net of debt repayments) from maturities and principal repayments on our commercial loans and preferred equity.

● Sold commercial real estate in Montgomery, Alabama that was previously acquired through foreclosure in March 2019 for gross proceeds of $30.6 million and recognized a gain of $17.7 million. At the foreclosure date, the loan had a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount).

● Acquired $208.8 million of residential loans.

62

● Received proceeds of $389.8 million, including retained RMBS of $27.3 million, from the securitization of $383.5 million of residential loans. Also received proceeds of $92.4 million from the sale of $89.4 million of residential loans outside of securitization.

Infrastructure Lending Segment

● Acquired $86.3 million of infrastructure loans and funded $13.8 million of pre-existing infrastructure loan commitments.

● Received proceeds of $19.2 million from principal repayments on our infrastructure loans and bonds.

Property Segment

● Refinanced our Woodstar II Portfolio by entering into mortgage loans with total borrowings of $82.9 million. The loans carry seven-year terms and a weighted average fixed annual interest rate of 4.36%. A portion of the net proceeds from the mortgage loans was used to repay $4.9 million of outstanding government sponsored mortgage loans.

Investing and Servicing Segment

● Originated commercial conduit loans of $166.5 million. Separately, received proceeds of $89.7 million from sales of previously originated commercial conduit loans.

● Sold CMBS for total gross proceeds of $11.6 million.

● Obtained two new special servicing assignments for CMBS trusts with a total unpaid principal balance of $381.0 million.

Subsequent Events

Refer to Note 23 to the Condensed Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to March 31, 2021.

63

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”.

We have elected to present a comparison of our results of operations for the current quarter with that of the immediately preceding quarter, as permitted under the recently amended SEC disclosure guidelines. Because our business is not seasonal, we believe this results in a more meaningful comparison of quarterly results than a comparison to the same quarter of the prior year. We continue to present the required comparison of current year-to-date results with the same period of the prior year. The following table compares our summarized results of operations for the three months ended March 31, 2021, December 31, 2020 and March 31, 2020 by business segment (amounts in thousands):

							$ Change		$ Change
	For the Three Months Ended						March 31, 2021 vs.		March 31, 2021 vs.
Revenues:	March 31, 2021		December 31, 2020		March 31, 2020		December 31, 2020		March 31, 2020
Commercial and Residential Lending Segment	$	190,531	$	196,309	$	211,437	$	(5,778)	$	(20,906)
Infrastructure Lending Segment		19,465		19,250		23,257		215		(3,792)
Property Segment		65,144		64,065		64,083		1,079		1,061
Investing and Servicing Segment		44,547		45,372		44,495		(825)		52
Corporate		—		—		—		—		—
Securitization VIE eliminations		(32,457)		(34,434)		(30,712)		1,977		(1,745)
		287,230		290,562		312,560		(3,332)		(25,330)
Costs and expenses:
Commercial and Residential Lending Segment		56,414		50,999		104,780		5,415		(48,366)
Infrastructure Lending Segment		12,956		5,555		26,079		7,401		(13,123)
Property Segment		59,498		61,289		60,662		(1,791)		(1,164)
Investing and Servicing Segment		32,457		39,722		36,928		(7,265)		(4,471)
Corporate		71,647		73,965		73,213		(2,318)		(1,566)
Securitization VIE eliminations		(93)		(127)		(47)		34		(46)
		232,879		231,403		301,615		1,476		(68,736)
Other income (loss):
Commercial and Residential Lending Segment		21,161		13,318		(66,541)		7,843		87,702
Infrastructure Lending Segment		95		(259)		(1,348)		354		1,443
Property Segment		4,608		391		(30,192)		4,217		34,800
Investing and Servicing Segment		18,960		22,349		(45,918)		(3,389)		64,878
Corporate		(6,843)		(1,239)		29,235		(5,604)		(36,078)
Securitization VIE eliminations		32,424		34,317		30,821		(1,893)		1,603
		70,405		68,877		(83,943)		1,528		154,348
Income (loss) before income taxes:
Commercial and Residential Lending Segment		155,278		158,628		40,116		(3,350)		115,162
Infrastructure Lending Segment		6,604		13,436		(4,170)		(6,832)		10,774
Property Segment		10,254		3,167		(26,771)		7,087		37,025
Investing and Servicing Segment		31,050		27,999		(38,351)		3,051		69,401
Corporate		(78,490)		(75,204)		(43,978)		(3,286)		(34,512)
Securitization VIE eliminations		60		10		156		50		(96)
		124,756		128,036		(72,998)		(3,280)		197,754
Income tax provision		(2,230)		(13,381)		6,729		11,151		(8,959)
Net income attributable to non-controlling interests		(11,148)		(7,687)		(500)		(3,461)		(10,648)
Net income attributable to Starwood Property Trust, Inc.	$	111,378	$	106,968	$	(66,769)	$	4,410	$	178,147

64

Three Months Ended March 31, 2021 Compared to the Three Months Ended December 31, 2020

Commercial and Residential Lending Segment

Revenues

For the three months ended March 31, 2021, revenues of our Commercial and Residential Lending Segment decreased $5.8 million to $190.5 million, compared to $196.3 million for the three months ended December 31, 2020. This decrease was primarily due to decreases in interest income from loans of $2.4 million and investment securities of $2.7 million and a decrease in rental income from foreclosed properties of $0.6 million due to the sale of a property in the first quarter of 2021. The decrease in interest income from loans was principally due to lower average balances of residential loans reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower average RMBS investment balances reflecting sales of RMBS late in the fourth quarter of 2020.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Commercial and Residential Lending Segment increased $5.4 million to $56.4 million, compared to $51.0 million for the three months ended December 31, 2020. This increase was primarily due to a $4.5 million decrease in credit loss reversal and a $2.3 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, partially offset by a $1.4 million decrease in general and administrative expenses reflecting lower professional fees. The credit loss reversal decreased from $5.0 million in the fourth quarter of 2020 to $0.5 million in the first quarter of 2021. The larger reversal in the fourth quarter of 2020 was primarily due to an improvement in macroeconomic forecasts and the effect on our then estimate of current expected credit losses (“CECL”). The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.

Net Interest Income (amounts in thousands)

	For the Three Months Ended
	March 31, 2021		December 31, 2020		Change
Interest income from loans	$	170,593	$	173,014	$	(2,421)
Interest income from investment securities		18,385		21,132		(2,747)
Interest expense		(44,295)		(41,987)		(2,308)
Net interest income	$	144,683	$	152,159	$	(7,476)

For the three months ended March 31, 2021, net interest income of our Commercial and Residential Lending Segment decreased $7.5 million to $144.7 million, compared to $152.2 million for the three months ended December 31, 2020. This decrease reflects the decreases in interest income and the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

During the three months ended March 31, 2021 and December 31, 2020, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities were as follows:

	For the Three Months Ended
	March 31, 2021		December 31, 2020
Commercial	5.9	%	6.3	%
Residential	7.5	%	7.2	%
Overall	6.1	%	6.4	%

The overall weighted average unlevered yield was lower primarily due to a $142.2 million commercial loan which was reclassified as held-for-sale, a $187.6 million commercial loan placed on nonaccrual and slightly lower LIBOR rates affecting our commercial yields, partially offset by a shift in the relative mix of loans and investment securities toward higher-yielding RMBS affecting our residential yields.

65

During the three months ended March 31, 2021 and December 31, 2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 2.6% and 2.5%, respectively.

Other Income

For the three months ended March 31, 2021, other income of our Commercial and Residential Lending Segment increased $7.9 million to $21.2 million compared to $13.3 million for the three months ended December 31, 2020. This increase was primarily due to (i) a $75.3 million favorable change in gain (loss) on derivatives and (ii) a $17.7 million gain on sale of a foreclosed property, partially offset by (iii) a $55.6 million unfavorable change in foreign currency gain (loss) and (iv) a $30.7 million unfavorable change in fair value of residential loans. The favorable change in gain (loss) on derivatives in the first quarter of 2021 reflects a $63.4 million favorable change in gain (loss) on foreign currency hedges and an $11.9 million increased gain on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The favorable change in gain (loss) on foreign currency hedges and the unfavorable change in foreign currency gain (loss) reflect the strengthening of the U.S. dollar against the Euro (“EUR”) and Australian dollar (“AUD”), partially offset by a weakening against the pound sterling (“GBP”), in the first quarter of 2021 compared to a weakening of the U.S. dollar against those currencies in the fourth quarter of 2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments and to hedge our interest rate risk on residential loans held-for-sale.

