0001465128stwd:DelayedDrawTermLoansMemberstwd:InfrastructureLendingSegmentMember2020-06-30

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

~~☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~September~~June 30, ~~2017~~2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~☐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)~~ (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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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. ~~(Check one):~~


Large accelerated filer ☒⌧		Accelerated filer ☐◻
Non-accelerated filer ☐◻		Smaller reporting company ☐
~~(Do not check if a smaller reporting company)~~		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of ~~November 2, 2017~~July 31, 2020 was ~~260,998,683.~~284,457,492.

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, ~~2016,~~2019, our Quarterly ~~Reports~~Report on Form 10-Q for the ~~quarters~~quarter ended March 31, ~~2017 and June 30, 2017~~2020 and this Quarterly Report on Form 10-Q, including those set forth under the captions “Risk Factors”, “Business” and ~~“Business”~~“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 borrowersunderlying 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;~~

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

Table of Contents

●

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.

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
	June 30, 2020		December 31, 2019
Assets:
Cash and cash equivalents	$	347,734	$	478,388
Restricted cash		176,397		95,643
Loans held-for-investment, net of credit loss allowances of $111,272 and $33,415 ($267,730 and $671,572 held at fair value)		10,420,802		10,586,074
Loans held-for-sale ($626,883 and $764,622 held at fair value)		671,759		884,150
Investment securities, net of credit loss allowances of $6,891 and $0 ($207,602 and $239,600 held at fair value)		752,025		810,238
Properties, net		2,224,323		2,266,440
Intangible assets ($13,955 and $16,917 held at fair value)		76,293		85,700
Investment in unconsolidated entities		104,913		84,329
Goodwill		259,846		259,846
Derivative assets		90,905		28,943
Accrued interest receivable		71,748		64,087
Other assets		184,147		211,323
Variable interest entity (“VIE”) assets, at fair value		64,175,387		62,187,175
Total Assets	$	79,556,279	$	78,042,336
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	211,722	$	212,006
Related-party payable		20,941		40,925
Dividends payable		138,778		137,427
Derivative liabilities		3,880		8,740
Secured financing agreements, net		8,836,320		8,906,048
Collateralized loan obligations, net		929,307		928,060
Unsecured senior notes, net		1,932,560		1,928,622
VIE liabilities, at fair value		62,617,975		60,743,494
Total Liabilities		74,691,483		72,905,322
Commitments and contingencies (Note 21)
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Preferred stock, $0.01 per share, 100,000,000 shares authorized, 0 shares issued and outstanding		—		—
Common stock, $0.01 per share, 500,000,000 shares authorized, 291,573,083 issued and 284,467,522 outstanding as of June 30, 2020 and 287,380,891 issued and 282,200,751 outstanding as of December 31, 2019		2,916		2,874
Additional paid-in capital		5,193,572		5,132,532
Treasury stock (7,105,561 shares and 5,180,140 shares)		(133,024)		(104,194)
Accumulated other comprehensive income		42,866		50,932
Accumulated deficit		(614,093)		(381,719)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,492,237		4,700,425
Non-controlling interests in consolidated subsidiaries		372,559		436,589
Total Equity		4,864,796		5,137,014
Total Liabilities and Equity	$	79,556,279	$	78,042,336

As of

As of

September 30, 2017

December 31, 2016
Assets:

Cash and cash equivalents

$
413,845

$
615,522
Restricted cash

54,591

35,233
Loans held-for-investment, net

6,382,371

5,847,995
Loans held-for-sale, at fair value

608,624

63,279
Loans transferred as secured borrowings

74,339

35,000
Investment securities ($290,622 and $297,638 held at fair value)

701,818

807,618
Properties, net

2,521,342

1,944,720
Intangible assets ($33,781 and $55,082 held at fair value)

181,865

219,248
Investment in unconsolidated entities

243,450

204,605
Goodwill

140,437

140,437
Derivative assets

38,293

89,361
Accrued interest receivable

35,047

28,224
Other assets

112,265

101,763
Variable interest entity (“VIE”) assets, at fair value

51,197,981

67,123,261
Total Assets

$
62,706,268

$
77,256,266
Liabilities and Equity

Liabilities:

Accounts payable, accrued expenses and other liabilities

$
203,782

$
198,134
Related-party payable

29,989

37,818
Dividends payable

125,674

125,075
Derivative liabilities

22,890

3,904
Secured financing agreements, net

5,514,695

4,154,126
Unsecured senior notes, net

2,044,523

2,011,544
Secured borrowings on transferred loans, net

74,200

35,000
VIE liabilities, at fair value

50,150,781

66,130,592
Total Liabilities

58,166,534

72,696,193
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, 265,406,623 issued and 260,799,738 outstanding as of September 30, 2017 and 263,893,806 issued and 259,286,921 outstanding as of December 31, 2016

2,654

2,639
Additional paid-in capital

4,705,044

4,691,180
Treasury stock (4,606,885 shares)

(92,104)

(92,104)
Accumulated other comprehensive income

65,271

36,138
Accumulated deficit

(184,073)

(115,579)
Total Starwood Property Trust, Inc. Stockholders’ Equity

4,496,792

4,522,274
Non-controlling interests in consolidated subsidiaries

42,942

37,799
Total Equity

4,539,734

4,560,073
Total Liabilities and Equity

$
62,706,268

$
77,256,266

Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 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.

Table of Contents

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

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


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenues:
Interest income from loans	$	171,103	$	191,466	$	388,530	$	374,882
Interest income from investment securities		14,644		22,545		29,884		40,177
Servicing fees		6,658		9,008		11,451		33,441
Rental income		72,710		87,297		146,856		171,130
Other revenues		491		865		1,445		2,031
Total revenues		265,606		311,181		578,166		621,661
Costs and expenses:
Management fees		23,115		22,523		63,843		45,989
Interest expense		101,493		130,126		221,518		264,798
General and administrative		32,677		37,578		71,379		72,508
Acquisition and investment pursuit costs		1,590		74		2,499		416
Costs of rental operations		29,632		30,655		57,846		60,306
Depreciation and amortization		23,421		28,552		47,401		57,806
Credit loss provision, net		10,202		2,518		58,871		3,281
Other expense		102		1,443		490		1,654
Total costs and expenses		222,232		253,469		523,847		506,758
Other income (loss):
Change in net assets related to consolidated VIEs		51,261		55,158		5,768		102,994
Change in fair value of servicing rights		(2,569)		(916)		(2,962)		(1,683)
Change in fair value of investment securities, net		827		667		3,331		729
Change in fair value of mortgage loans, net		34,450		21,891		18,316		33,157
Earnings (loss) from unconsolidated entities		28,776		8,817		28,873		(34,383)
Gain on sale of investments and other assets, net		6,472		2,515		6,768		7,000
Loss on derivative financial instruments, net		(16,098)		(32)		(6,388)		(2,239)
Foreign currency gain (loss), net		7,173		(7,017)		(27,313)		(1,470)
Loss on extinguishment of debt		(2,207)		(2,816)		(2,377)		(6,114)
Other income (loss), net		204		—		330		(73)
Total other income		108,289		78,267		24,346		97,918
Income before income taxes		151,663		135,979		78,665		212,821
Income tax benefit (provision)		1,298		(3,533)		8,027		(3,867)
Net income		152,961		132,446		86,692		208,954
Net income attributable to non-controlling interests		(13,305)		(5,430)		(13,805)		(11,555)
Net income attributable to Starwood Property Trust, Inc.	$	139,656	$	127,016	$	72,887	$	197,399

Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic	$	0.49	$	0.45	$	0.25	$	0.70
Diluted	$	0.49	$	0.45	$	0.25	$	0.70

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Operations~~Comprehensive Income

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

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016
Revenues:

Interest income from loans

$
138,599

$
121,225

$
371,094

$
361,314
Interest income from investment securities

12,451

19,175

40,045

53,879
Servicing fees

14,842

22,918

47,572

70,921
Rental income

60,153

39,742

176,161

110,262
Other revenues

722

1,645

2,184

3,814
Total revenues

226,767

204,705

637,056

600,190
Costs and expenses:

Management fees

30,980

27,780

79,997

76,510
Interest expense

76,431

59,082

213,608

173,237
General and administrative

32,892

51,470

95,841

119,677
Acquisition and investment pursuit costs

1,024

1,509

2,232

5,682
Costs of rental operations

23,799

18,011

67,701

46,518
Depreciation and amortization

22,871

15,352

67,131

53,185
Loan loss allowance, net

(171)

2,127

(3,170)

3,395
Other expense

376

711

1,276

811
Total costs and expenses

188,202

176,042

524,616

479,015
Income before other income (loss), income taxes and non-controlling interests

38,565

28,663

112,440

121,175
Other income (loss):

Change in net assets related to consolidated VIEs

56,177

47,848

203,108

94,388
Change in fair value of servicing rights

(4,867)

(14,283)

(21,301)

(33,213)
Change in fair value of investment securities, net

(397)

(2,786)

(4,061)

(714)
Change in fair value of mortgage loans held-for-sale, net

19,485

49,996

45,484

70,122
(Loss) earnings from unconsolidated entities

(4,689)

4,305

27,763

12,849
Gain on sale of investments and other assets, net

11,877

10

17,004

165
Loss on derivative financial instruments, net

(24,224)

(2,328)

(66,159)

(6,793)
Foreign currency gain (loss), net

10,660

(3,214)

28,434

(20,580)
Total other-than-temporary impairment (“OTTI”)

(66)

—

(175)

(54)
Noncredit portion of OTTI recognized in other comprehensive income

66

—

66

54
Net impairment losses recognized in earnings

—

—

(109)

—
Loss on extinguishment of debt

—

—

(5,916)

—
Other income, net

28

269

484

10,998
Total other income (loss)

64,050

79,817

224,731

127,222
Income before income taxes

102,615

108,480

337,171

248,397
Income tax provision

(9,816)

(2,667)

(18,285)

(3,467)
Net income

92,799

105,813

318,886

244,930
Net income attributable to non-controlling interests

(4,371)

(47)

(10,720)

(1,034)
Net income attributable to Starwood Property Trust, Inc.

$
88,428

$
105,766

$
308,166

$
243,896

Earnings per share data attributable to Starwood Property Trust, Inc.:

Basic

$
0.34

$
0.44

$
1.18

$
1.02
Diluted

$
0.33

$
0.44

$
1.17

$
1.00

Dividends declared per common share

$
0.48

$
0.48

$
1.44

$
1.44


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income	$	152,961	$	132,446	$	86,692	$	208,954
Other comprehensive income (loss) (net change by component):
Available-for-sale securities		6,982		(79)		(8,066)		(466)
Foreign currency translation		—		1,405		—		(1,070)
Other comprehensive income (loss)		6,982		1,326		(8,066)		(1,536)
Comprehensive income		159,943		133,772		78,626		207,418
Less: Comprehensive income attributable to non-controlling interests		(13,305)		(5,430)		(13,805)		(11,555)
Comprehensive income attributable to Starwood Property Trust, Inc.	$	146,638	$	128,342	$	64,821	$	195,863

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Comprehensive Income~~Equity

For the Three Months Ended June 30, 2020 and 2019

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

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
Net income

$
92,799

$
105,813

$
318,886

$
244,930
Other comprehensive income (net change by component):

Cash flow hedges

(22)

185

56

(136)
Available-for-sale securities

3,975

6,105

10,728

8,656
Foreign currency translation

5,337

1,331

18,349

1,999
Other comprehensive income

9,290

7,621

29,133

10,519
Comprehensive income

102,089

113,434

348,019

255,449
Less: Comprehensive income attributable to non-controlling interests

(4,371)

(47)

(10,720)

(1,034)
Comprehensive income attributable to Starwood Property Trust, Inc.