Infrastructure Lending Segment

Revenues

For the three months ended March 31, 2021, revenues of our Infrastructure Lending Segment increased $0.2 million to $19.5 million, compared to $19.3 million for the three months ended December 31, 2020. This was primarily due to a slight increase in interest income from loans.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Infrastructure Lending Segment increased $7.4 million to $13.0 million, compared to $5.6 million for the three months ended December 31, 2020. The increase was primarily due to a $7.7 million increase in credit loss provision, partially offset by a $0.4 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision was $0.6 million in the first quarter of 2021 compared to a reversal of $7.1 million in the fourth quarter of 2020. The reversal in the fourth quarter of 2020 was primarily due to an improvement in macroeconomic forecasts and the effect on our estimate of CECL allowances. The decrease in interest expense was primarily due to lower average LIBOR rates.

Net Interest Income (amounts in thousands)

	For the Three Months Ended
	March 31, 2021		December 31, 2020		Change
Interest income from loans	$	18,808	$	18,477	$	331
Interest income from investment securities		564		618		(54)
Interest expense		(8,841)		(9,204)		363
Net interest income	$	10,531	$	9,891	$	640

For the three months ended March 31, 2021, net interest income of our Infrastructure Lending Segment increased $0.6 million to $10.5 million, compared to $9.9 million for the three months ended December 31, 2020. The increase reflects the net increase in interest income and the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.

66

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

	For the Three Months Ended
	March 31, 2021		December 31, 2020
Loans and investment securities held-for-investment	4.8	%	4.8	%
Loans held-for-sale	3.2	%	3.7	%

During the three months ended March 31, 2021 and December 31, 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 2.9% and 3.0%, respectively.

Other Income (Loss)

For the three months ended March 31, 2021 and December 31, 2020, other income of our Infrastructure Lending Segment increased $0.4 million to $0.1 million, compared to a loss of $0.3 million for the three months ended December 31, 2020.

Property Segment

Change in Results by Portfolio (amounts in thousands)

	$ Change from prior period
			Costs and		Gain (loss) on derivative				Income (loss) before
	Revenues		expenses		financial instruments		Other income (loss)		income taxes
Master Lease Portfolio	$	—	$	(13)	$	—	$	—	$	13
Medical Office Portfolio		125		(61)		3,833		—		4,019
Woodstar I Portfolio		524		(1,471)		133		—		2,128
Woodstar II Portfolio		449		(287)		—		(141)		595
Ireland Portfolio		—		—		—		—		—
Investment in unconsolidated entities		—		—		—		—		—
Other/Corporate		(19)		41		—		392		332
Total	$	1,079	$	(1,791)	$	3,966	$	251	$	7,087

See Note 6 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios.

Revenues

For the three months ended March 31, 2021, revenues of our Property Segment increased $1.0 million to $65.1 million, compared to $64.1 million for the three months ended December 31, 2020.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Property Segment decreased $1.8 million to $59.5 million, compared to $61.3 million for the three months ended December 31, 2020.

Other Income

For the three months ended March 31, 2021, other income of our Property Segment increased $4.2 million to $4.6 million, compared to $0.4 million for the three months ended December 31, 2020. The improvement in other income was primarily due to a $4.0 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

67

Investing and Servicing Segment

Revenues

For the three months ended March 31, 2021, revenues of our Investing and Servicing Segment decreased $0.8 million to $44.5 million, compared to $45.3 million for the three months ended December 31, 2020. The decrease primarily reflects a $1.3 million decrease in interest income from conduit loans, partially offset by a $0.4 million increase in interest income from CMBS.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Investing and Servicing Segment decreased $7.2 million to $32.5 million, compared to $39.7 million for the three months ended December 31, 2020. The decrease in costs and expenses was primarily due to a decrease of $7.1 million in general and administrative expenses reflecting lower incentive compensation, principally due to lower securitization volume.

Other Income

For the three months ended March 31, 2021, other income of our Investing and Servicing Segment decreased $3.3 million to $19.0 million, compared to $22.3 million for the three months ended December 31, 2020. The decrease in other income was primarily due to (i) a $32.2 million lesser increase in fair value of conduit loans, partially offset by (ii) a $22.5 million favorable change in fair value of CMBS investments and (iii) a $7.7 million increased gain on derivatives which primarily hedge our interest rate risk on conduit loans.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended March 31, 2021, corporate expenses decreased $2.3 million to $71.6 million, compared to $73.9 million for the three months ended December 31, 2020. This was primarily due to a decrease of $1.9 million in incentive management fees.

Corporate Other Loss

For the three months ended March 31, 2021, corporate other loss increased $5.6 million to $6.8 million, compared to $1.2 million for the three months ended December 31, 2020. This was due to a $6.1 million increased loss on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing, partially offset by the non-recurrence of a $0.5 million loss on extinguishment of debt in the fourth quarter of 2020.

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.

68

Income Tax Provision

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended March 31, 2021, our income tax provision decreased $11.2 million to $2.2 million compared to $13.4 million for the three months ended December 31, 2020 due to a decrease in taxable income of our TRSs in the first quarter of 2021.
​

Net Income Attributable to Non-controlling Interests

During the three months ended March 31, 2021, net income attributable to non-controlling interests increased $3.4 million to $11.1 million, compared to $7.7 million during the three months ended December 31, 2020. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

Commercial and Residential Lending Segment

Revenues

For the three months ended March 31, 2021, revenues of our Commercial and Residential Lending Segment decreased $20.9 million to $190.5 million, compared to $211.4 million for the three months ended March 31, 2020. This decrease was primarily due to decreases in interest income from loans of $21.8 million and investment securities of $0.2 million, partially offset by an increase in rental income from foreclosed properties of $1.2 million. The decrease in interest income from loans was principally due to lower prepayment related income, lower average balances of residential loans and lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), partially offset by higher average balances of commercial loans. The slight decrease in interest income from investment securities was primarily due to lower average LIBOR rates and investment balances affecting interest income from our commercial investment securities, partially offset by higher average RMBS investment balances.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Commercial and Residential Lending Segment decreased $48.4 million to $56.4 million, compared to $104.8 million for the three months ended March 31, 2020. This decrease was primarily due to a $40.7 million decrease in credit loss provision and a $9.7 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision decreased from $40.2 million in the first quarter of 2020 to a $0.5 million reversal in the first quarter of 2021. The large provision in the first quarter of 2020 was due to the significant deterioration in macroeconomic forecasts due to the initial disruption caused by the COVID-19 pandemic and its effect on our then estimate of CECL. The decrease in interest expense was primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding.

Net Interest Income (amounts in thousands)

	For the Three Months Ended
	March 31,
	2021		2020		Change
Interest income from loans	$	170,593	$	192,381	$	(21,788)
Interest income from investment securities		18,385		18,628		(243)
Interest expense		(44,295)		(53,950)		9,655
Net interest income	$	144,683	$	157,059	$	(12,376)

For the three months ended March 31, 2021, net interest income of our Commercial and Residential Lending Segment decreased $12.4 million to $144.7 million, compared to $157.1 million for the three months ended March 31, 2020. This decrease reflects the decreases in interest income, partially offset by the decrease in interest expense on our secured financing facilities, both as discussed in the sections above.

69

During the three months ended March 31, 2021 and 2020, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities were as follows:

	For the Three Months Ended
	March 31,
	2021		2020
Commercial	5.9	%	6.8	%
Residential	7.5	%	6.8	%
Overall	6.1	%	6.8	%

The overall weighted average unlevered yield was lower primarily due to lower prepayment related income and LIBOR rates affecting our commercial yields, partially offset by the increased investment in higher-yielding RMBS affecting our residential yields.

During the three months ended March 31, 2021 and 2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 2.6% and 3.5%, respectively. The decrease in borrowing rates primarily reflects decreases in LIBOR.

Other Income (Loss)

For the three months ended March 31, 2021, other income of our Commercial and Residential Lending Segment increased $87.7 million to $21.2 million compared to a loss of $66.5 million for the three months ended March 31, 2020. This increase was primarily due to (i) a $25.8 million lesser decrease in fair value of investment securities, (ii) a $24.8 million lesser decrease in fair value of residential loans, (iii) a $22.4 million decrease in foreign currency loss and (iv) a $17.7 million gain on sale of a foreclosed property, all partially offset by (v) a $4.7 million lower gain on derivatives. The greater decreases in fair value of investment securities and residential loans in the first quarter of 2020 were primarily attributable to widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19. The lower gain on derivatives in the first quarter of 2021 reflects a $39.2 million lower gain on foreign currency hedges, partially offset by a $34.5 million favorable change in gain (loss) on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The decreases in foreign currency loss and foreign currency hedge gains reflect the strengthening of the U.S. dollar against the EUR and AUD, partially offset by a weakening against the GBP, in the first quarter of 2021 compared to a greater overall strengthening of the U.S. dollar against those currencies in the first quarter of 2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments and to hedge our interest rate risk on residential loans held-for-sale.