$
97,718

$
113,387

$
337,299

$
254,415


													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, 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
Proceeds from DRIP Plan	17,313		—		216	—		—		—		—		216		—		216
Equity offering costs	—		—		(1)	—		—		—		—		(1)		—		(1)
Share-based compensation	141,009		2		7,342	—		—		—		—		7,344		—		7,344
Manager fees paid in stock	2,065,322		20		26,946	—		—		—		—		26,966		—		26,966
Net income	—		—		—	—		—		139,656		—		139,656		13,305		152,961
Dividends declared, $0.48 per share	—		—		—	—		—		(136,984)		—		(136,984)		—		(136,984)
Other comprehensive income, net	—		—		—	—		—		—		6,982		6,982		—		6,982
VIE non-controlling interests	—		—		—	—		—		—		—		—		(1)		(1)
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(10,038)		(10,038)
Balance, June 30, 2020	291,573,083	$	2,916	$	5,193,572	7,105,561	$	(133,024)	$	(614,093)	$	42,866	$	4,492,237	$	372,559	$	4,864,796

Balance, March 31, 2019	285,481,485	$	2,855	$	5,080,173	5,180,140	$	(104,194)	$	(413,553)	$	55,798	$	4,621,079	$	295,888	$	4,916,967
Proceeds from DRIP Plan	9,311		—		212	—		—		—		—		212		—		212
Redemption of Class A Units for common stock	754,345		8		16,365	—		—		—		—		16,373		(16,373)		—
Equity offering costs	—		—		(3)	—		—		—		—		(3)		—		(3)
Share-based compensation	206,220		1		7,024	—		—		—		—		7,025		—		7,025
Net income	—		—		—	—		—		127,016		—		127,016		5,430		132,446
Dividends declared, $0.48 per share	—		—		—	—		—		(135,321)		—		(135,321)		—		(135,321)
Other comprehensive income, net	—		—		—	—		—		—		1,326		1,326		—		1,326
VIE non-controlling interests	—		—		—	—		—		—		—		—		(40)		(40)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		4,541		4,541
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(23,902)		(23,902)
Balance, June 30, 2019	286,451,361	$	2,864	$	5,103,771	5,180,140	$	(104,194)	$	(421,858)	$	57,124	$	4,637,707	$	265,544	$	4,903,251

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity (Continued)

For the Six Months Ended June 30, 2020 and 2019

(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, January 1, 2017

263,893,806

$
2,639

$
4,691,180

4,606,885

$
(92,104)

$
(115,579)

$
36,138

$
4,522,274

$
37,799

$
4,560,073

Proceeds from DRIP Plan

24,217

—

541

—

—

—

—

541

—

541

Equity offering costs

—

—

(12)

—

—

—

—

(12)

—

(12)

Equity component of 2023 Convertible Senior Notes issuance

—

—

3,755

—

—

—

—

3,755

—

3,755

Equity component of 2018 Convertible Senior Notes repurchase

—

—

(18,105)

—

—

—

—

(18,105)

—

(18,105)

Share-based compensation

849,045

9

13,281

—

—

—

—

13,290

—

13,290

Manager incentive fee paid in stock

639,555

6

14,404

—

—

—

—

14,410

—

14,410

Net income

—

—

—

—

—

308,166

—

308,166

10,720

318,886

Dividends declared, $1.44 per share

—

—

—

—

—

(376,660)

—

(376,660)

—

(376,660)

Other comprehensive income, net

—

—

—

—

—

—

29,133

29,133

—

29,133

VIE non-controlling interests

—

—

—

—

—

—

—

—

1,837

1,837

Contributions from non-controlling interests

—

—

—

—

—

—

—

—

105

105

Distributions to non-controlling interests

—

—

—

—

—

—

—

—

(7,519)

(7,519)

Balance, September 30, 2017

265,406,623

$
2,654

$
4,705,044

4,606,885

$
(92,104)

$
(184,073)

$
65,271

$
4,496,792

$
42,942

$
4,539,734

Balance, January 1, 2016

241,044,775

$
2,410

$
4,192,844

3,553,996

$
(72,381)

$
(12,286)

$
29,729

$
4,140,316

$
30,627

$
4,170,943

Proceeds from DRIP Plan

14,707

—

299

—

—

—

—

299

—

299

Common stock repurchased

—

—

—

1,052,889

(19,723)

—

—

(19,723)

—

(19,723)

Share-based compensation

1,147,975

12

22,785

—

—

—

—

22,797

—

22,797

Manager incentive fee paid in stock

788,460

8

14,649

—

—

—

—

14,657

—

14,657

Net income

—

—

—

—

—

243,896

—

243,896

1,034

244,930

Dividends declared, $1.44 per share

—

—

—

—

—

(343,913)

—

(343,913)

—

(343,913)

Other comprehensive income, net

—

—

—

—

—

—

10,519

10,519

—

10,519

VIE non-controlling interests

—

—

—

—

—

—

—

—

(144)

(144)

Contributions from non-controlling interests

—

—

—

—

—

—

—

—

10,417

10,417

Distributions to non-controlling interests

—

—

—

—

—

—

—

—

(5,400)

(5,400)

Balance, September 30, 2016

242,995,917

$
2,430

$
4,230,577

4,606,885

$
(92,104)

$
(112,303)

$
40,248

$
4,068,848

$
36,534

$
4,105,382


													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, 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	25,031		—		369	—		—		—		—		369		—		369
Redemption of Class A Units for common stock	409,712		4		8,534	—		—		—		—		8,538		(8,538)		—
Equity offering costs	—		—		(15)	—		—		—		—		(15)		—		(15)
Common stock repurchased	—		—		—	1,925,421		(28,830)		—		—		(28,830)		—		(28,830)
Share-based compensation	1,336,217		14		16,130	—		—		—		—		16,144		—		16,144
Manager fees paid in stock	2,421,232		24		36,022	—		—		—		—		36,046		—		36,046
Net income	—		—		—	—		—		72,887		—		72,887		13,805		86,692
Dividends declared, $0.96 per share	—		—		—	—		—		(272,975)		—		(272,975)		—		(272,975)
Other comprehensive loss, net	—		—		—	—		—		—		(8,066)		(8,066)		—		(8,066)
VIE non-controlling interests	—		—		—	—		—		—		—		—		(2,189)		(2,189)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		9,406		9,406
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(76,514)		(76,514)
Balance, June 30, 2020	291,573,083	$	2,916	$	5,193,572	7,105,561	$	(133,024)	$	(614,093)	$	42,866	$	4,492,237	$	372,559	$	4,864,796

Balance, December 31, 2018	280,839,692	$	2,808	$	4,995,156	5,180,140	$	(104,194)	$	(348,998)	$	58,660	$	4,603,432	$	296,757	$	4,900,189
Proceeds from DRIP Plan	17,136		—		379	—		—		—		—		379		—		379
Redemption of Class A Units for common stock	754,345		8		16,365	—		—		—		—		16,373		(16,373)		—
Equity offering costs	—		—		(8)	—		—		—		—		(8)		—		(8)
Conversion of 2019 Convertible Notes	3,611,918		36		67,526	—		—		—		—		67,562		—		67,562
Share-based compensation	732,907		7		13,381	—		—		—		—		13,388		—		13,388
Manager incentive fee paid in stock	495,363		5		10,972	—		—		—		—		10,977		—		10,977
Net income	—		—		—	—		—		197,399		—		197,399		11,555		208,954
Dividends declared, $0.96 per share	—		—		—	—		—		(270,259)		—		(270,259)		—		(270,259)
Other comprehensive loss, net	—		—		—	—		—		—		(1,536)		(1,536)		—		(1,536)
VIE non-controlling interests	—		—		—	—		—		—		—		—		(177)		(177)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		4,636		4,636
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(30,854)		(30,854)
Balance, June 30, 2019	286,451,361	$	2,864	$	5,103,771	5,180,140	$	(104,194)	$	(421,858)	$	57,124	$	4,637,707	$	265,544	$	4,903,251

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

For the Nine Months Ended

September 30,

2017

2016
Cash Flows from Operating Activities:

Net income

$
318,886

$
244,930
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Amortization of deferred financing costs, premiums and discounts on secured financing agreements and secured borrowings on transferred loans

14,131

12,061
Amortization of discounts and deferred financing costs on senior notes

17,514

16,058
Accretion of net discount on investment securities

(11,669)

(11,967)
Accretion of net deferred loan fees and discounts

(27,014)

(38,809)
Share-based compensation

13,290

22,797
Share-based component of incentive fees

14,410

14,657
Change in fair value of fair value option investment securities

4,061

714
Change in fair value of consolidated VIEs

(59,160)

42,371
Change in fair value of servicing rights

21,301

33,213
Change in fair value of loans held-for-sale

(45,484)

(70,122)
Change in fair value of derivatives

62,463

3,360
Foreign currency (gain) loss, net

(28,211)

20,367
Gain on sale of investments and other assets

(17,004)

(165)
Impairment charges

1,099

711
Loan loss allowance, net

(3,170)

3,395
Depreciation and amortization

64,937

49,081
Earnings from unconsolidated entities

(27,763)

(12,849)
Distributions of earnings from unconsolidated entities

4,716

15,151
Bargain purchase gain

—

(8,406)
Loss on extinguishment of debt

5,916

—
Origination and purchase of loans held-for-sale, net of principal collections

(1,487,813)

(1,186,080)
Proceeds from sale of loans held-for-sale

987,828

1,123,512
Changes in operating assets and liabilities:

Related-party payable, net

(7,829)

(17,166)
Accrued and capitalized interest receivable, less purchased interest

(63,032)

(58,275)
Other assets

(12,198)

6,168
Accounts payable, accrued expenses and other liabilities

37,367

(3,537)
Net cash (used in) provided by operating activities

(222,428)

201,170
Cash Flows from Investing Activities:

Origination and purchase of loans held-for-investment

(2,195,258)

(1,583,628)
Proceeds from principal collections on loans

1,670,159

2,187,844
Proceeds from loans sold

37,079

236,433
Purchase of investment securities

(69,231)

(359,510)
Proceeds from sales of investment securities

11,134

3,799
Proceeds from principal collections on investment securities

209,903

70,316
Real estate business combinations, net of cash and restricted cash acquired

(18,194)

(91,186)
Proceeds from sale of properties

44,219

—
Purchases and additions to properties and other assets

(564,755)

(10,209)
Investment in unconsolidated entities

(20,544)

(3,870)
Distribution of capital from unconsolidated entities

3,858

15,026
Payments for purchase or termination of derivatives

(41,208)

(24,954)
Proceeds from termination of derivatives

23,686

37,652
Return of investment basis in purchased derivative asset

151

206
Net cash (used in) provided by investing activities

(909,001)

477,919


	For the Six Months Ended
	June 30,
	2020		2019
Cash Flows from Operating Activities:
Net income	$	86,692	$	208,954
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings		19,552		17,439
Amortization of discounts and deferred financing costs on unsecured senior notes		3,938		3,849
Accretion of net discount on investment securities		(6,123)		(7,857)
Accretion of net deferred loan fees and discounts		(20,840)		(16,112)
Share-based compensation		16,144		13,388
Manager fees paid in stock		36,046		10,977
Change in fair value of investment securities		(3,331)		(729)
Change in fair value of consolidated VIEs		62,175		(11,957)
Change in fair value of servicing rights		2,962		1,683
Change in fair value of loans		(18,316)		(33,157)
Change in fair value of derivatives		10,531		4,496
Foreign currency loss, net		27,313		1,470
Gain on sale of investments and other assets		(6,768)		(7,000)
Impairment charges on properties and related intangibles		—		1,392
Credit loss provision, net		58,871		3,281
Depreciation and amortization		47,137		57,416
(Earnings) loss from unconsolidated entities		(28,873)		34,383
Distributions of earnings from unconsolidated entities		888		8,056
Loss on extinguishment of debt		2,377		6,114
Origination and purchase of loans held-for-sale, net of principal collections		(740,649)		(1,600,100)
Proceeds from sale of loans held-for-sale		1,340,833		928,747
Changes in operating assets and liabilities:
Related-party payable, net		(19,984)		(22,899)
Accrued and capitalized interest receivable, less purchased interest		(80,702)		(54,261)
Other assets		(16,372)		(18,270)
Accounts payable, accrued expenses and other liabilities		(3,763)		(12,153)
Net cash provided by (used in) operating activities		769,738		(482,850)
Cash Flows from Investing Activities:
Origination and purchase of loans held-for-investment		(1,666,903)		(2,051,646)
Proceeds from principal collections on loans		999,254		1,342,698
Proceeds from loans sold		435,097		843,344
Purchase and funding of investment securities		(16,120)		—
Proceeds from sales of investment securities		7,940		3,978
Proceeds from principal collections on investment securities		50,479		73,035
Proceeds from sales of real estate		23,805		1,841
Purchases and additions to properties and other assets		(13,914)		(10,425)
Investment in unconsolidated entities		(3,130)		(785)
Proceeds from sale of interest in unconsolidated entities		10,313		—
Distribution of capital from unconsolidated entities		206		10,041
Payments for purchase or termination of derivatives		(80,911)		(20,212)
Proceeds from termination of derivatives		13,128		8,899
Net cash (used in) provided by investing activities		(240,756)		200,768