Infrastructure Lending Segment

Revenues

For the three months ended March 31, 2021, revenues of our Infrastructure Lending Segment decreased $3.8 million to $19.5 million, compared to $23.3 million for the three months ended March 31, 2020. This was primarily due to a decrease in interest income from loans of $3.6 million principally due to lower average LIBOR rates.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Infrastructure Lending Segment decreased $13.1 million to $13.0 million, compared to $26.1 million for the three months ended March 31, 2020. The decrease was primarily due to a $7.9 million decrease in credit loss provision and a $4.3 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision in the first quarter of 2020 was magnified by the significant deterioration of macroeconomic forecasts due to the initial economic disruption caused by the COVID-19 pandemic. The decrease in interest expense was primarily due to lower average LIBOR rates.

70

Net Interest Income (amounts in thousands)

	For the Three Months Ended
	March 31,
	2021		2020		Change
Interest income from loans	$	18,808	$	22,413	$	(3,605)
Interest income from investment securities		564		701		(137)
Interest expense		(8,841)		(13,117)		4,276
Net interest income	$	10,531	$	9,997	$	534

For the three months ended March 31, 2021, net interest income of our Infrastructure Lending Segment increased $0.5 million to $10.5 million, compared to $10.0 million for the three months ended March 31, 2020. The increase reflects the decrease in interest expense on the secured financing facilities, partially offset by the decrease in interest income, both as discussed in the sections above.

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

	For the Three Months Ended
	March 31,
	2021		2020
Loans and investment securities held-for-investment	4.8	%	6.1	%
Loans held-for-sale	3.2	%	3.6	%

During the three months ended March 31, 2021 and 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 2.9% and 4.4%, respectively.

Other Income (Loss)

For the three months ended March 31, 2021 and 2020, other income of our Infrastructure Lending Segment increased $1.4 million to $0.1 million, compared to a loss of $1.3 million for the three months ended March 31, 2020. The improvement in other income (loss) primarily reflects a $1.7 million favorable change in gain (loss) on derivatives consisting of a $2.2 million favorable change on interest rate swaps and swap guarantees, partially offset by a $0.5 million decrease in gains on foreign currency hedges.

Property Segment

Change in Results by Portfolio (amounts in thousands)

	$ Change from prior period
			Costs and		Gain (loss) on derivative				Income (loss) before
	Revenues		expenses		financial instruments		Other income (loss)		income taxes
Master Lease Portfolio	$	—	$	(4)	$	—	$	—	$	4
Medical Office Portfolio		388		(753)		34,825		—		35,966
Woodstar I Portfolio		305		(139)		122		—		566
Woodstar II Portfolio		368		284		—		(141)		(57)
Ireland Portfolio		—		—		—		—		—
Investment in unconsolidated entities		—		—		—		—		—
Other/Corporate		—		(552)		—		(6)		546
Total	$	1,061	$	(1,164)	$	34,947	$	(147)	$	37,025

Revenues

For the three months ended March 31, 2021, revenues of our Property Segment increased $1.0 million to $65.1 million, compared to $64.1 million for the three months ended March 31, 2020.

71

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Property Segment decreased $1.2 million to $59.5 million, compared to $60.7 million for the three months ended March 31, 2020. The decrease in costs and expenses primarily reflects a $1.3 million decrease in interest expense.

Other Income (Loss)

For the three months ended March 31, 2021, other income of our Property Segment increased $34.8 million to $4.6 million, compared to a loss of $30.2 million for the three months ended March 31, 2020. The improvement in other income (loss) was primarily due to a $34.9 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 March 31, 2021 and 2020, revenues of our Investing and Servicing Segment were level at $44.5 million. A $6.0 million increase in servicing fees was offset by decreases in interest income from CMBS and conduit loans and, to a lesser extent, other revenues.

Costs and Expenses

For the three months ended March 31, 2021, costs and expenses of our Investing and Servicing Segment decreased $4.4 million to $32.5 million, compared to $36.9 million for the three months ended March 31, 2020. The decrease in costs and expenses was primarily due to decreases of $2.2 million in general and administrative expenses reflecting lower compensation costs and $1.7 million in interest expense on borrowings related to conduit loans, CMBS and properties held.

Other Income (Loss)

For the three months ended March 31, 2021, other income of our Investing and Servicing Segment increased $64.9 million to $19.0 million, compared to a loss of $45.9 million for the three months ended March 31, 2020. The improvement in other income (loss) was primarily due to (i) a $54.4 million favorable change in fair value of CMBS investments and (ii) a $28.4 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans, partially offset by (iii) an $18.1 million lesser increase in fair value of conduit loans. The fair value of our CMBS investments was adversely affected in the first quarter of 2020 by widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended March 31, 2021, corporate expenses decreased $1.6 million to $71.6 million, compared to $73.2 million for the three months ended March 31, 2020. This was primarily due to a decrease of $1.9 million in incentive management fees.

72

Corporate Other Income (Loss)

For the three months ended March 31, 2021, corporate other income decreased $36.0 million to a loss of $6.8 million, compared to income of $29.2 million for the three months ended March 31, 2020. This was due to an unfavorable change in gain (loss) on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

Securitization VIE Eliminations

Refer to the preceding comparison of the three months ended March 31, 2021 to the three months ended December 31, 2020 for a discussion of the effect of securitization VIE eliminations.

Income Tax Provision

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the three months ended March 31, 2021, our income taxes increased $8.9 million to $2.2 million compared to a benefit of $6.7 million for the three months ended March 31, 2020 due to an increase in taxable income of our TRSs in the first quarter of 2021.
​

Net Income Attributable to Non-controlling Interests
​

During the three months ended March 31, 2021, net income attributable to non-controlling interests increased $10.6 million to $11.1 million, compared to $0.5 million during the three months ended March 31, 2020. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

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, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); 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.

73

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 net 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.

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

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

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

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

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

	For the Three Months Ended
	March 31, 2021	December 31, 2020	March 31, 2020
Diluted weighted average shares - GAAP EPS	293,231	292,900	280,990
Add: Unvested stock awards	4,484	3,361	2,723
Add: Woodstar II Class A Units	10,622	10,598	10,738
Add: Other dilutive securities not included above	—	—	685
Less: Convertible Notes dilution	(9,649)	(9,649)	—
Diluted weighted average shares - Distributable EPS	298,688	297,210	295,136

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 three months ended March 31, 2021.

74

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

	Commercial
	and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing
	Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	190,531	$	19,465	$	65,144	$	44,547	$	—	$	319,687
Costs and expenses		(56,414)		(12,956)		(59,498)		(32,457)		(71,647)		(232,972)
Other income (loss)		21,161		95		4,608		18,960		(6,843)		37,981
Income (loss) before income taxes		155,278		6,604		10,254		31,050		(78,490)		124,696
Income tax provision		(1,505)		(92)		—		(633)		—		(2,230)
Income attributable to non-controlling interests		(3)		—		(5,077)		(6,008)		—		(11,088)
Net income (loss) attributable to Starwood Property Trust, Inc.		153,770		6,512		5,177		24,409		(78,490)		111,378
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,077		—		—		5,077
Non-cash equity compensation expense		1,781		300		31		881		7,317		10,310
Management incentive fee		—		—		—		—		13,123		13,123
Acquisition and investment pursuit costs		(164)		—		(89)		—		—		(253)
Depreciation and amortization		247		91		18,161		3,603		—		22,102
Credit loss (reversal) provision, net		(529)		573		—		—		—		44
Interest income adjustment for securities		(1,300)		—		—		3,995		—		2,695
Extinguishment of debt, net		—		—		—		—		(246)		(246)
Income tax (provision) benefit associated with realized (gains) losses		(6,495)		—		—		405		—		(6,090)
Other non-cash items		3		—		(337)		207		415		288
Reversal of GAAP unrealized (gains) / losses on:
Loans		10,714		—		—		(1,236)		—		9,478
Securities		2,050		—		—		(7,170)		—		(5,120)
Derivatives		(27,171)		(745)		(6,446)		(9,719)		9,313		(34,768)
Foreign currency		11,594		49		(25)		63		—		11,681
(Earnings) loss from unconsolidated entities		(1,753)		254		—		(589)		—		(2,088)
Sales of properties		(17,693)		—		—		—		—		(17,693)
Recognition of Distributable realized gains / (losses) on:
Loans		14,553		—		—		4,672		—		19,225
Realized credit loss		(7,757)		—		—		—		—		(7,757)
Securities		(2,861)		—		—		1,776		—		(1,085)
Derivatives		1,950		—		(35)		1,595		—		3,510
Foreign currency		4,784		(10)		25		(63)		—		4,736
Earnings (loss) from unconsolidated entities		3,218		(254)		—		964		—		3,928
Sales of properties		8,298		—		—		—		—		8,298
Distributable Earnings (Loss)	$	147,239	$	6,770	$	21,539	$	23,793	$	(48,568)	$	150,773
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.49	$	0.02	$	0.07	$	0.08	$	(0.16)	$	0.50

75

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

	Commercial
	and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing
	Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	196,309	$	19,250	$	64,065	$	45,372	$	—	$	324,996
Costs and expenses		(50,999)		(5,555)		(61,289)		(39,722)		(73,965)		(231,530)
Other income (loss)		13,318		(259)		391		22,349		(1,239)		34,560
Income (loss) before income taxes		158,628		13,436		3,167		27,999		(75,204)		128,026
Income tax provision		(5,556)		(120)		—		(7,705)		—		(13,381)
(Income) loss attributable to non-controlling interests		(4)		—		(5,100)		(2,573)		—		(7,677)
Net income (loss) attributable to Starwood Property Trust, Inc.		153,068		13,316		(1,933)		17,721		(75,204)		106,968
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,100		—		—		5,100
Non-cash equity compensation expense		891		299		34		869		6,707		8,800
Management incentive fee		—		—		—		—		14,974		14,974
Acquisition and investment pursuit costs		(278)		—		(89)		—		—		(367)
Depreciation and amortization		372		86		18,736		3,832		—		23,026
Credit loss reversal, net		(5,037)		(7,094)		—		—		—		(12,131)
Interest income adjustment for securities		(1,102)		—		—		5,245		—		4,143
Extinguishment of debt, net		—		—		—		—		(247)		(247)
Income tax provision associated with fair value adjustments		4,883		—		—		550		—		5,433
Other non-cash items		4		—		(374)		239		161		30
Reversal of GAAP unrealized (gains) / losses on:
Loans		(20,002)		—		—		(33,422)		—		(53,424)
Securities		6,294		—		—		15,377		—		21,671
Derivatives		48,046		105		(2,480)		(2,218)		3,945		47,398
Foreign currency		(43,962)		(260)		(39)		5		—		(44,256)
Earnings from unconsolidated entities		(4,804)		(431)		—		(341)		—		(5,576)
Recognition of Distributable realized gains / (losses) on:
Loans		2,461		—		—		32,528		—		34,989
Securities		398		—		—		(9,389)		—		(8,991)
Derivatives		(3,858)		—		(34)		20		—		(3,872)
Foreign currency		631		14		39		(5)		—		679
Earnings from unconsolidated entities		2,914		431		—		745		—		4,090
Distributable Earnings (Loss)	$	140,919	$	6,466	$	18,960	$	31,756	$	(49,664)	$	148,437
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.47	$	0.02	$	0.07	$	0.11	$	(0.17)	$	0.50

76

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

	Commercial
	and
	Residential		Infrastructure				Investing
	Lending		Lending		Property		and Servicing
	Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	211,437	$	23,257	$	64,083	$	44,495	$	—	$	343,272
Costs and expenses		(104,780)		(26,079)		(60,662)		(36,928)		(73,213)		(301,662)
Other income (loss)		(66,541)		(1,348)		(30,192)		(45,918)		29,235		(114,764)
Income (loss) before income taxes		40,116		(4,170)		(26,771)		(38,351)		(43,978)		(73,154)
Income tax benefit		4,422		145		—		2,162		—		6,729
(Income) loss attributable to non-controlling interests		(3)		—		(5,111)		4,770		—		(344)
Net income (loss) attributable to Starwood Property Trust, Inc.		44,535		(4,025)		(31,882)		(31,419)		(43,978)		(66,769)
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,111		—		—		5,111
Non-cash equity compensation expense		1,112		466		73		1,263		5,886		8,800
Management incentive fee		—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs		358		—		(89)		—		—		269
Depreciation and amortization		355		51		19,381		3,807		—		23,594
Credit loss provision, net		40,217		8,452		—		—		—		48,669
Interest income adjustment for securities		124		—		—		6,315		—		6,439
Extinguishment of debt, net		—		—		—		—		(246)		(246)
Income tax benefit associated with fair value adjustments		(5,821)		—		—		(1,442)		—		(7,263)
Other non-cash items		3		—		(491)		248		156		(84)
Reversal of GAAP unrealized (gains) / losses on:
Loans		35,517		—		—		(19,383)		—		16,134
Securities		27,879		—		—		47,216		—		75,095
Derivatives		(30,563)		1,013		30,569		19,013		(27,649)		(7,617)
Foreign currency		34,001		473		19		(7)		—		34,486
Earnings from unconsolidated entities		(51)		—		—		(620)		—		(671)
Recognition of Distributable realized gains / (losses) on:
Loans		2,164		(62)		—		16,559		—		18,661
Securities		—		—		—		(4,212)		—		(4,212)
Derivatives		3,250		118		(35)		(6,087)		—		(2,754)
Foreign currency		(4,271)		(194)		(19)		7		—		(4,477)
(Loss) earnings from unconsolidated entities		(556)		—		—		3,738		—		3,182
Distributable Earnings (Loss)	$	148,253	$	6,292	$	22,637	$	34,996	$	(50,032)	$	162,146
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.50	$	0.02	$	0.08	$	0.12	$	(0.17)	$	0.55

77

Three Months Ended March 31, 2021 Compared to the Three Months Ended December 31, 2020

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $6.3 million, from $140.9 million during the fourth quarter of 2020 to $147.2 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $189.2 million, costs and expenses were $62.8 million, other income was $28.8 million and income tax provision was $8.0 million.

Revenues, consisting principally of interest income on loans, decreased by $6.0 million in the first quarter of 2021, primarily due to decreases in interest income from loans of $2.4 million and investment securities of $2.9 million and a decrease in rental income from foreclosed properties of $0.6 million due to the sale of a property in the first quarter of 2021. The decrease in interest income from loans was principally due to lower average balances of residential loans reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower average RMBS investment balances reflecting sales of RMBS late in the fourth quarter of 2020.

Costs and expenses increased by $7.8 million in the first quarter of 2021, primarily due to a $7.8 million write-off of an unsecured commercial loan and a $2.3 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, partially offset by a $2.3 million decrease in general and administrative expenses reflecting lower professional fees.

Other income increased by $27.4 million in the first quarter of 2021, primarily due to a $12.1 million increase in residential loan securitization gains, an $8.3 million gain on sale of a foreclosed property in the first quarter of 2021 and a $5.9 million favorable change in realized gains (losses) on interest rate and foreign currency derivatives.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, increased $7.3 million due to an increase in realized gains from the securitization and sale of residential loans.  The majority of the GAAP income tax provision related to these loans was recorded in 2020 when the loans were marked to their fair values.  Because the net fair value increases were unrealized, they along with their corresponding income tax provision were previously adjusted in our reconciliation to Distributable Earnings. Upon recognition of the realized gains this quarter for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.  

​
Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $0.3 million, from $6.5 million in the fourth quarter of 2020 to $6.8 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $19.5 million, costs and expenses were $12.0 million and other loss was $0.6 million.

Revenues, consisting principally of interest income on loans, increased by $0.2 million in the first quarter of 2021, primarily due to a slight increase in interest income from loans.

Costs and expenses decreased by $0.3 million in the first quarter of 2021, primarily due to a slight decrease in interest expense on the secured debt facilities used to finance this segment’s investments.

Other loss increased by $0.2 million in the first quarter of 2021.

78

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

	For the Three Months Ended
	March 31, 2021		December 31, 2020		Change
Master Lease Portfolio	$	4,312	$	4,300	$	12
Medical Office Portfolio		5,513		5,339		174
Woodstar I Portfolio		6,338		4,907		1,431
Woodstar II Portfolio		6,100		5,470		630
Other/Corporate		(724)		(1,056)		332
Distributable Earnings	$	21,539	$	18,960	$	2,579

The Property Segment’s Distributable Earnings increased by $2.6 million, from $18.9 million during the fourth quarter of 2020 to $21.5 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $64.8 million, costs and expenses were $41.5 million and other loss was $1.8 million.

Revenues increased by $1.1 million in the first quarter of 2021.

Costs and expenses decreased by $1.2 million in the first quarter of 2021.

Other loss decreased by $0.3 million in the first quarter of 2021.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $8.0 million, from $31.8 million during the fourth quarter of 2020 to $23.8 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $48.8 million, costs and expenses were $28.0 million, other income was $6.8 million, income tax provision was $0.2 million and the deduction of income attributable to non-controlling interests was $3.6 million.

Revenues decreased by $2.1 million in the first quarter of 2021, primarily due to a decrease in interest income from CMBS 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. The decrease in interest income reflects decreases of $1.3 million from CMBS and $0.8 million from conduit loans held-for-sale.

Costs and expenses decreased by $7.0 million in the first quarter of 2021, primarily due to a decrease in general and administrative expenses reflecting lower incentive compensation, principally due to lower securitization volume.

Other income includes profit realized upon securitization of loans by our conduit business, gains on sales of CMBS and operating properties, gains and losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and credit risk on our conduit loans. For GAAP purposes, the loans, CMBS and derivatives are accounted for at fair value, with all changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Distributable Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Other income decreased by $19.7 million in the first quarter of 2021 primarily due to a decrease in realized gains on conduit loans of $27.9 million, partially offset by a $10.2 million decrease in recognized losses on CMBS.