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited, amounts in thousands)

For the Nine Months Ended

September 30,

2017

2016
Cash Flows from Financing Activities:

Proceeds from borrowings

$
4,090,163

$
3,158,920
Principal repayments on and repurchases of borrowings

(2,724,179)

(3,138,534)
Payment of deferred financing costs

(17,038)

(17,799)
Proceeds from common stock issuances

541

299
Payment of equity offering costs

(647)

—
Payment of dividends

(376,061)

(343,670)
Contributions from non-controlling interests

105

10,417
Distributions to non-controlling interests

(7,519)

(5,400)
Purchase of treasury stock

—

(19,723)
Issuance of debt of consolidated VIEs

11,657

596
Repayment of debt of consolidated VIEs

(92,383)

(202,892)
Distributions of cash from consolidated VIEs

62,797

40,731
Net cash provided by (used in) financing activities

947,436

(517,055)
Net (decrease) increase in cash, cash equivalents and restricted cash

(183,993)

162,034
Cash, cash equivalents and restricted cash, beginning of period

650,755

391,884
Effect of exchange rate changes on cash

1,674

(626)
Cash, cash equivalents and restricted cash, end of period

$
468,436

$
553,292
Supplemental disclosure of cash flow information:

Cash paid for interest

$
177,604

$
146,011
Income taxes paid

7,722

3,038
Supplemental disclosure of non-cash investing and financing activities:

Dividends declared, but not yet paid

$
125,638

$
115,190
Consolidation of VIEs (VIE asset/liability additions)

2,092,516

19,118,645
Deconsolidation of VIEs (VIE asset/liability reductions)

2,244,267

5,404,305
Net assets acquired from consolidated VIEs

19,652

133,177
Fair value of assets acquired, net of cash and restricted cash

18,956

270,021
Fair value of liabilities assumed

762

170,429
Unsettled investment securities sold

—

14,926


	For the Six Months Ended
	June 30,
	2020		2019
Cash Flows from Financing Activities:
Proceeds from borrowings	$	3,686,932	$	3,271,785
Principal repayments on and repurchases of borrowings		(3,716,558)		(2,679,056)
Payment of deferred financing costs		(7,564)		(18,388)
Proceeds from common stock issuances		369		379
Payment of equity offering costs		(15)		(8)
Payment of dividends		(271,624)		(267,301)
Contributions from non-controlling interests		9,406		4,636
Distributions to non-controlling interests		(76,514)		(30,854)
Purchase of treasury stock		(28,830)		—
Issuance of debt of consolidated VIEs		24,376		100,224
Repayment of debt of consolidated VIEs		(236,336)		(91,808)
Distributions of cash from consolidated VIEs		36,989		21,411
Net cash (used in) provided by financing activities		(579,369)		311,020
Net (decrease) increase in cash, cash equivalents and restricted cash		(50,387)		28,938
Cash, cash equivalents and restricted cash, beginning of period		574,031		487,865
Effect of exchange rate changes on cash		487		(605)
Cash, cash equivalents and restricted cash, end of period	$	524,131	$	516,198
Supplemental disclosure of cash flow information:
Cash paid for interest	$	202,648	$	252,392
Income taxes paid		657		7,270
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid	$	137,242	$	135,615
Consolidation of VIEs (VIE asset/liability additions)		3,077,357		4,104,135
Deconsolidation of VIEs (VIE asset/liability reductions)		—		303,827
Reclassification of residential loans held-for-investment to held-for-sale		422,691		—
Loan principal collections temporarily held at master servicer		12,274		—
Redemption of Class A Units for common stock		8,538		16,373
Settlement of 2019 Convertible Notes in shares		—		75,525
Settlement of loans transferred as secured borrowings		—		74,692
Net assets acquired through foreclosure		—		27,416
Lease liabilities arising from obtaining right-of-use assets		—		7,092

See notes to condensed consolidated financial statements.

Starwood Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of ~~September~~June 30, ~~2017~~2020

(Unaudited)

1. Business and ~~Organization~~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 ~~commercial~~ mortgage loans and other ~~commercial real estate debt investments, commercial mortgage-backed securities (“CMBS”), and other commercial~~ real estate investments in both the United States (“U.S.”) and Europe. We refer to the following as our target assets: commercial real estate mortgage loans, preferred equity interests, CMBS and other commercial real estate-related debt investments. Our target assets may also include residential mortgage-backed securities (“RMBS”), certain residential mortgage loans, distressed or non-performing commercial loans, commercial properties subject to net leases and equity interests in commercial real estate. 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 ~~three~~4 reportable business segments as of ~~September~~June 30, ~~2017:~~2020 and we refer to the investments within these segments as our target assets:

●

Real estate commercial and residential lending (the ~~“Lending~~“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, ~~CMBS, RMBS, certain~~commercial mortgage-backed securities (“CMBS”), residential ~~mortgage loans,~~mortgage-backed securities (“RMBS”) and other real estate and real estate-related debt investments in both the U.S. and ~~Europe.~~

Europe (including distressed or non-performing loans). Our residential mortgage loans are secured by a first mortgage lien on residential property and consist of non-agency residential mortgage 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 ~~multi-family~~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. ~~This segment excludes the consolidation of securitization variable interest entities (“VIEs”).~~

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 ~~and controlled~~ by Mr. Sternlicht.

2. Summary of Significant Accounting Policies

Balance Sheet Presentation of ~~the Investing and Servicing Segment’s~~Securitization Variable Interest Entities

~~As noted above, the Investing and Servicing Segment operates an~~We operate investment ~~business~~businesses that ~~acquires~~acquire unrated, investment grade and non-investment grade rated ~~CMBS.~~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 ~~the Investing and Servicing Segment~~we often ~~serves~~serve as the special servicer or servicing administrator of the trusts in which ~~it invests,~~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, an allocable 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 ~~the Investing and Servicing Segment~~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, ~~2016 (the~~2019 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 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, or (iii) became significant since December 31, ~~2016~~2019 due to a corporate action or increase in the significance of the underlying business ~~activity.~~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 ~~Investing and Servicing Segment’s~~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 in which ~~we hold interests~~ are considered VIEs as the limited partners of ~~these~~those entities with equity at risk do not collectively possess (i) the right to remove the general partner or dissolve the partnership without cause or (ii) the right to participate in significant decisions made by the partnership.

We evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Accounting Standards Codification (“ASC”) 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. We 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,~~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 ~~CMBS which are~~ unrated and non-investment grade rated securities issued by ~~CMBS~~securitization trusts. In certain cases, we may contract to provide special servicing activities for these ~~CMBS~~ 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, an allocable portion of the identified servicing intangible asset associated with the servicing fee streams, and the corresponding allocable 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

Table of Contents

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 ~~CMBS~~ 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 ~~nonperformance~~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 ~~CMBS~~ 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 ~~CMBS~~ 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 ~~CMBS~~ trust.

REO assets generally represent a very small percentage of the overall asset pool of a ~~CMBS~~ trust. In a new issue ~~CMBS trust~~trusts there are no REO assets. We estimate that REO assets constitute approximately 4%1% of our consolidated securitization VIE assets, with the remaining ~~96%~~99% representing loans. However, it is important to note that the fair value of our securitization VIE assets is determined by reference to our securitization VIE liabilities as permitted under ~~Accounting Standards Update (“ASU”)~~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 and certain investments in marketable equity securities.~~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

~~Table of Contents~~

residential mortgage loans held-for-investment were made in order to maintain consistency across all our residential mortgage loans. The fair value elections for mortgage loans held-for-sale were made due to the expected short-term ~~nature~~holding period of these instruments. The fair value elections for investments in marketable equity securities were made because the shares are listed on an exchange, which allows us to determine the fair value using a quoted price from an active market.

Table of Contents

Fair Value Measurements

We measure our ~~mortgage‑backed~~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, no0 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 ~~VIE,~~VIEs, we maximize the use of observable inputs over unobservable inputs. We also acknowledge that our principal market for selling CMBS assets is the securitization market where the market participant is considered to be a CMBS trust or a collateralized debt obligation (“CDO”). This methodology results in the fair value of the assets of a static CMBS trust being equal to the fair value of its liabilities. Refer to Note 19 for further discussion regarding our fair value measurements.

~~Business Combinations~~

~~Under ASC 805,~~ ~~Business Combinations~~, the acquirer in a business combination must recognize, with certain exceptions, the fair values of assets acquired, liabilities assumed, and non-controlling interests when the acquisition constitutes a change in control of the acquired entity. As goodwill is calculated as a residual, all goodwill of the acquired business, not just the acquirer’s share, is recognized under this “full goodwill” approach.

We apply the business combination provisions of ASC 805 in accounting for most acquisitions of real estate assets with in-place leases. In doing so, we record provisional amounts for certain items as of the date of acquisition. During the measurement period, a period which shall not exceed one year, we prospectively adjust the provisional amounts recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized. We do not apply the business combination provisions of ASC 805 for acquired real estate assets where a lease is entered into concurrently with the acquisition of the asset, such as in sale leaseback transactions. We account for sale leaseback transactions as asset acquisitions.

~~Lease Classification~~

~~In accordance with ASC 840,~~ ~~Leases~~, we evaluate all new or amended leases to determine if the lease (1) provides for a transfer of ownership to the lessee at the conclusion of the lease, (2) provides the lessee with a bargain purchase option, (3) has a term of 75% or more of the leased asset’s remaining useful life, or (4) has minimum lease payments with a present value of 90% or more of the leased asset’s fair value. If any of these conditions exist, we account for the lease as a capital lease, otherwise, the lease is considered an operating lease.

Loans Held-for-Investment ~~and Provision for Loan Losses~~

Loans that are held for investment are carried at cost, net of unamortized acquisition premiums or discounts, loan fees, and origination costs as applicable, unless the loans are ~~deemed impaired.~~ 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.

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 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. 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 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.

We also evaluate each loan ~~classified as held-for-investment~~and security measured at amortized cost for ~~impairment~~credit deterioration at least quarterly. In connection with this evaluation, we assess the performance of each loan and assign a risk rating based on several factors, including risk of loss, loan-to-collateral value ratio (“LTV”), collateral performance, structure, exit plan, and sponsorship. Loans are rated “1” through “5”, from less risk to greater risk, in connection with this review.

~~Table of Contents~~

~~Impairment~~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.~~loan or security. If a loan or security is considered to be ~~impaired,~~credit deteriorated, we ~~record an~~depart from the industry loss rate approach described above and determine the credit loss allowance ~~through~~as any excess of the ~~provision for loan losses to reduce the carrying value~~amortized cost basis of the loan toor security over (i) the present value of expected future cash flows discounted at the ~~loan’s~~ contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral. ~~Actual~~

Table of Contents

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 (“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.

Goodwill

ASU 2017-04, Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment, became effective for the Company on January 1, 2020. This ASU specifies that goodwill impairment be measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value, eliminating the requirement that all assets and liabilities of the reporting unit be remeasured individually in connection with measurement of goodwill impairment.

Revenue Recognition

Interest Income

Interest income on performing loans and financial instruments is accrued based on the outstanding principal amount and contractual terms of the instrument. For loans where we do not elect the fair value option, origination fees and direct loan origination costs are also recognized in interest income over the loan term as a yield adjustment using the effective interest method. When we elect the fair value option, origination fees and direct loan costs are recorded directly in income and are not deferred. Discounts or premiums associated with the purchase of non-performing loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on expected cash flows through the expected maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to our cash flow projections.

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

For loans acquired with deteriorated credit quality, interest income is only recognized to the extent that our estimate of undiscounted expected principal and interest exceeds our investment in the loan. Accretable yield, if any, ~~could ultimately differ~~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).

Table of Contents

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 ~~these estimates.~~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, ~~and~~ (iii) the ~~“in-the-money”~~ conversion options associated with our outstanding convertible senior notes (the “Convertible Notes”) (see ~~further discussion in~~ 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the two-class method resulted in the most dilutive EPS calculation.