79

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, decreased $6.9 million due to lower taxable income of those TRSs in the first quarter of 2021.

Income attributable to non-controlling interests increased $0.1 million in the first quarter of 2021.

Corporate

Corporate costs and expenses decreased by $1.1 million, from $49.7 million during the fourth quarter of 2020 to $48.6 million in the first quarter of 2021.

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
​

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $1.1 million, from $148.3 million during the first quarter of 2020 to $147.2 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $189.2 million, costs and expenses were $62.8 million, other income was $28.8 million and income tax provision was $8.0 million.

Revenues, consisting principally of interest income on loans, decreased by $22.4 million in the first quarter of 2021, primarily due to decreases in interest income from loans of $21.8 million and investment securities of $1.7 million, partially offset by an increase in rental income from foreclosed properties of $1.2 million. The decrease in interest income from loans was principally due to lower prepayment related income, lower average balances of residential loans and lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), partially offset by higher average balances of commercial loans. The decrease in interest income from investment securities was primarily due to lower LIBOR rates and average investment balances affecting interest income from our commercial investment securities, partially offset by higher average RMBS investment balances.

Costs and expenses increased by $0.1 million in the first quarter of 2021, primarily due to a $7.8 million write-off of an unsecured commercial loan and a $2.5 million increase in general and administrative expenses, partially offset by a $9.7 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding.

Other income increased by $28.0 million in the first quarter of 2021, primarily due to residential loan securitization gains, including realized gains on related interest rate derivatives, and an $8.3 million gain on sale of a foreclosed property.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, increased $6.6 million due to an increase in realized gains from the securitization and sale of residential loans.  In the first quarter of 2020, we recorded a GAAP net tax benefit related to unrealized fair value decreases in our residential loans. This benefit was deducted from GAAP earnings to arrive at Distributable Earnings until a gain or loss on these loans was ultimately realized.  In the first quarter of 2021, we realized gains from the sale and securitization of loans which had been previously marked to their fair values, mostly in 2020.  Upon recognition of the realized gains this quarter for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.   

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $0.5 million, from $6.3 million in the first quarter of 2020 to $6.8 million in the first quarter of 2021. After making adjustments for the calculation of

80

Distributable Earnings, revenues were $19.5 million, costs and expenses were $12.0 million and other loss was $0.6 million.

Revenues, consisting principally of interest income on loans, decreased by $3.8 million in the first quarter of 2021, primarily due to a decrease in interest income from loans of $3.6 million principally due to lower average LIBOR rates.

Costs and expenses decreased by $5.1 million in the first quarter of 2021, primarily due to a $4.3 million decrease in interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates.

Other loss increased by $0.6 million in the first quarter of 2021.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

	For the Three Months Ended
	March 31,
	2021		2020		Change
Master Lease Portfolio	$	4,312	$	4,308	$	4
Medical Office Portfolio		5,513		6,765		(1,252)
Woodstar I Portfolio		6,338		6,784		(446)
Woodstar II Portfolio		6,100		6,009		91
Other/Corporate		(724)		(1,229)		505
Distributable Earnings	$	21,539	$	22,637	$	(1,098)

The Property Segment’s Distributable Earnings decreased by $1.1 million, from $22.6 million during the first quarter of 2020 to $21.5 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $64.8 million, costs and expenses were $41.5 million and other loss was $1.8 million.

Revenues increased by $1.2 million in the first quarter of 2021.

Costs and expenses increased by $0.1 million in the first quarter of 2021.

Other income decreased by $2.2 million to a loss in the first quarter of 2021 primarily due to an unfavorable change in realized gains (losses) on certain interest rate derivatives.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $11.2 million, from $35.0 million during the first quarter of 2020 to $23.8 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $48.8 million, costs and expenses were $28.0 million, other income was $6.8 million, income tax provision was $0.2 million and the deduction of income attributable to non-controlling interests was $3.6 million.

Revenues decreased by $2.3 million in the first quarter of 2021, primarily due to decreases of $7.6 million in interest income from CMBS and conduit loans, partially offset by a $6.0 million increase in servicing fees. The decrease in interest income reflects decreases of $6.2 million from CMBS and $1.4 million from conduit loans held-for-sale.

Costs and expenses decreased by $3.9 million in the first quarter of 2021, primarily due to decreases of $1.8 million in general and administrative expenses reflecting lower compensation costs and $1.7 million in interest expense on borrowings related to conduit loans, CMBS and properties held.

81

Other income decreased by $15.4 million in the first quarter of 2021 primarily due to decreases in realized gains of $11.9 million on conduit loans and $11.5 million on CMBS, partially offset by a $7.3 million favorable change in gain (loss) on derivatives mostly related to the conduit loans.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, increased $0.9 million from a benefit of $0.7 million to a provision of $0.2 million due to taxable income of those TRSs in the first quarter of 2021.

Income attributable to non-controlling interests decreased $3.5 million primarily relating to lower distributable earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

Corporate

Corporate costs and expenses decreased by $1.4 million, from $50.0 million during the first quarter of 2020 to $48.6 million in the first quarter of 2021 primarily due to (i) a $0.9 million increase in realized gains on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing and (ii) a $0.7 million decrease in professional fees.

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, 2020. Refer to our Form 10-K for a description of these strategies.

COVID-19 Pandemic

We are continuing to monitor the COVID-19 pandemic and its impact on us, the borrowers underlying our commercial and residential real estate-related loans and infrastructure loans (and their tenants), the tenants in the properties we own, our financing sources, and the economy as a whole. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict. Further discussion of the potential impacts on us from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of our Form 10-K.

Credit Facilities

Shortly after the initial outbreak of the COVID-19 pandemic, we entered into agreements with certain of our secured credit facility lenders in our commercial lending portfolio to temporarily suspend credit mark provisions on certain of their portfolio assets in exchange for: (i) cash repayments; (ii) pledges of additional collateral; and (iii) reductions of available borrowings. 

We are in frequent, consistent dialogue with the providers of our secured credit facilities regarding our management of their collateral assets in light of the impacts of the COVID-19 pandemic, including the determination of whether any extensions to these agreements are necessary as these temporary suspensions expire. Our in-house asset management team, along with an experienced team of workout professionals within our special servicer, are skilled in managing loans throughout cycles, which we believe will assist us in achieving maximum resolution on any assets impacted by the COVID-19 pandemic.

No such modifications or agreements were made with lenders on credit facilities related to our property, residential lending or infrastructure lending portfolios.

82

Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Flows for the Three Months ended March 31, 2021 (amounts in thousands)

			VIE		Excluding Investing
	GAAP		Adjustments		and Servicing VIEs
Net cash provided by operating activities	$	270,766	$	(353)	$	270,413
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment		(2,296,124)		—		(2,296,124)
Proceeds from principal collections and sale of loans		1,051,695		—		1,051,695
Purchase and funding of investment securities		—		(27,333)		(27,333)
Proceeds from sales and collections of investment securities		59,514		26,085		85,599
Proceeds from sales of real estate		30,566		—		30,566
Purchases and additions to properties and other assets		(3,512)		—		(3,512)
Net cash flows from other investments and assets		38,656		183		38,839
Net cash used in investing activities		(1,119,205)		(1,065)		(1,120,270)
Cash Flows from Financing Activities:
Proceeds from borrowings		2,748,317		—		2,748,317
Principal repayments on and repurchases of borrowings		(2,001,336)		(157)		(2,001,493)
Payment of deferred financing costs		(5,052)		—		(5,052)
Proceeds from common stock issuances, net of offering costs		240		—		240
Payment of dividends		(137,667)		—		(137,667)
Contributions from non-controlling interests		2,969		—		2,969
Distributions to non-controlling interests		(8,833)		158		(8,675)
Issuance of debt of consolidated VIEs		11,604		(11,604)		—
Repayment of debt of consolidated VIEs		(27,490)		27,490		—
Distributions of cash from consolidated VIEs		14,481		(14,481)		—
Net cash provided by financing activities		597,233		1,406		598,639
Net decrease in cash, cash equivalents and restricted cash		(251,206)		(12)		(251,218)
Cash, cash equivalents and restricted cash, beginning of period		722,162		(772)		721,390
Effect of exchange rate changes on cash		(1,042)		—		(1,042)
Cash, cash equivalents and restricted cash, end of period	$	469,914	$	(784)	$	469,130

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 and principal collections of CMBS and RMBS related to consolidated VIEs, which are reflected as VIE distributions on a GAAP basis. There is no significant net impact to overall cash resulting from these consolidations. Refer to Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Cash and cash equivalents decreased by $251.2 million during the three months ended March 31, 2021, reflecting net cash used in investing activities of $1.1 billion, partially offset by net cash provided by operating activities of $270.4 million and net cash provided by financing activities of $598.6 million.