~~Restricted Cash~~

Restricted cash includes cash and cash equivalents that are legally or contractually restricted as to withdrawal or usage and primarily includes cash collateral associated with derivative financial instruments and funds held on behalf of borrowers and tenants. Effective January 1, 2017, we early adopted ASU 2016-18, ~~Statement of Cash Flows (Topic 230) – Restricted Cas~~h, ~~which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. As required by this ASU, we applied this change retrospectively to our prior period condensed consolidated statement of cash flows for the nine months ended September 30, 2016.~~

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. ~~Actual results could differ from those estimates.~~ The most significant and subjective estimate that we make is the projection of cash flows we expect to receive on our ~~loans, investment securities and intangible assets,~~investments, which has a significant impact on the ~~amounts~~amount of ~~interest~~ income ~~credit losses (if any), and fair values~~ 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.

~~Reclassifications~~

~~Certain prior~~In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 200 countries and territories, including every state in the U.S and in cities and regions where our corporate headquarters and/or properties that secure our investments, or properties that we own, are located, and is continuing to spread. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and since then, numerous countries, including the U.S., have declared national emergencies with respect to COVID-19 and have instituted “stay-at-home” guidelines or orders to help prevent its spread. Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period ~~amounts have been reclassified~~of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to ~~conform to our current period presentation. In that regard, we have reclassified $0.7 million~~the ultimate adverse impact of ~~impairment~~COVID-19 on economic and market conditions. We believe the estimates and assumptions underlying

Table of ~~lease intangible assets from OTTI to other expense in~~ Contents

our consolidated financial statements are reasonable and supportable based on the information available as of ~~operations for~~June 30, 2020. However, uncertainty over the ~~three~~ultimate impact COVID-19 will have on the global economy generally, and ~~nine months ended September~~our business in particular, makes any estimates and assumptions as of June 30, ~~2016.~~2020 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 ~~May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~, which establishes key principles by which an entity determines the amount and timing of revenue recognized from customer contracts. At issuance, the ASU was effective for the first interim or annual period

~~Table of Contents~~

~~beginning after December 15, 2016. On August~~March 12, ~~2015,~~2020, the FASB issued ASU ~~2015-14,~~ ~~Revenue from Contracts with Customers~~2020-04, Reference Rate Reform (Topic 848) – ~~Deferral~~Facilitation of the ~~Effective Date,~~Effects of Reference Rate Reform on Financial Reporting,which ~~delayed the effective date~~provides 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 ASU 2014-09 by one year, resulting in the ASU becoming effective for the first interim or annual period beginning after December 15, 2017. We do not expect the application of this ASU to materially impact the Company as our material revenue sources are not within the scope of the ASU.

~~On January 5, 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities~~, which impacts the accounting for equity investments, financial liabilities under the fair value option, and disclosure requirements for financial instruments. The ASU shall be applied prospectively and is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is not permitted. We do not expect the application of this ASU to materially impact the Company.

~~On February 25, 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842),~~ which establishes a right-of-use model for lessee accounting which results in the recognition of most leased assets and lease liabilities on the balance sheet of the lessee. Lessor accounting was not significantly changed by the ASU. Thereference rate reform. This ASU is effective ~~for annual periods, and interim periods therein, beginning after~~as of March 12, 2020 through December ~~15, 2018 by applying a modified retrospective approach. Early application is permitted. We are in the process of assessing the impact this ASU will have on the Company.~~

~~On March 17, 2016, the FASB issued ASU 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in the FASB’s revenue recognition standard issued in ASU 2014-09.~~31, 2022. The ASU provides further guidance to assist an entity in determining whether the nature of its promise to its customer is to provide the underlying goods or services, meaning the entity is a principal, or to arrange for a third party to provide the underlying goods or services, meaning the entity is an agent. The ASU is effective for the first interim or annual period beginning after December 15, 2017. Early application is permitted though no earlier than the first interim or annual period beginning after December 15, 2016. We doCompany has not ~~expect the application of this ASU to materially impact the Company.~~

~~On April 14, 2016, the FASB issued ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing~~, which amends guidance and illustrations in the FASB’s revenue recognition standard issued in ASU 2014-09 regarding the identification of performance obligations and the implementation guidance on licensing arrangements. The ASU is effective for the first interim or annual period beginning after December 15, 2017. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.

~~On June 16, 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, which mandates use of an “expected loss” credit model for estimating future credit losses of certain financial instruments instead~~adopted any of the ~~“incurred loss” credit model that current GAAP requires. The “expected loss” model requires~~optional expedients or exceptions through June 30, 2020, but will continue to evaluate the ~~consideration~~possible adoption of ~~possible credit losses over~~any such expedients or exceptions during the ~~life of an instrument~~effective period as opposed to only estimating credit losses upon the occurrence of a discrete loss event in accordance with the current “incurred loss” methodology. The ASU is effective for annual reporting periods,circumstances evolve.

3. Acquisitions and interim periods therein, beginning after December 15, 2019. Early application is permitted though no earlier than the first interim or annual period beginning after December 15, 2018. Though we have not completed our assessment of this ASU, we expect the ASU to result in our recognition of higher levels of allowances for loan losses. Our assessment of the estimated amount of such increases remains in process.Divestitures

~~On August 26, 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments~~, which seeks to reduce diversity in practice regarding how various cash receipts and payments are reported within the statement of cash flows. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted in any interim or annual period. We do not expect the application of this ASU to materially impact the Company.

~~Table of Contents~~

~~On October 24, 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory~~, which requires that an entity recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of the transfer instead of deferring the tax consequences until the asset has been sold to an outside party, as current GAAP requires. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted in any interim or annual period. We do not expect the application of this ASU to materially impact the Company.

~~On January 5, 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805) – Clarifying the Definition of a Business~~, which amends the definition of a business to exclude acquisitions of groups of assets where substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017 and is applied prospectively. Early application is permitted. We expect that most real estate acquired by the Company subsequent to the ASU’s effective date will be accounted for as asset acquisitions.

~~On January 26, 2017, the FASB issued ASU 2017-04,~~ ~~Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment~~, which simplifies the method applied for measuring impairment in cases where goodwill is impaired. The ASU specifies that goodwill impairment will be measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value, eliminating the requirement that all assets and liabilities of the reporting unit be remeasured individually in connection with measurement of goodwill impairment. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2019 and is applied prospectively. Early application is permitted though no earlier than January 1, 2017. We do not expect the application of this ASU to materially impact the Company.

~~On February 22, 2017, the FASB issued ASU 2017-05,~~ ~~Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20)~~, which clarifies what constitutes an in substance nonfinancial asset and changes the accounting for partial sales of nonfinancial assets to be more consistent with the accounting for a sale of a business. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.

~~On August 28, 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities~~, which amends and simplifies existing guidance regarding the designation and measurement of designated hedging relationships. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2018. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.

~~3. Acquisitions and Dispositions~~

~~Master Lease Portfolio~~

On September 25, 2017, we acquired 20 retail properties and three industrial properties (the “Master Lease Portfolio”) for a purchase price of $553.3 million, inclusive of $3.7 million of related transaction costs. Concurrently with the acquisition, we leased the properties back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. These properties, which collectively comprise 5.3 million square feet, are geographically dispersed throughout the U.S., with more than 50% of the portfolio, by carrying value, located in Utah, Florida, Texas and Minnesota. We utilized $265.9 million in new financing in order to fund the acquisition (as set forth in Note 9). The acquisition was accounted for as an asset acquisition.

Investing and Servicing Segment Property Portfolio

During the three and ~~nine~~six months ended ~~September~~June 30, 2017, our Investing and Servicing Segment acquired the net equity of one and two commercial real estate properties from CMBS trusts, respectively, for $18.2 million and $37.2 million, respectively. These properties, aggregated with the controlling interests in 24 commercial real estate properties acquired from CMBS trusts during the years ended December 31, 2015 and 2016 for an aggregate acquisition price of $268.5 million, comprise the Investing and Servicing Segment Property Portfolio (the “REIS Equity Portfolio”). When

~~Table of Contents~~

the properties are acquired from CMBS trusts that are consolidated as VIEs on our balance sheet, the acquisitions are reflected as repayment of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

~~We applied the business combination provisions of ASC 805,~~ ~~Business Combinations,~~ in accounting for the REIS Equity Portfolio acquisitions. No goodwill was recognized in connection with the REIS Equity Portfolio acquisitions as the purchase prices did not exceed the fair values of the net assets acquired. A bargain purchase gain of $0.6 million was recognized within change in net assets related to consolidated VIEs in our condensed consolidated statement of operations for the nine months ended September 30, 2017 and $8.8 million for the year ended December 31, 2016 as the fair value of the net assets acquired for certain properties exceeded the purchase price.

~~During the nine months ended September 30, 2017, in accordance with ASU 2015-16,~~ ~~Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments~~, we adjusted our initial provisional estimates of the acquisition date fair values of the identified assets acquired and liabilities assumed for a certain property acquired within the REIS Equity Portfolio during the year ended December 31, 2016 to reflect new information obtained regarding facts and circumstances that existed at the acquisition date. The following table summarizes the measurement period adjustment applied to the initial provisional acquisition date balance sheet (amounts in thousands):

2016 Acquisition Adjustment

Measurement

Initial

Period

Adjusted
Assets acquired:
Amounts

Adjustment

Amounts
Properties
$
12,087

$
660

$
12,747
Intangible assets

4,270

(802)

3,468
Other assets

97

—

97
Total assets acquired

16,454

(142)

16,312
Liabilities assumed:

Accounts payable, accrued expenses and other liabilities

1,539

(142)

1,397
Total liabilities assumed

1,539

(142)

1,397
Non-controlling interests

3,084

—

3,084
Net assets acquired
$
11,831

$
—

$
11,831

~~Table of Contents~~

~~The net income effect associated with the measurement period adjustment during the nine months ended September 30, 2017 was immaterial.~~

~~During the three and nine months ended September 30, 2017,~~2020, we sold ~~two and four properties~~a property within the Investing and Servicing Segment for ~~$26.0~~$24.1 million. In connection with this sale, we recognized a gain of $7.4 million ~~and $40.7 million, respectively, recognizing gain on sale of $11.2 million and $16.3 million, respectively,~~ within gain on sale of investments and other assets in our condensed consolidated statements of operations. ~~During both~~There were 0 Investing and Servicing Segment properties sold during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, $2.4 million of such gains were attributable to non-controlling interests.~~2019.

~~Medical Office Portfolio~~

The Medical Office Portfolio is comprised of 34 medical office buildings acquired for a purchase price of $758.8 million 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. No goodwill or bargain purchase gains were recognized in connection with the Medical Office Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired.

~~Woodstar Portfolio~~

The Woodstar 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 Portfolio with the final 14 communities acquired during the year ended December 31, 2016 for an aggregate acquisition price of $421.5 million. We assumed federal, state and county sponsored financing and other debt in connection with this acquisition.

No goodwill was recognized in connection with the Woodstar Portfolio acquisition as the purchase price did not exceed the fair value of the net assets acquired. A bargain purchase gain of $8.4 million was recognized within other income, net in our consolidated statement of operations for the year ended December 31, 2016 as the fair value of the net assets acquired exceeded the purchase price due to favorable changes in net asset fair values occurring between the date the purchase price was negotiated and the closing date.

~~Ireland Portfolio~~

The Ireland Portfolio was initially comprised of 12 net leased fully occupied office properties and one multi-family property all located in Dublin, Ireland, which the Company acquired during the year ended December 31, 2015. The Ireland Portfolio, which collectively is comprised of approximately 600,000 square feet, included total assets of $518.2 million and assumed debt of $283.0 million at acquisition. Following our acquisition, all assumed debt was immediately extinguished and replaced with new financing of $328.6 million from the Ireland Portfolio Mortgage (as set forth in Note 9). No goodwill or bargain purchase gain was recognized in connection with the Ireland Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired.

During the nine months ended September 30, 2017, we sold one office property within the Ireland Portfolio for $3.9 million, recognizing an immaterial gain on sale within gain on sale of investments and other assets in our condensed consolidated statement of operations.

2017

REIS Equity
Assets acquired:

Portfolio
Properties

$
34,902
Intangible assets

4,272
Other assets

1
Total assets acquired

39,175
Liabilities assumed:

Accounts payable, accrued expenses and other liabilities

1,329
Total liabilities assumed

1,329
Net assets acquired

$
37,846

Weighted

Weighted

Average Life

Carrying

Face

Average

(“WAL”)
September 30, 2017

Value

Amount

Coupon

(years)(1)
First mortgages (2)

$
5,527,219

$
5,549,909

6.1
%
2.4
Subordinated mortgages (3)

222,990

224,088

10.3
%
2.1
Mezzanine loans (2)

615,562

615,724

10.6
%
1.2
Other

23,218

27,073

8.4
%
4.3
Total loans held-for-investment

6,388,989

6,416,794

Loans held-for-sale, fair value option

608,624

601,051

5.6
%
7.6
Loans transferred as secured borrowings

74,339

75,000

5.8
%
2.5
Total gross loans

7,071,952

7,092,845

Loan loss allowance (loans held-for-investment)

(6,618)

—

Total net loans

$
7,065,334

$
7,092,845

December 31, 2016

First mortgages (2)

$
4,865,994

$
4,881,656

5.7
%
2.2
Subordinated mortgages (3)

278,032

293,925

8.9
%
3.3
Mezzanine loans (2)

713,757

714,608

9.6
%
1.8
Total loans held-for-investment

5,857,783

5,890,189

Loans held-for-sale, fair value option

63,279

63,065

5.3
%
10.0
Loans transferred as secured borrowings

35,000

35,000

6.2
%
0.4
Total gross loans

5,956,062

5,988,254

Loan loss allowance (loans held-for-investment)

(9,788)

—

Total net loans

$
5,946,274

$
5,988,254


							Weighted
					Weighted		Average Life
	Carrying		Face		Average		(“WAL”)
June 30, 2020	Value		Amount		Coupon (1)		(years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	8,095,262	$	8,114,492	5.3	%	1.7
Subordinated mortgages (4)		68,891		70,101	8.8	%	3.3
Mezzanine loans (3)		593,823		593,505	10.3	%	1.9
Other		30,804		34,452	8.9	%	2.1
Total commercial loans		8,788,780		8,812,550
Infrastructure first priority loans		1,475,564		1,493,693	4.2	%	4.5
Residential mortgage loans, fair value option (5)		267,730		260,542	6.2	%	3.8
Total loans held-for-investment		10,532,074		10,566,785
Loans held-for-sale:
Residential, fair value option (5)		432,786		429,966	6.2	%	3.7
Commercial, fair value option		194,097		191,229	3.9	%	10.0
Infrastructure, lower of cost or fair value		45,001		46,111	2.1	%	1.6
Total loans held-for-sale		671,884		667,306
Total gross loans		11,203,958	$	11,234,091
Credit loss allowances:
Commercial loans held-for-investment		(94,947)
Infrastructure loans held-for-investment		(16,325)
Total held-for-investment allowances		(111,272)
Infrastructure loans held-for-sale with a fair value allowance		(125)
Total allowances		(111,397)
Total net loans	$	11,092,561

December 31, 2019
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	7,928,026	$	7,962,788	5.8	%	2.0
Subordinated mortgages (4)		75,724		77,055	8.8	%	3.4
Mezzanine loans (3)		484,164		484,408	11.0	%	1.9
Other		62,555		66,525	8.2	%	1.6
Total commercial loans		8,550,469		8,590,776
Infrastructure first priority loans		1,397,448		1,416,164	5.6	%	4.9
Residential mortgage loans, fair value option		671,572		654,925	6.1	%	3.8
Total loans held-for-investment		10,619,489		10,661,865
Loans held-for-sale:
Residential, fair value option		605,384		587,144	6.2	%	3.9
Commercial, fair value option		159,238		160,635	3.9	%	10.0
Infrastructure, lower of cost or fair value		119,724		121,271	3.3	%	2.1
Total loans held-for-sale		884,346		869,050
Total gross loans		11,503,835	$	11,530,915
Credit loss allowances:
Commercial loans held-for-investment		(33,415)
Infrastructure loans held-for-investment		—
Total held-for-investment allowances		(33,415)
Infrastructure loans held-for-sale with a fair value allowance		(196)
Total allowances		(33,611)
Total net loans	$	11,470,224

Table of Contents

(1)	~~(1)~~Calculated using LIBOR or other applicable index rates as of June 30, 2020 and December 31, 2019 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)

~~(2)~~

First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of ~~$1.1 billion~~$918.3 million and ~~$964.1~~$967.0 million being classified as first mortgages as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

(4)

~~(3)~~

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 six months ended June 30, 2020, $422.7 million of residential loans held-for-investment were reclassified into residential loans held-for-sale.

September 30, 2017

December 31, 2016




Carrying



Carrying

Index

Base Rate

Value

Base Rate

Value

One-month LIBOR USD

1.2322
%
$
612,994

0.7717
%
$
880,357

LIBOR floor

0.15 - 1.24
% (1)

5,301,987

0.15 - 3.00
% (1)

4,449,861

Total

$
5,914,981

$
5,330,218


	Carrying		Weighted-average
June 30, 2020	Value		Spread Above Index
Commercial loans	$	8,195,089	4.2	%
Infrastructure loans		1,475,564	3.7	%
Total variable rate loans held-for-investment	$	9,670,653	4.1	%

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.

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. However, due to limited information in the first 20 years covered by the database, we have further applied a recessionary multiplier to those historical loss rates as of June 30, 2020 to reflect the current economic deterioration caused by the COVID-19 pandemic which seems to most closely resemble the magnitude of the economic distress of the 2008

~~(1)~~

~~The weighted-average LIBOR floor was 0.57% and 0.36% as of September 30, 2017 and December 31, 2016, respectively.~~

Table of Contents

financial crisis. 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.

~~Our loans are typically collateralized by real estate.~~

As discussed in Note 2, we use a ~~result, we~~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, ~~property,~~ as well as the financial and operating capability of the borrower. Specifically, ~~a property’s~~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 ~~at maturity,~~ and/or (iii) the ~~property’s~~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 ~~properties.~~collateral. In addition, we consider the overall economic environment, real estate or industry sector, and geographic sub-market in which the borrower operates. Such ~~impairment~~ 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.

Our evaluation process, as described above produces an internal risk rating between 1 and 5, which is a weighted average of the numerical ratings in the following categories: (i) sponsor capability and financial condition, (ii) loan and collateral performance relative to underwriting, (iii) quality and stability of collateral cash flows, and (iv) loan structure. We utilize the overall risk ratings as a concise means to monitor any credit migration on a loan as well as on the whole portfolio. While the overall risk rating is generally not the sole factor we use in determining whether a loan is impaired, a loan with a higher overall risk rating would tend to have more adverse indicators of impairment, and therefore would be more likely to experience a credit loss.

~~Table of Contents~~

The rating categories generally include the characteristics described below, but these are utilized as guidelines and therefore not every loan will have all of the characteristics described in each category:


~~Rating~~	~~Characteristics~~
1		~~Sponsor capability and financial condition—Sponsor is highly rated or investment grade or, if private, the equivalent thereof with significant management experience.~~
		~~Loan collateral and performance relative to underwriting—The collateral has surpassed underwritten expectations.~~
		~~Quality and stability of collateral cash flows—Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.~~
		~~Loan structure—LTV does not exceed 65%. The loan has structural features that enhance the credit profile.~~

2		~~Sponsor capability and financial condition—Strong sponsorship with experienced management team and a responsibly leveraged portfolio.~~
		~~Loan collateral and performance relative to underwriting—Collateral performance equals or exceeds underwritten expectations and covenants and performance criteria are being met or exceeded.~~
		~~Quality and stability of collateral cash flows—Occupancy is stabilized with a diverse tenant mix.~~
		~~Loan structure—LTV does not exceed 70% and unique property risks are mitigated by structural features.~~

3		~~Sponsor capability and financial condition—Sponsor has historically met its credit obligations, routinely pays off loans at maturity, and has a capable management team.~~
		~~Loan collateral and performance relative to underwriting—Property performance is consistent with underwritten expectations.~~
		~~Quality and stability of collateral cash flows—Occupancy is stabilized, near stabilized, or is on track with underwriting.~~
		~~Loan structure—LTV does not exceed 80%.~~

4		~~Sponsor capability and financial condition—Sponsor credit history includes missed payments, past due payment, and maturity extensions. Management team is capable but thin.~~
		Loan collateral and performance relative to underwriting—Property performance lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers. A sale of the property may be necessary in order for the borrower to pay off the loan at maturity.
		~~Quality and stability of collateral cash flows—Occupancy is not stabilized and the property has a large amount of rollover.~~
		~~Loan structure—LTV is 80% to 90%.~~

5		~~Sponsor capability and financial condition—Credit history includes defaults, deeds‑in‑lieu, foreclosures, and/or bankruptcies.~~
		Loan collateral and performance relative to underwriting—Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and may be in default. Sale proceeds would not be sufficient to pay off the loan at maturity.
		~~Quality and stability of collateral cash flows—The property has material vacancy and significant rollover of remaining tenants.~~
		~~Loan structure—LTV exceeds 90%.~~

~~Table of Contents~~

~~As of September 30, 2017, the risk ratings~~significant credit quality indicators for our loans ~~subject to our rating system,~~measured at amortized cost, which excludes loans ~~for which the fair value option has been elected, by class of loan~~held-for-sale, were as follows as of June 30, 2020 (dollars in thousands):

Balance Sheet Classification

Loans Held-For-Investment

Loans

% of

Risk Rating

First

Subordinated

Mezzanine



Loans Held-

As Secured



Total

Category

Mortgages

Mortgages

Loans

Other

For-Sale

Borrowings

Total

Loans

1

$
2,205

$
—

$
—

$
20,446

$
—

$
—

$
22,651

0.3
%
2

2,109,411

4,424

132,843

—

—

—

2,246,678

31.8
%
3

3,164,497

218,566

423,779

2,772

—

74,339

3,883,953

54.9
%
4

194,916

—

58,940

—

—

—

253,856

3.6
%
5

56,190

—

—

—

—

—

56,190

0.8
%
N/A

—

—

—

—

608,624

—

608,624

8.6
%

$
5,527,219

$
222,990

$
615,562

$
23,218

$
608,624

$
74,339

$
7,071,952

100.0
%


	Term Loans												Revolving Loans		Total		Credit
	Amortized Cost Basis by Origination Year												Amortized Cost		Amortized		Loss
As of June 30, 2020	2020		2019		2018		2017		2016		Prior		Total		Cost Basis		Allowance
Commercial loans:
Credit quality indicator:
LTV < 60%	$	499,114	$	1,004,947	$	915,109	$	973,889	$	152,365	$	252,631	$	—	$	3,798,055	$	13,295
LTV 60% - 70%		265,570		1,128,883		1,745,905		449,146		53,418		169,219		—		3,812,141		41,221
LTV > 70%		31,649		822,181		93,094		—		—		60,814		—		1,007,738		10,578
Credit deteriorated		—		—		34,454		7,755		—		105,589		—		147,798		29,853
Defeased and other		—		—		—		—		—		23,048		—		23,048		—
Total commercial	$	796,333	$	2,956,011	$	2,788,562	$	1,430,790	$	205,783	$	611,301	$	—	$	8,788,780	$	94,947
Infrastructure loans:
Credit quality indicator:
Power	$	—	$	248,691	$	304,589	$	123,558	$	189,365	$	302,918	$	24,736	$	1,193,857	$	9,139
Oil and gas		—		196,775		84,932		—		—		—		—		281,707		7,186
Total infrastructure	$	—	$	445,466	$	389,521	$	123,558	$	189,365	$	302,918	$	24,736	$	1,475,564	$	16,325
Residential loans held-for-investment, fair value option																267,730		—
Loans held-for-sale																671,884		125
Total gross loans															$	11,203,958	$	111,397

As of ~~December 31, 2016, the risk ratings for~~June 30, 2020, certain first mortgage, mezzanine and unsecured promissory loans ~~subject~~with an amortized cost basis of $101.4 million related to ~~our rating system, which excludes loans for which the fair value option has been elected, by class~~a residential conversion project and 2 subordinated mortgages on department stores with an amortized cost basis of ~~loan~~$12.0 million were ~~as follows (dollars in thousands):~~

Balance Sheet Classification

Loans Held-For-Investment

Loans










Transferred



% of

Risk Rating

First

Subordinated

Mezzanine

Loans Held-

As Secured

Total

Category

Mortgages

Mortgages

Loans

For-Sale

Borrowings

Total

Loans

1

$
921

$
—

$
—

$
—

$
—

$
921

—
%
2

1,092,731

27,069

194,803

—

35,000

1,349,603

22.6
%
3

3,348,874

250,963

425,972

—

—

4,025,809

67.6
%
4

365,151

—

92,982

—

—

458,133

7.7
%
5

58,317

—

—

—

—

58,317

1.0
%
N/A

—

—

—

63,279

—

63,279

1.1
%

$
4,865,994

$
278,032

$
713,757

$
63,279

$
35,000

$
5,956,062

100.0
%

~~After completing our impairment evaluation process as of September 30, 2017, we concluded that none of our loans were impaired~~credit deteriorated and ~~therefore no individual loan impairment charges were required on any individual loans, as we expect to collect all outstanding principal and interest. None of our loans were~~ 90 days or greater past due, as were $14.0 million of ~~September 30, 2017.~~

~~Table of Contents~~

residential loans. In accordance with our ~~policies, we record an allowance~~interest income recognition policy, these loans, along with a $34.5 million credit deteriorated loan that is not 90 days or greater past due (also related to the residential conversion project), were placed on non-accrual status. We apply the cost recovery method of interest income recognition for ~~loan losses equal~~all these credit deteriorated loans. Any loans which are modified to ~~(i) 1.5%~~provide for the deferral of ~~the aggregate carrying amount~~interest are not considered past due and are accounted for in accordance with our revenue recognition policy on interest income.