Net cash provided by operating activities of $270.4 million during the three months ended March 31, 2021 related primarily to proceeds from sales of loans held-for-sale, net of originations and purchases, of $244.6 million and cash interest income of $131.9 million from our loans and $36.1 million from our investment securities. Net rental income provided cash of $48.9 million and servicing fees provided cash of $12.9 million. Offsetting these cash inflows was cash interest expense of $80.6 million, general and administrative expenses of $29.0 million, management fees of $27.4 million and a net change in operating assets and liabilities of $66.3 million.

83

Net cash used in investing activities of $1.1 billion for the three months ended March 31, 2021 related primarily to the origination and acquisition of loans held-for-investment of $2.3 billion and the purchase and funding of investment securities of $27.3 million, partially offset by proceeds received from principal collections and sales of loans of $1.1 billion and investment securities of $85.6 million and sale of an operating property for $30.6 million.

Net cash provided by financing activities of $598.6 million for the three months ended March 31, 2021 related primarily to borrowings on our debt, net of repayments and deferred loan costs, of $741.8 million, partially offset by dividend distributions of $137.7 million.

84

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 March 31, 2021 and December 31, 2020 (dollars in thousands):

										Unlevered
	Face		Carrying			Asset Specific		Net		Return on
	Amount		Value			Financing		Investment		Asset
March 31, 2021
First mortgages (1)	$	10,002,124	$	9,954,741		$	6,665,879	$	3,288,862	6.1	%
Subordinated mortgages		71,428		70,457			—		70,457	8.7	%
Mezzanine loans (1)		601,080		603,119			—		603,119	11.6	%
Residential loans, fair value option		149,404		150,712			58,656		92,056	6.1	%
Other loans		20,267		18,200			—		18,200	13.3	%
Loans held-for-sale, fair value option, residential		435,025		444,835			270,096		174,739	5.6	%
Loans held-for-sale, commercial		142,798		142,202			80,500		61,702	5.9	%
RMBS, available-for-sale		245,472		160,301			106,447		53,854	10.9	%
RMBS, fair value option		160,124		249,005	(2)		39,700		209,305	9.2	%
CMBS, fair value option		102,900		96,883	(2)		49,798		47,085	5.5	%
HTM debt securities (3)		454,283		455,586			113,143		342,443	6.6	%
Credit loss allowance		—		(65,939)			—		(65,939)
Equity security		12,594		10,655			—		10,655
Investment in unconsolidated entities		N/A		47,514			—		47,514
Properties, net		N/A		93,718			49,018		44,700
	$	12,397,499	$	12,431,989		$	7,433,237	$	4,998,752
December 31, 2020
First mortgages (1)	$	8,977,365	$	8,930,764		$	5,892,684	$	3,038,080	6.4	%
Subordinated mortgages		72,257		71,185			—		71,185	8.7	%
Mezzanine loans (1)		619,352		620,319			—		620,319	11.5	%
Residential loans, fair value option		86,796		90,684			58,885		31,799	5.9	%
Other loans		33,626		30,284			—		30,284	9.8	%
Loans held-for-sale, fair value option, residential		820,807		841,963			573,584		268,379	6.1	%
RMBS, available-for-sale		252,738		167,349			110,724		56,625	11. 0	%
RMBS, fair value option		142,288		235,997	(2)		30,267		205,730	6.3	%
CMBS, fair value option		102,900		96,885	(2)		25,313		71,572	5.6	%
HTM debt securities (3)		505,247		505,673			84,233		421,440	6.8	%
Credit loss allowance		—		(72,360)			—		(72,360)
Equity security		12,497		11,247			—		11,247
Investment in unconsolidated entities		N/A		54,407			—		54,407
Properties, net		N/A		103,896			48,863		55,033
	$	11,625,873	$	11,688,293		$	6,824,553	$	4,863,740

(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 $917.8 million and $877.3 million being classified as first mortgages as of March 31, 2021 and December 31, 2020, respectively.

(2) Eliminated in consolidation against VIE liabilities pursuant to ASC 810.

85

(3) CMBS held-to-maturity (“HTM”) and mandatorily redeemable preferred equity interests in commercial real estate entities.

As of March 31, 2021 and December 31, 2020, 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 Type	March 31, 2021		December 31, 2020
Office	32.1	%	35.2	%
Hotel	19.6	%	21.6	%
Multifamily	19.1	%	16.1	%
Mixed Use	12.2	%	8.2	%
Residential	5.7	%	6.7	%
Retail	2.6	%	2.8	%
Industrial	2.5	%	3.0	%
Other	6.2	%	6.4	%
	100.0	%	100.0	%

Geographic Location	March 31, 2021		December 31, 2020
U.S. Regions:
North East	20.5	%	22.7	%
West	20.0	%	19.0	%
South West	10.3	%	11.1	%
Mid Atlantic	9.7	%	9.5	%
South East	6.9	%	7.3	%
Midwest	4.5	%	4.4	%
International:
Europe/Australia	25.5	%	23.3	%
Bahamas/Bermuda	2.6	%	2.7	%
	100.0	%	100.0	%

86

Infrastructure Lending Segment

The following table sets forth the amount of each category of investments we owned within our Infrastructure Lending Segment as of March 31, 2021 and December 31, 2020 (dollars in thousands):

									Unlevered
	Face		Carrying		Asset Specific		Net		Return on
	Amount		Value		Financing		Investment		Asset
March 31, 2021
First priority infrastructure loans and HTM securities	$	1,664,665	$	1,633,491	$	1,186,526	$	446,965	4.8	%
Loans held-for-sale, infrastructure		89,601		89,368		73,287		16,081	3.2	%
Credit loss allowance		N/A		(11,732)		—		(11,732)
Investment in unconsolidated entities		N/A		24,840		—		24,840
	$	1,754,266	$	1,735,967	$	1,259,813	$	476,154
December 31, 2020
First priority infrastructure loans and HTM securities	$	1,488,614	$	1,458,880	$	1,140,608	$	318,272	5.2	%
Loans held-for-sale, infrastructure		120,900		120,540		100,155		20,385	3.5	%
Credit loss allowance		N/A		(10,759)		—		(10,759)
Investment in unconsolidated entities		N/A		25,095		—		25,095
	$	1,609,514	$	1,593,756	$	1,240,763	$	352,993

As of March 31, 2021 and December 31, 2020, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:

Collateral Type	March 31, 2021		December 31, 2020
Natural gas power	62.7	%	65.8	%
Midstream	20.8	%	21.9	%
Renewable power	9.4	%	9.0	%
Other thermal power	6.6	%	3.3	%
Downstream	0.5	%	—	%
	100.0	%	100.0	%

Geographic Location	March 31, 2021		December 31, 2020
U.S. Regions:
North East	41.4	%	43.1	%
Midwest	22.5	%	20.8	%
South West	14.5	%	15.3	%
South East	9.5	%	9.6	%
West	5.9	%	4.3	%
Mid-Atlantic	2.8	%	3.2	%
International:
Mexico	2.5	%	2.7	%
Other	0.9	%	1.0	%
	100.0	%	100.0	%

87

Property Segment

The following table sets forth the amount of each category of investments held within our Property Segment as of March 31, 2021 and December 31, 2020 (amounts in thousands):

	March 31, 2021		December 31, 2020
Properties, net	$	1,954,880	$	1,969,414
Lease intangibles, net		37,080		38,511
	$	1,991,960	$	2,007,925

The following table sets forth our net investment and other information regarding the Property Segment’s properties and lease intangibles as of March 31, 2021 (dollars in thousands):

			Asset						Weighted Average
	Carrying		Specific		Net		Occupancy		Remaining
	Value		Financing		Investment		Rate		Lease Term
Office—Medical Office Portfolio	$	760,266	$	592,853	$	167,413	93.6	%	5.8 years
Multifamily residential—Woodstar I Portfolio		636,740		572,784		63,956	98.8	%	0.5 years
Multifamily residential—Woodstar II Portfolio		610,558		512,588		97,970	99.1	%	0.5 years
Retail—Master Lease Portfolio		343,790		192,801		150,989	100.0	%	21.1 years
Subtotal—undepreciated carrying value		2,351,354		1,871,026		480,328
Accumulated depreciation and amortization		(359,394)		—		(359,394)
Net carrying value	$	1,991,960	$	1,871,026	$	120,934

As of March 31, 2021 and December 31, 2020, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:

Geographic Location	March 31, 2021		December 31, 2020
South East	62.1	%	62.1	%
South West	10.3	%	10.3	%
Midwest	10.1	%	10.1	%
North East	9.6	%	9.6	%
West	7.9	%	7.9	%
	100.0	%	100.0	%

88

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 March 31, 2021 and December 31, 2020 (amounts in thousands):