Table of ~~loans rated as a “4,” plus (ii) 5% of the aggregate carrying amount of loans rated as a “5, ” plus (iii) impaired loan reserves, if any.~~ Contents

The following ~~table presents~~tables present the activity in our credit loss allowance for ~~loan losses~~funded loans and unfunded commitments (amounts in thousands):


	Funded Commitments Credit Loss Allowance
					Loans
	Loans Held-for-Investment				Held-for-Sale		Total
Six Months Ended June 30, 2020	Commercial		Infrastructure		Infrastructure		Funded Loans
Credit loss allowance at December 31, 2019	$	33,415	$	—	$	196	$	33,611
Cumulative effect of ASC 326 effective January 1, 2020		10,112		10,328		—		20,440
Credit loss provision, net		51,420		5,997		—		57,417
Charge-offs		—		—		(71)		(71)
Recoveries		—		—		—		—
Credit loss allowance at June 30, 2020	$	94,947	$	16,325	$	125	$	111,397


	Unfunded Commitments Credit Loss Allowance (1)
	Loans Held-for-Investment				HTM Preferred
Six Months Ended June 30, 2020	Commercial		Infrastructure		Interests (2)		Total
Credit loss allowance at December 31, 2019	$	—	$	—	$	—	$	—
Cumulative effect of ASC 326 effective January 1, 2020		8,348		2,205		—		10,553
Credit loss (reversal) provision, net		(3,303)		1,371		625		(1,307)
Credit loss allowance at June 30, 2020	$	5,045	$	3,576	$	625	$	9,246
Memo: Unfunded commitments as of June 30, 2020 (3)	$	1,870,914	$	132,905	$	6,419	$	2,010,238

For the Nine Months Ended

September 30,

2017

2016
Allowance for loan losses at January 1

$
9,788

$
6,029
Provision for loan losses

(3,170)

3,395
Charge-offs

—

—
Recoveries

—

—
Allowance for loan losses at September 30

$
6,618

$
9,424
Recorded investment in loans related to the allowance for loan loss

$
310,046

$
488,576

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

(2)	See Note 5 for further details.

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

Table of Contents

Loan Portfolio Activity

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


	Held-for-Investment Loans
Six Months Ended June 30, 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		1,452,753		113,430		100,720		786,860		2,453,763
Capitalized interest (1)		70,346		—		—		—		70,346
Basis of loans sold (2)		(397,038)		—		(604)		(1,378,952)		(1,776,594)
Loan maturities/principal repayments		(831,319)		(68,585)		(64,806)		(43,593)		(1,008,303)
Discount accretion/premium amortization		19,706		1,025		—		109		20,840
Changes in fair value		—		—		(16,461)		34,777		18,316
Unrealized foreign currency translation loss		(76,137)		—		—		(2,037)		(78,174)
Credit loss provision, net		(51,420)		(5,997)		—		—		(57,417)
Transfer to/from other asset classifications		—		32,246		(422,691)		390,445		—
Balance at June 30, 2020	$	8,693,833	$	1,459,239	$	267,730	$	671,759	$	11,092,561


							Loans
							Transferred
	Held-for-Investment Loans						As Secured
Six Months Ended June 30, 2019	Commercial		Infrastructure		Held-for-Sale Loans		Borrowings		Total Loans
Balance at December 31, 2018	$	7,075,577	$	1,456,779	$	1,187,552	$	74,346	$	9,794,254
Acquisitions/originations/additional funding		1,707,180		334,303		1,663,244		—		3,704,727
Capitalized interest (1)		52,405		—		—		—		52,405
Basis of loans sold (2)		(495,456)		—		(1,271,931)		—		(1,767,387)
Loan maturities/principal repayments		(959,160)		(333,607)		(80,134)		(74,692)		(1,447,593)
Discount accretion/premium amortization		15,448		318		—		346		16,112
Changes in fair value		—		—		33,157		—		33,157
Unrealized foreign currency translation (loss) gain		(5,396)		—		1,493		—		(3,903)
Credit loss provision, net		(2,085)		—		(1,196)		—		(3,281)
Loan foreclosures		(27,303)		—		—		—		(27,303)
Transfer to/from other asset classifications		46,495		(101,282)		54,714		—		(73)
Balance at June 30, 2019	$	7,407,705	$	1,356,511	$	1,586,899	$	—	$	10,351,115

For the Nine Months Ended

September 30,

2017

2016

Balance at January 1

$
5,946,274

$
6,263,517

Acquisitions/originations/additional funding

3,722,624

2,795,772

Capitalized interest (1)

55,987

65,003

Basis of loans sold (2)

(1,024,964)

(1,359,780)

Loan maturities/principal repayments

(1,742,494)

(2,188,583)

Discount accretion/premium amortization

27,014

38,809

Changes in fair value

45,484

70,122

Unrealized foreign currency remeasurement gain (loss)

31,395

(37,332)

Change in loan loss allowance, net

3,170

(3,395)

Transfer to/from other asset classifications

844

36,566
(3)
Balance at September 30

$
7,065,334

$
5,680,699

~~(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.~~

~~(3)~~

~~Primarily represents commercial mortgage loans acquired from CMBS trusts which are consolidated as VIEs on our balance sheet.~~

(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.

Table of Contents

5. Investment Securities

Investment securities were comprised of the following as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


	Carrying Value as of
	June 30, 2020		December 31, 2019
RMBS, available-for-sale	$	174,281	$	189,576
RMBS, fair value option (1)		328,270		147,034
CMBS, fair value option (1), (2)		1,198,784		1,295,363
HTM debt securities, amortized cost net of credit loss allowance of $6,891 and $0		544,423		570,638
Equity security, fair value		9,791		12,664
Subtotal—Investment securities		2,255,549		2,215,275
VIE eliminations (1)		(1,503,524)		(1,405,037)
Total investment securities	$	752,025	$	810,238

Carrying Value as of

September 30, 2017

December 31, 2016
RMBS, available-for-sale

$
253,252

$
253,915
CMBS, fair value option (1)

1,026,634

990,570
Held-to-maturity (“HTM”) securities

411,196

509,980
Equity security, fair value option

13,529

12,177
Subtotal—Investment securities

1,704,611

1,766,642
VIE eliminations (1)

(1,002,793)

(959,024)
Total investment securities

$
701,818

$
807,618

(1)

~~(1)~~

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

(2)	Includes $174.7 million and $186.6 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of June 30, 2020 and December 31, 2019, respectively.

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


	RMBS,		RMBS, fair		CMBS, fair		HTM		Equity		Securitization
	available-for-sale		value option		value option		Securities		Security		VIEs (1)		Total
Three Months Ended June 30, 2020
Purchases/fundings	$	—	$	185,433	$	—	$	10,391	$	—	$	(185,433)	$	10,391
Sales		—		—		—		—		—		—		—
Principal collections		6,014		11,532		927		30,713		—		(12,266)		36,920
Three Months Ended June 30, 2019
Purchases	$	—	$	—	$	38,951	$	—	$	—	$	(38,951)	$	—
Sales		—		41,501		25,795		—		—		(66,546)		750
Principal collections		6,417		3,058		12,072		53,462		—		(9,728)		65,281


	RMBS,		RMBS, fair		CMBS, fair		HTM		Equity		Securitization
	available-for-sale		value option		value option		Securities		Security		VIEs (1)		Total
Six Months Ended June 30, 2020
Purchases/fundings	$	—	$	214,725	$	7,661	$	16,120	$	—	$	(222,386)	$	16,120
Sales		—		—		32,316		—		—		(24,376)		7,940
Principal collections		12,563		20,104		17,450		37,351		—		(36,989)		50,479
Six Months Ended June 30, 2019
Purchases	$	—	$	26,272	$	52,213	$	—	$	—	$	(78,485)	$	—
Sales		—		41,501		62,701		—		—		(100,224)		3,978
Principal collections		12,777		5,092		21,909		54,668		—		(21,411)		73,035

RMBS,

CMBS, fair

HTM

Equity


available-for-sale

value option

Securities

Security

Total
Three Months Ended September 30, 2017

Purchases (1)

$
—

$
11,798

$
50,000

$
—

$
61,798
Sales (2)

—

—

—

—

—
Principal collections

10,307

1,666

111,671

—

123,644
Three Months Ended September 30, 2016

Purchases (1)

$
8,868

$
—

$
—

$
—

$
8,868
Sales (2)

—

17,456
(5)

—

—

17,456
Principal collections

9,917

12,289

566

—

22,772

RMBS,

CMBS, fair

HTM

Equity


available-for-sale

value option

Securities

Security

Total
Nine Months Ended September 30, 2017

Purchases (3)

$
7,433

$
11,798

$
50,000

$
—

$
69,231
Sales (4)

—

11,134

—

—

11,134
Principal collections

29,090

8,754

172,059

—

209,903
Nine Months Ended September 30, 2016

Purchases (3)

$
97,204

$
57,576

$
204,730

$
—

$
359,510
Sales (4)

—

18,725
(5)

—

—

18,725
Principal collections

32,925

31,734

5,657

—

70,316

(1)

~~(1)~~

~~During the three months ended September 30, 2017~~Represents RMBS and ~~2016, we purchased $30.9 million and $25.6 million of~~ CMBS, ~~respectively, for which we elected the~~ fair value ~~option. Due~~ option amounts eliminated dueto our consolidation of securitization ~~VIEs, $19.1 million and $25.6 million, respectively, of this amount is eliminated and~~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.

~~(2)~~

During the three months ended September 30, 2017 and 2016, we sold $1.5 million and $17.5 million of CMBS, respectively, for which we had previously elected the fair value option. Due to our consolidation of securitization VIEs, $1.5 million of our sales during the three months ended September 30, 2017 is eliminated and reflected as issuance of debt of consolidated VIEs in our condensed consolidated statements of cash flows. During the three months ended September 30, 2016, none of our sales were eliminated due to the consolidation of securitization VIEs.

~~Table of Contents~~

~~(3)~~

During the nine months ended September 30, 2017 and 2016, we purchased $92.6 million and $126.9 million of CMBS, respectively, for which we elected the fair value option. Due to our consolidation of securitization VIEs, $80.8 million and $69.3 million, respectively, of this amount is eliminated and reflected as repayment of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

~~(4)~~

During the nine months ended September 30, 2017 and 2016, we sold $22.8 million and $19.3 million of CMBS, respectively, for which we had previously elected the fair value option. Due to our consolidation of securitization VIEs, $11.7 million and $0.6 million, respectively, of this amount is eliminated and reflected as issuance of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

~~(5)~~

~~Settlement of $14.9 million occurred subsequent to September 30, 2016. We account for all investment securities transactions on a trade-date basis.~~

RMBS, Available-for-Sale

The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).

Table of Contents

The tables below summarize various attributes of our investments in available-for-sale RMBS as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (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
June 30, 2020
RMBS	$	131,351	$	—	$	131,351	$	43,179	$	(249)	$	42,930	$	174,281
December 31, 2019
RMBS	$	138,580	$	N/A	$	138,580	$	51,310	$	(314)	$	50,996	$	189,576


	Weighted Average Coupon (1)		Weighted Average Rating	WAL (Years) (2)
June 30, 2020
RMBS	1.6	%	B+	5.8
December 31, 2019
RMBS	3.1	%	BB-	5.6

Unrealized Gains or (Losses)

Recognized in AOCI


Purchase



Recorded



Gross

Gross

Net


Amortized

Credit

Amortized

Non-Credit

Unrealized

Unrealized

Fair Value

Cost

OTTI

Cost

     OTTI

Gains

Losses

Adjustment

Fair Value
September 30, 2017

RMBS

$
207,492

$
(9,897)

$
197,595

$
(95)

$
55,766

$
(14)

$
55,657

$
253,252
December 31, 2016

RMBS

$
219,171

$
(10,185)

$
208,986

$
(94)

$
45,113

$
(90)

$
44,929

$
253,915

Weighted Average Coupon (1)

Weighted Average
Rating

WAL
(Years) (2)
September 30, 2017

RMBS

2.5
%
B-

6.4
December 31, 2016

RMBS

2.1
%
B

6.1

(1)

~~(1)~~

Calculated using the ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 one-month LIBOR rate of ~~1.232%~~0.1623% and ~~0.772%~~1.763%, respectively, for floating rate securities.

(2)

~~(2)~~

Represents the remaining WAL of each respective group of securities as of the respective balance sheet date. The WAL of each individual security is calculated using projected amounts and projected timing of future principal payments.

As of ~~September~~June 30, ~~2017,~~2020, approximately ~~$211.6~~$147.7 million, or ~~83.6%~~84.8%, of RMBS were variable rate and paid interest at LIBOR plus a weighted average spread of ~~1.21%~~1.26%. As of December 31, ~~2016,~~2019, approximately ~~$211.1~~$160.9 million, or ~~83.2%~~84.9%, of RMBS were variable rate and paid interest at LIBOR plus a weighted average spread of ~~1.22%~~1.24%. We purchased all of the RMBS at a discount, ~~that will be~~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 ~~these discounts.~~this accretable discount.

~~Table of Contents~~

~~The following table contains a reconciliation of aggregate principal balance to amortized cost for our RMBS as of September 30, 2017 and December 31, 2016 (amounts in thousands):~~

September 30, 2017

December 31, 2016

Principal balance

$
379,432

$
399,883

Accretable yield

(58,763)

(64,290)

Non-accretable difference

(123,074)

(126,607)

Total discount

(181,837)

(190,897)

Amortized cost

$
197,595

$
208,986

The principal balance of credit deteriorated RMBS was $356.2 million and $371.5 million as of September 30, 2017 and December 31, 2016, respectively. Accretable yield related to these securities totaled $51.8 million and $55.9 million as of September 30, 2017 and December 31, 2016, respectively.

~~The following table discloses the changes to accretable yield and non-accretable difference for our RMBS during the three and nine months ended September 30, 2017 (amounts in thousands):~~

Non-Accretable
Three Months Ended September 30, 2017

Accretable Yield

Difference
Balance as of July 1, 2017

$
59,777

$
126,708
Accretion of discount

(3,187)

—
Principal write-downs, net

—

(1,461)
Purchases

—

—
Sales

—

—
OTTI

—

—
Transfer to/from non-accretable difference

2,173

(2,173)
Balance as of September 30, 2017

$
58,763

$
123,074

Nine Months Ended September 30, 2017

Balance as of January 1, 2017

$
64,290

$
126,607
Accretion of discount

(10,375)

—
Principal write-downs, net

—

(3,828)
Purchases

311

4,723
Sales

—

—
OTTI

109

—
Transfer to/from non-accretable difference

4,428

(4,428)
Balance as of September 30, 2017

$
58,763

$
123,074

We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was ~~$0.5~~$0.3 million and $0.4 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019, respectively, and ~~$1.4~~$0.7 million and ~~$1.2~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, ~~which has been~~ recorded as management fees in the accompanying condensed consolidated statements of operations.

~~Table of Contents~~

The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, and for which ~~OTTIs (full or partial) have~~an allowance for credit losses has not been ~~recognized in earnings~~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 September 30, 2017

									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 June 30, 2020
RMBS	$	10,463	$	645	$	(80)	$	(29)	$	675	$	1,173	$	(19)	$	(230)
As of December 31, 2016
As of December 31, 2019
RMBS	$	8,819	$	957	$	(90)	$	(94)	$	—	$	1,380	$	—	$	(314)

As of ~~both September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~three~~3 securities and 1 security, respectively, with unrealized losses reflected in the table above. After evaluating ~~these~~the securities and recording adjustments for ~~credit-related OTTI,~~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 ~~which represent most of the OTTI we record on securities,~~ 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

Table of Contents

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 ~~impairments~~credit losses could be materially different from what is currently projected and/or reported.

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 ~~the Investing~~certain CMBS and ~~Servicing Segment’s CMBS~~RMBS in an effort to eliminate accounting mismatches resulting from the current or potential consolidation of securitization VIEs. As of ~~September~~June 30, ~~2017,~~2020, 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 ~~$1.0~~$1.2 billion and ~~$4.1~~$2.7 billion, respectively. ~~The $1.0 billion~~As of June 30, 2020, 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 $328.3 million and $266.8 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 ~~$23.8~~$23.5 million at ~~September~~June 30, ~~2017)~~2020) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option ~~CMBS.~~investment securities.

As of ~~September~~June 30, ~~2017, none~~2020, $104.2 million of our CMBS ~~where we have elected the fair value option~~were variable rate and NaN of our RMBS were variable rate.

HTM Debt Securities, Amortized Cost

The table below summarizes ~~unrealized gains and losses of~~ our investments in HTM debt securities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


	Net Carrying Amount		Gross Unrealized		Gross Unrealized
	(Amortized Cost)		Holding Gains		Holding Losses		Fair Value
September 30, 2017

									Amortized		Credit Loss		Net Carrying		Gross Unrealized		Gross Unrealized
									Cost Basis		Allowance		Amount		Holding Gains		Holding Losses		Fair Value
June 30, 2020
CMBS	$	390,966	$	2,446	$	(5,875)	$	387,537	$	349,023	$	—	$	349,023	$	—	$	(24,236)	$	324,787
Preferred interests		20,230		675		—		20,905		158,971		(3,883)		155,088		—		(7,587)		147,501
Infrastructure bonds										43,320		(3,008)		40,312		174		(281)		40,205
Total	$	411,196	$	3,121	$	(5,875)	$	408,442	$	551,314	$	(6,891)	$	544,423	$	174	$	(32,104)	$	512,493
December 31, 2016

December 31, 2019
CMBS	$	490,107	$	2,106	$	(8,648)	$	483,565	$	383,473	$	—	$	383,473	$	946	$	(3,001)	$	381,418
Preferred interests		19,873		727		—		20,600		142,012		—		142,012		1,148		(353)		142,807
Infrastructure bonds										45,153		—		45,153		—		(651)		44,502
Total	$	509,980	$	2,833	$	(8,648)	$	504,165	$	570,638	$	—	$	570,638	$	2,094	$	(4,005)	$	568,727

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


							Total HTM
			Preferred		Infrastructure		Credit Loss
	CMBS		Interests		Bonds		Allowance
Six Months Ended June 30, 2020
Credit loss allowance at December 31, 2019	$	—	$	—	$	—	$	—
Cumulative effect of ASC 326 effective January 1, 2020:
Beginning accumulated deficit charge		—		1,114		179		1,293
Gross-up of PCD bond amortized cost basis		—		—		2,837		2,837
Credit loss provision, net		—		2,769		(8)		2,761
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Credit loss allowance at June 30, 2020	$	—	$	3,883	$	3,008	$	6,891

Table of Contents

The table below summarizes the maturities of our HTM ~~CMBS and our HTM preferred equity interests in limited liability companies that own commercial real estate~~debt securities by type as of ~~September~~June 30, ~~2017~~2020 (amounts in thousands):


			Preferred
	CMBS		Interests		Total

									Preferred		Infrastructure
							CMBS		Interests		Bonds		Total
Less than one year	$	129,282	$	—	$	129,282	$	35,254	$	—	$	2,656	$	37,910
One to three years		261,684		—		261,684		313,769		140,515		—		454,284
Three to five years		—		—		—		—		14,573		—		14,573
Thereafter		—		20,230		20,230		—		—		37,656		37,656
Total	$	390,966	$	20,230	$	411,196	$	349,023	$	155,088	$	40,312	$	544,423

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. We have elected to report the investment using the fair value option because the shares are listed on an exchange, which allows us to determine the fair value using a quoted price from an active market, and also due to potential lags in reporting resulting from differences in the respective regulatory requirements. The fair value of the investment remeasured in USD was ~~$13.5~~$9.8 million and ~~$12.2~~$12.7 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. As of ~~September~~June 30, ~~2017,~~2020, our shares represent an approximate 2% interest in SEREF.

6. Properties

~~6. Properties~~

Our properties ~~include~~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 $632.8 million and debt of $571.9 million as of June 30, 2020.

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 8 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 $607.0 million and debt of $437.0 million as of June 30, 2020.

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 $760.0 million and debt of $591.4 million as of June 30, 2020.

Master Lease Portfolio

The Master Lease Portfolio ~~Medical Office~~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 ~~Woodstar~~includes total gross properties of $343.8 million and debt of $192.5 million as of June 30, 2020.

Table of Contents

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 1 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 ~~Ireland Portfolio~~lease intangibles of $264.8 million and debt of $186.2 million as ~~discussed in Note 3.~~ of June 30, 2020.

The table below summarizes our properties held as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


	Depreciable Life	June 30, 2020		December 31, 2019
Property Segment
Land and land improvements	0 – 15 years	$	484,678	$	484,397
Buildings and building improvements	5 – 45 years		1,689,142		1,687,756
Furniture & fixtures	3 – 7 years		55,767		52,567
Investing and Servicing Segment
Land and land improvements	0 – 15 years		50,817		54,052
Buildings and building improvements	3 – 40 years		173,960		182,048
Furniture & fixtures	2 – 5 years		2,363		2,139
Commercial and Residential Lending Segment (1)
Land and land improvements	0 – 10 years		11,415		11,386
Buildings and building improvements	10 – 23 years		17,287		16,285
Properties, cost			2,485,429		2,490,630
Less: accumulated depreciation			(261,106)		(224,190)
Properties, net		$	2,224,323	$	2,266,440

Depreciable Life

September 30, 2017

December 31, 2016
Property Segment

Land and land improvements

0 – 15 years

$
526,591

$
385,860
Buildings and building improvements

5 – 45 years

1,755,511

1,291,531
Furniture & fixtures

3 – 7 years

26,038

23,035
Investing and Servicing Segment

Land and land improvements

0 – 15 years

90,263

89,425
Buildings and building improvements

3 – 40 years

210,183

195,178
Furniture & fixtures

2 – 5 years

992

1,256
Properties, cost

2,609,578

1,986,285
Less: accumulated depreciation

(88,236)

(41,565)
Properties, net

$
2,521,342

$
1,944,720

(1)	Represents properties acquired through loan foreclosure.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we sold ~~two and five~~an operating ~~properties~~property within the REIS Equity Portfolio for ~~$26.0~~$24.1 million. In connection with this sale, we recognized a gain of $7.4 million ~~and $44.6 million, respectively, which resulted in gains of $11.2 million and $16.4 million, respectively, recognized~~ within gain on sale of investments and other assets in our condensed consolidated ~~statement~~statements of operations. ~~During both~~NaN operating properties were sold during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, $2.4 million of such gains were attributable to non-controlling interests. There were no properties sold during the nine months ended September 30, 2016.~~2019.