						Asset
	Face		Carrying			Specific			Net
	Amount		Value			Financing			Investment
March 31, 2021
CMBS, fair value option	$	2,632,996	$	1,106,000	(1)	$	350,187	(2)	$	755,813
Intangible assets - servicing rights		N/A		55,324	(3)		—			55,324
Lease intangibles, net		N/A		14,583			—			14,583
Loans held-for-sale, fair value option, commercial		172,119		168,226			110,424			57,802
Loans held-for-investment		933		933			—			933
Investment in unconsolidated entities		N/A		44,435	(4)		—			44,435
Properties, net		N/A		196,150			192,611			3,539
	$	2,806,048	$	1,585,651		$	653,222		$	932,429
December 31, 2020
CMBS, fair value option	$	2,652,459	$	1,112,145	(1)	$	360,221	(2)	$	751,924
Intangible assets - servicing rights		N/A		54,578	(3)		—			54,578
Lease intangibles, net		N/A		15,548			—			15,548
Loans held-for-sale, fair value option, commercial		90,789		90,332			53,040			37,292
Loans held-for-investment		1,008		1,008			—			1,008
Investment in unconsolidated entities		N/A		44,664	(4)		—			44,664
Properties, net		N/A		197,843			192,839			5,004
	$	2,744,256	$	1,516,118		$	606,100		$	910,018

(1) Includes $1.09 billion of CMBS eliminated in consolidation against VIE liabilities pursuant to ASC 810 as of both March 31, 2021 and December 31, 2020. Also includes $180.9 million and $179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of March 31, 2021 and December 31, 2020, respectively.

(2) Includes $38.3 million and $41.3 million of non-controlling interests in the consolidated entities which hold certain debt balances as of March 31, 2021 and December 31, 2020, respectively.

(3) Includes $42.9 million and $41.4 million of servicing rights intangibles eliminated in consolidation against VIE assets pursuant to ASC 810 as of March 31, 2021 and December 31, 2020, respectively.

(4) Includes $15.9 million and $16.1 million of investment in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of March 31, 2021 and December 31, 2020, respectively.

89

Our REIS Equity Portfolio, as described in Note 6 to the Condensed Consolidated Financial Statements, had the following characteristics based on carrying values of $195.6 million and $198.2 million as of March 31, 2021 and December 31, 2020, respectively:

Property Type	March 31, 2021		December 31, 2020
Office	50.5	%	50.6	%
Retail	29.9	%	29.9	%
Mixed Use	7.0	%	6.9	%
Self-storage	6.2	%	6.2	%
Multifamily	4.3	%	4.2	%
Hotel	2.1	%	2.2	%
	100.0	%	100.0	%

Geographic Location	March 31, 2021		December 31, 2020
South West	24.9	%	25.1	%
North East	25.4	%	24.8	%
South East	15.2	%	15.4	%
West	14.8	%	14.8	%
Mid Atlantic	11.4	%	11.5	%
Midwest	8.3	%	8.4	%
	100.0	%	100.0	%

90

New Credit Facilities and Amendments

Refer to Note 9 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, 2020.

Secured Borrowings

The following table is a summary of our secured borrowings as of March 31, 2021 (dollars in thousands):

						Pledged									Approved
					Weighted	Asset			Maximum						but		Unallocated
	Current		Extended		Average	Carrying			Facility			Outstanding			Undrawn		Financing
	Maturity		Maturity (a)		Pricing	Value			Size			Balance			Capacity (b)		Amount (c)
Repurchase Agreements:
Commercial Loans	May 2021 to Aug 2025	(d)	May 2023 to Mar 2029	(d)	(e)	$	8,088,081		$	9,164,525	(f)	$	5,592,652		$	144,018	$	3,427,855
Residential Loans	Jan 2022 to Oct 2023		N/A		LIBOR + 2.09%		428,877			1,750,000			328,620			—		1,421,380
Infrastructure Loans	Feb 2022		N/A		LIBOR + 2.00%		295,516			500,000			246,136			—		253,864
Conduit Loans	Feb 2022 to Jun 2023		Feb 2023 to Jun 2024		LIBOR + 2.15%		147,523			350,000			111,087			—		238,913
CMBS/RMBS	Dec 2021 to Oct 2030	(g)	Mar 2022 to Apr 2031	(g)	(h)		1,112,819			823,365			668,993	(i)		—		154,372
Total Repurchase Agreements							10,072,816			12,587,890			6,947,488			144,018		5,496,384
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25%		304,076			650,000	(j)		223,302			—		426,698
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75%		101,559			81,847			81,847			—		—
Residential Financing Facility	Sep 2022		Sep 2025		3.50%		163,545			250,000			1,515			120,129		128,356
Infrastructure Acquisition Facility	Sep 2021		Sep 2022		(k)		525,611			517,498			414,503			—		102,995
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.04%		699,684			1,250,000			548,956			—		701,044
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(l)	N/A		4.03%		1,271,385			1,155,306			1,155,306			—		—
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		(m)		929,800			985,453			960,901			—		24,552
Term Loan and Revolver	(n)		N/A		(n)		N/A	(n)		763,375			643,375			120,000		—
Collateralized Loan Obligation	Jul 2038		N/A		LIBOR + 1.34%		1,099,639			936,375			936,375			—		—
Total Other Secured Financing							5,095,299			6,589,854			4,966,080			240,129		1,383,645
						$	15,168,115		$	19,177,744		$	11,913,568		$	384,147	$	6,880,029
Unamortized net discount													(13,149)
Unamortized deferred financing costs													(73,309)
												$	11,827,110

(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 $1.9 billion as of March 31, 2021 are indexed to GBP LIBOR and EURIBOR. The remainder have a weighted average rate of LIBOR + 2.01%.

(f) The aggregate initial maximum facility size may be increased at our option, subject to certain conditions. The $9.2 billion amount includes such upsizes.

(g) Certain facilities with an outstanding balance of $280.3 million as of March 31, 2021 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 $212.0 million as of March 31, 2021 has a weighted average fixed annual interest rate of 3.29%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.92%.

91

(i) Includes: (i) $212.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $38.3 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 14 to the Condensed Consolidated Financial Statements).

(j) The initial maximum facility size of $300.0 million may be increased to $650.0 million, subject to certain conditions.

(k) Consists of an annual interest rate of the applicable currency benchmark index + 2.00%.

(l) The weighted average maturity is 6.5 years as of March 31, 2021.

(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 LIBOR + 2.59%.

(n) Consists of: (i) a $643.4 million term loan facility that matures in July 2026, of which $394.0 million has an annual interest rate of LIBOR + 2.50% and $249.4 million has an annual interest rate of LIBOR + 3.50%, subject to a 75 bps LIBOR floor, and (ii) a $120.0 million revolving credit facility that matures in July 2024 with an annual interest rate of LIBOR + 3.00%. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $4.2 billion as of March 31, 2021.

Refer to Note 9 of 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):

			Weighted-Average				Explanations
	Quarter-End		Balance During				for Significant
Quarter Ended	Balance		Quarter		Variance		Variances
December 31, 2020		11,169,964		10,945,199		224,765	(a)
March 31, 2021		11,913,568		11,274,970		638,598	(b)

(a) Variance primarily due to the following: (i) late quarter timing of fundings on commercial loan facilities and (ii) borrowings on the Residential Financing Facility.

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

Borrowings under Unsecured Senior Notes

During the three months ended March 31, 2021 and 2020, the weighted average effective borrowing rate on our unsecured senior notes was 5.4% and 5.0%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount and, during the 2020 period, the adjustment for the conversion option on the Convertible Notes, the initial value of which reduced the balance of the notes.

Refer to Note 10 of our Condensed Consolidated Financial Statements for further disclosure regarding the terms of our unsecured senior notes.

92

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 March 31, 2021. 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		Scheduled/Projected		Projected/Required		Scheduled Principal
	Repayments on Loans		Principal Repayments		Repayments of		Inflows Net of
	and HTM Securities		on RMBS and CMBS		Financing		Financing Outflows
Second Quarter 2021	$	731,009	$	10,927	$	(91,314)	$	650,622
Third Quarter 2021		55,560		9,598		(15,264)		49,894
Fourth Quarter 2021		295,918		7,085		(954,390)		(651,386)	(1)
First Quarter 2022		631,041		5,965		(1,000,898)		(363,892)	(2)
Total	$	1,713,528	$	33,575	$	(2,061,866)	$	(314,762)

(1) Shortfall primarily relates to $700.0 million on the maturity of our Senior Notes due December 2021, which we expect to fund using a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements and/or other potential sources of financing, as discussed below.

(2) Shortfall primarily relates to: (i) $275.6 million of repayments under a Residential Loans repurchase facility that carries a one-year term which we can extend every three months, the current balance of which will be repaid with securitization proceeds; and (ii)  $277.5 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 March 31, 2021, we had 100,000,000 shares of preferred stock available for issuance and 213,148,440 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, 2020. 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

93

corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to distribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders each year, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Refer to our Form 10-K for a detailed dividend history.

The Company’s board of directors declared the following dividends during the three months ended March 31, 2021:

Declare Date	Record Date	Payment Date	Amount		Frequency
3/11/21	3/31/21	4/15/21	$	0.48	Quarterly

Contractual Obligations and Commitments

Our material contractual obligations and commitments as of March 31, 2021 are as follows (amounts in thousands):

			Less than						More than
	Total		1 year		1 to 3 years		3 to 5 years		5 years
Secured financings (a)	$	10,977,193	$	675,327	$	1,960,570	$	5,355,964	$	2,985,332
Collateralized loan obligations		936,375		—		—		—		936,375
Unsecured senior notes		1,750,000		700,000		550,000		500,000		—
Future loan funding commitments:
Commercial Lending (b)		1,291,304		928,429		336,975		25,900		—
Infrastructure Lending (c)		192,515		163,211		29,304		—		—

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

(b) Excludes $201.7 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.

(c) Represents contractual commitments of $126.7 million under revolvers and letters of credit and $65.8 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 and collateralized loan obligations 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, the Company is in discussions with its 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.

Our future funding 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.

94

Critical Accounting Estimates

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

Credit Losses

Loans and Debt Securities Measured at Amortized Cost

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

As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. Such determination also incorporates significant assumptions and estimates regarding, among other things, prepayments, future fundings and economic forecasts. See Note 4 to the Condensed Consolidated Financial Statements for further discussion of our methodologies.

We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.

Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of March 31, 2021, we held $12.7 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $1.4 billion. During the three months ended March 31, 2021, we recognized an immaterial credit loss provision and the related credit loss allowance was $81.5 million as of March 31, 2021. During the year ended December 31, 2020, we recognized a credit loss provision of $43.2 million and the related credit loss allowance was $89.2 million as of December 31, 2020.

95

Available-for-Sale Debt Securities

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

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

Significant judgment is required when estimating expected cash flows used in determining the credit loss allowance for AFS debt securities; therefore, actual results over time could be materially different. As of March 31, 2021, we held $160.3 million of AFS debt securities. We did not recognize any provision for credit losses with respect to our AFS debt securities during the three months ended March 31, 2021 or during the year ended December 31, 2020. There was no related credit loss allowance as of March 31, 2021 and December 31, 2020.

Valuation of Financial Assets and Liabilities Carried at Fair Value

We measure our VIE assets and liabilities, mortgage-backed securities, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. See Note 19 to the Condensed Consolidated Financial Statements for details regarding the various methods and inputs we use in measuring the fair value of our financial assets and liabilities. As of March 31, 2021, we had $63.4 billion and $60.9 billion of financial assets and liabilities, respectively, that are measured at fair value, including $62.4 billion of VIE assets and $60.9 billion of VIE liabilities we consolidate pursuant to ASC 810.

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

Goodwill Impairment

Our goodwill at March 31, 2021 of $259.8 million represents the excess of consideration transferred over the fair value of net assets acquired in connection with the acquisitions of LNR in April 2013 and the Infrastructure Lending Segment in September 2018 and October 2018. In testing goodwill for impairment, we follow ASC 350, Intangibles—Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value.

96

Based on our qualitative assessment during the fourth quarter of 2020, we believe that the Investing and Servicing Segment reporting unit to which the LNR acquisition goodwill was attributed is not currently at risk of failing a quantitative assessment. This qualitative assessment required judgment to be applied in evaluating the effects of multiple factors, including actual and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions, and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

Based on our quantitative assessment during the fourth quarter of 2020, we determined that the fair value of the Infrastructure Lending Segment reporting unit to which goodwill is attributed exceeded its carrying value including goodwill. This quantitative assessment required judgment to be applied in determining the fair value of our equity in the Infrastructure Lending Segment, which included estimates of future cash flows, terminal equity multiple and market discount rate.

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, 2020 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 index instruments. The following table presents our credit index instruments as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Face Value of		Aggregate Notional Value of		Number of
	Loans Held-for-Sale		Credit Index Instruments		Credit Index Instruments
March 31, 2021	$	172,119	$	49,000	3
December 31, 2020	$	90,789	$	69,000	4

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

97

table presents financial instruments where we have utilized interest rate derivatives to hedge interest rate risk and the related interest rate derivatives as of March 31, 2021 and December 31, 2020 (dollars in thousands):

			Aggregate Notional
	Face Value of		Value of Interest		Number of Interest
	Hedged Instruments		Rate Derivatives		Rate Derivatives
Instrument hedged as of March 31, 2021
Loans held-for-sale	$	607,144	$	977,600	39
RMBS, available-for-sale		245,472		85,000	2
CMBS, fair value option		115,867		71,000	2
HTM debt securities		16,015		16,015	1
Secured financing agreements		992,927		1,627,352	24
Unsecured senior notes		500,000		470,000	1
	$	2,477,425	$	3,246,967	69
Instrument hedged as of December 31, 2020
Loans held-for-sale	$	911,596	$	557,000	25
RMBS, available-for-sale		252,738		421,000	4
CMBS, fair value option		125,985		71,000	2
HTM debt securities		16,554		16,554	1
Secured financing agreements		1,008,909		1,633,357	24
Unsecured senior notes		500,000		470,000	1
	$	2,815,782	$	3,168,911	57

The following table summarizes the estimated annual change in net investment income for our variable rate investments and our variable rate debt assuming increases or decreases in LIBOR or other applicable index rates and adjusted for the effects of our interest rate hedging activities (amounts in thousands, except per share data):

	Variable rate
	investments and		1.0%		0.5%		0.5%		1.0%
Income (Expense) Subject to Interest Rate Sensitivity	indebtedness (1)		Increase		Increase		Decrease		Decrease
Investment income from variable rate investments	$	11,974,667	$	57,992	$	24,502	$	(4,237)	$	(4,364)
Interest expense from variable rate debt, net of interest rate derivatives		(8,276,358)		(86,390)		(41,759)		6,817		5,184
Net investment income from variable rate instruments	$	3,698,309	$	(28,398)	$	(17,257)	$	2,580	$	820
Impact per diluted shares outstanding			$	(0.10)	$	(0.06)	$	0.01	$	0.00

(1)Includes the notional value of interest rate derivatives.

Foreign Currency Risk

We intend to hedge our currency exposures in a prudent manner. However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments, and/or unequal, inaccurate, or unavailable hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.

Consistent with our strategy of hedging foreign currency exposure on certain investments, we typically enter into a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows (interest income, rental 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.

98

The following table represents our current currency hedge exposure as it relates to our investments denominated in foreign currencies, along with the aggregate notional amount of the hedges in place (amounts in thousands except for number of contracts) using the March 31, 2021 GBP closing rate of 1.3779, EUR closing rate of 1.1732 and AUD closing rate of 0.7596.

Carrying Value of Net Investment		Local Currency	Number of Foreign Exchange Contracts	Aggregate Notional Value of Hedges Applied		Expiration Range of Contracts
$	19,711	GBP	7	$	27,815	April 2021 – December 2023
	92,555	GBP	21		90,654	April 2021 – August 2022
	28,028	EUR	60		23,894	April 2021 – April 2022
	33,842	GBP	1		39,181	July 2023
	63,112	EUR	38		66,784	May 2021 – March 2023
	52,105	GBP	21		66,054	May 2021 – May 2024
	29,268	GBP	12		39,214	April 2021 – January 2024
	3,742	GBP	5		7,991	April 2021 – October 2021
	28,394	EUR	36		29,689	May 2021 – August 2022
	117,487	GBP	39		163,832	April 2021 – January 2024
	60,286	GBP	19		84,765	April 2021 – August 2021
	5,249	EUR	6		6,836	May 2021 – July 2022
	4,126	GBP	12		23,430	May 2021 – July 2022
	119,154	GBP	10		165,834	August 2021 – November 2023
	3,981	AUD	1		4,301	August 2021
	24,876	EUR	20		30,283	May 2021 – June 2023
	34,983	EUR	10		60,459	May 2021 – November 2022
	40,898	EUR	22		49,445	June 2021 – November 2025
	11,633	EUR	5		14,745	May 2021 – November 2023
	62,708	GBP	12		68,007	May 2021 – November 2021
	131,211	AUD	18		138,925	November 2021 – June 2022
	17,218	EUR	13		19,097	June 2022 – April 2023
	10,655	GBP	5		13,413	June 2021 – April 2022
$	995,222		393	$	1,234,648

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 March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

99

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 March 31, 2021.

Issuer Purchases of Equity Securities

There were no purchases of common stock during the three months ended March 31, 2021.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None.

100

Item 6.  Exhibits.

(a) Index to Exhibits

INDEX TO EXHIBITS

Exhibit No.	Description
31.1	Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL 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.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

101

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: May 6, 2021	By:	/s/ BARRY S. STERNLICHT
		Barry S. Sternlicht Chief Executive Officer Principal Executive Officer
Date: May 6, 2021	By:	/s/ RINA PANIRY
		Rina Paniry Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

102