Table of Contents

7. Investment in Unconsolidated Entities

The table below summarizes our investments in unconsolidated entities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


	Participation /	Carrying value as of
	Ownership % (1)	June 30, 2020		December 31, 2019
Equity method:
Retail Fund	33%	$	—	$	—
Equity interest in a natural gas power plant	10%		24,744		25,862
Investor entity which owns equity in an online real estate company	50%		10,746		9,473
Equity interests in commercial real estate	50%		1,824		1,907
Equity interest in and advances to a residential mortgage originator (2)	N/A		11,989		12,002
Various	25% - 50%		8,182		8,339
			57,485		57,583
Other:
Equity interest in a servicing and advisory business (3)	2%		17,584		—
Investment funds which own equity in a loan servicer and other real estate assets	4% - 6%		9,225		9,225
Various	0% - 2%		20,619		17,521
			47,428		26,746
		$	104,913	$	84,329

Participation /

Carrying value as of


Ownership % (1)

September 30, 2017

December 31, 2016
Equity method:

Retail Fund (see Note 15)

33%

$
109,607
(2)
$
124,977
Investor entity which owns equity in an online real estate company

50%

75,249

21,677
Equity interests in commercial real estate

16% - 50%

23,310

23,297
Various

25% - 50%

7,015

6,640

215,181

176,591
Cost method:

Equity interest in a servicing and advisory business

6%

12,234

12,234
Investment funds which own equity in a loan servicer and other real estate assets

4% - 6%

9,225

9,225
Various

0% - 3%

6,810

6,555

28,269

28,014

$
243,450

$
204,605

(1)

~~(1)~~

~~None~~NaN of these investments are publicly traded and therefore quoted market prices are not available.

(2)	~~(2)~~Includes a $4.5 million subordinated loan as of both June 30, 2020 and December 31, 2019.

(3)

During the ~~nine~~year ended December 31, 2019, we received a capital distribution of $8.4 million and our equity interest was reduced to 4% and the carrying value was reduced to 0. During April 2020, we sold 37% of our equity interest for $10.3 million in cash, reducing our interest to 2%. In connection with the sale, we recognized a gain of $10.3 million. Because the sale represented an observable price change in an orderly transaction, we also increased the value of our remaining investment to reflect its implied fair value. In doing so, we recognized a gain of $17.6 million. These amounts were recognized within earnings (loss) from unconsolidated entities in our condensed consolidated statements of operations during the three and six months ended ~~September~~June 30, ~~2017, we funded $15.5 million in capital commitments.~~

2020.

~~During the three months ended September 30, 2017, the Retail Fund,~~We own a 33% equity interest in a fund that owns 4 regional shopping malls (the “Retail Fund”). The fund is an investment company ~~that~~which measures its assets at fair value on a recurring ~~basis, reported unrealized decreases in the fair value of its real estate properties as a result of lender appraisals obtained by the Retail Fund.~~basis. We report our interest in the Retail Fund on a three-month lag basis at its liquidation value. As of December 31, 2019, we impaired the remainder of our investment based on our estimate of unrealized decreases in the fair value of the underlying real estate properties. Such decreases were recognized by the Retail Fund during the period included in the six months ended June 30, 2020.

As of June 30, 2020, 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 ~~resulted in a $33.7 million decrease to our investment. This amount was~~included certain non-amortizing intangible assets not recognized ~~within~~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 ~~condensed~~ consolidated ~~statements~~statement of operations, ~~during~~otherwise, such difference between the ~~three~~carrying value of our equity investment in the residential mortgage originator and ~~nine months ended September 30, 2017.~~

~~In September 2017,~~ the ~~investor entity which owns~~underlying equity in ~~an online real estate company sold approximately 88%~~the net assets of ~~its~~the residential mortgage originator will continue to exist.

Other than our equity interest in the online real estate company. During the three and nine months ended September 30, 2017, we recognized $28.2 million and $53.9 million, respectively, of income from our investment in this investor entity as a result of the sale (see related income tax effect in Note 20)within earnings from unconsolidated entities in our condensed consolidated statements of operations. Subsequent to September 30, 2017, we received a pre-tax cash distribution of $66.0 million from the investor entity related to the sale.

~~There~~residential mortgage originator, there were no0 differences between the carrying value of our equity method investments and the underlying equity in the net assets of the investees as of ~~September~~June 30, ~~2017.~~
2020.

Table of Contents

During the three and six months ended June 30, 2020, we did not become aware of (i) any observable price changes in our other investments accounted for under the fair value practicability exception, except as described above with respect to the servicing and advisory business, or (ii) any indicators of impairment.

8. ~~Goodwill~~Goodwill and Intangibles

Goodwill

~~Goodwill~~Infrastructure Lending Segment

The Infrastructure Lending Segment’s goodwill of $119.4 million at ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016 represented~~2019 represents the excess of consideration transferred over the fair value of net assets acquired on September 19, 2018 and October 15, 2018. The goodwill recognized is attributable to value embedded in the acquired Infrastructure Lending Segment’s lending platform.

LNR Property LLC (“LNR”)

The Investing and Servicing Segment’s goodwill of $140.4 million at both June 30, 2020 and December 31, 2019 represents the excess of consideration transferred over the fair value of net assets of LNR ~~Property LLC (“LNR”)~~ acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes ~~an international~~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 ~~and European~~ servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. During the year ended December 31, 2016, we contributed our European servicing and advisory business to an unrelated entity in exchange for a non-controlling equity interest in that entity and therefore no longer have any European servicing rights.

~~At September~~As of June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the balance of the domestic servicing intangible was net of ~~$26.6~~$34.9 million and ~~$34.2~~$26.2 million, respectively, which was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the domestic servicing intangible had a balance of ~~$60.4~~$48.8 million and ~~$89.3~~$43.2 million, respectively, which represents our economic interest in this asset.

Lease Intangibles

In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain non-cancelable operating leases of the acquired properties.

The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


	As of September 30, 2017						As of December 31, 2016
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Value		Amortization		Value		Value		Amortization		Value

													As of June 30, 2020						As of December 31, 2019
													Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
													Value		Amortization		Value		Value		Amortization		Value
Domestic servicing rights, at fair value	$	33,781	$	—	$	33,781	$	55,082	$	—	$	55,082	$	13,955	$	—	$	13,955	$	16,917	$	—	$	16,917
In-place lease intangible assets		181,636		(59,308)		122,328		175,409		(38,532)		136,877		133,244		(87,917)		45,327		135,293		(84,383)		50,910
Favorable lease intangible assets		32,070		(6,314)		25,756		30,459		(3,170)		27,289		24,188		(7,177)		17,011		24,218		(6,345)		17,873
Total net intangible assets	$	247,487	$	(65,622)	$	181,865	$	260,950	$	(41,702)	$	219,248	$	171,387	$	(95,094)	$	76,293	$	176,428	$	(90,728)	$	85,700

Table of Contents

The following table summarizes the activity within intangible assets for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 (amounts in thousands):

Domestic

In-place Lease

Favorable Lease

Servicing

Intangible

Intangible


Rights

Assets

Assets

Total
Balance as of January 1, 2017

$
55,082

$
136,877

$
27,289

$
219,248
Acquisition of additional REIS Equity Portfolio properties

—

3,810

462

4,272
Amortization

—

(20,098)

(2,940)

(23,038)
Sales

—

(367)

(109)

(476)
Foreign exchange gain

—

3,908

1,044

4,952
Impairment (1)

—

(981)

(9)

(990)
Changes in fair value due to changes in inputs and assumptions

(21,301)

—

—

(21,301)
Measurement period adjustments

—

(821)

19

(802)
Balance as of September 30, 2017

$
33,781

$
122,328

$
25,756

$
181,865

~~(1)~~

~~Impairment of intangible lease assets is recognized within other expense in our condensed consolidated statements of operations.~~


	Domestic		In-place Lease		Favorable Lease
	Servicing		Intangible		Intangible
	Rights		Assets		Assets		Total
Balance as of January 1, 2020	$	16,917	$	50,910	$	17,873	$	85,700
Amortization		—		(5,413)		(862)		(6,275)
Sales		—		(170)		—		(170)
Changes in fair value due to changes in inputs and assumptions		(2,962)		—		—		(2,962)
Balance as of June 30, 2020	$	13,955	$	45,327	$	17,011	$	76,293

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):

2017 (remainder of)

$
7,556
2018

27,711
2019

21,288
2020

15,908
2021

13,623
Thereafter

61,998
Total

$
148,084


2020 (remainder of)	$	5,407
2021		9,653
2022		7,871
2023		6,115
2024		4,722
Thereafter		28,570
Total	$	62,338

(a)

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

(b)

~~Maturity date for~~For certain facilities, borrowings ~~collateralized by loans is September 2018 before extension options and September 2021 assuming exercise of extension options. Borrowings~~ collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified ~~conditions~~conditions.

(c)

Certain facilities with an outstanding balance of $965.9 million as of June 30, 2020 are indexed to GBP LIBOR and ~~not to exceed September 2025.~~

EURIBOR. The remainder have a weighted average rate of LIBOR + 1.86%.

~~(c)~~

(d)

The aggregate initial maximum facility size of ~~$600.0 million~~$8.9 billion may be increased ~~to $1.0 billion~~ at our option, subject to certain conditions.

This amount includes such upsizes.

~~(d)~~

(e)

~~Subject to borrower’s option to choose alternative benchmark based rates pursuant to~~Certain facilities with an outstanding balance of $310.6 million as of June 30, 2020 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the ~~terms of the credit agreement.~~

lender's consent. These facilities carry 0 maximum facility size.

~~(e)~~

(f)

A facility with an outstanding balance of $175.9 million as of June 30, 2020 has a fixed annual interest rate of 3.50%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.78%.

(g)

Includes: (i) $175.9 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $41.3 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 ~~$450.0~~$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 + 1.75%. The spread will increase 25 bps in September 2020.

(j)

The weighted average maturity is 7.6 years as of June 30, 2020.

(k)

Consists of: (i) a $397.0 million term loan facility that matures in July 2026 with an annual interest rate of LIBOR + 2.50%; and (ii) a $120.0 million revolving credit facility that matures in July 2024 with an annual

Table of Contents

~~(f)~~

~~Facility carries a rolling 11 month term~~interest rate of LIBOR + 3.00%. These facilities are secured by the equity interests in certain of our subsidiaries which ~~may reset monthly with the lender’s consent not to exceed December 2018. This facility carries no maximum facility size. Amounts reflect the outstanding balance~~totaled $3.8 billion as of ~~September~~June 30, ~~2017.~~

2020.

~~(g)~~

Facility carries a rolling 12 month term which may reset monthly with the lender’s consent. Current maturity is September 2018. This facility carries no maximum facility size. Amounts reflect the outstanding balance as of September 30, 2017.

~~(h)~~

~~The date that is 270 days after the buyer delivers notice to seller, subject to a maximum date of May 2018.~~

~~(i)~~

~~Subject to a 25 basis point floor.~~

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

During the nine months ended September 30, 2017, we entered into two mortgage loans with maximum borrowings of $38.3 million to finance commercial real estate previously acquired by our Investing and Servicing Segment. As of September 30, 2017, these facilities carry a remaining weighted average term of 4.6 years with floating annual interest rates of LIBOR + 2.00%.

In ~~February 2017,~~January 2020, we entered into a ~~mortgage loan with maximum borrowings of $7.3 million as part of the Medical Office Portfolio Mortgages. This loan~~CMBS/RMBS repurchase facility to finance certain CMBS investments within a consolidated joint venture in which we hold a 51% ownership interest. The facility carries a ~~five year initial~~rolling 12-month term which may reset quarterly with ~~two 12 month extension options~~the lender’s consent and an annual interest rate of three-month LIBOR + ~~2.50%~~1.35% to 1.85%. The facility’s maximum facility size is at the discretion of the lender.

In February 2020, we amended a Commercial Loans repurchase facility to increase available borrowings by $200.0 million to $1.8 billion.

In February 2020, we exercised an extension option on a Conduit Loans repurchase facility to extend the current maturity by one year with a one-year extension option.

In February 2020, we exercised an extension option on the Infrastructure Loans repurchase facility to extend the current maturity by one year.

In March ~~2017,~~2020, we amended an Infrastructure Financing Facility to increase available borrowings by $250.0 million to $750.0 million.

In March 2020, we entered into a ~~$125.0 million repurchase facility (“Lender 10 Repo 1”)~~Commercial Financing Facility to finance ~~certain~~non-U.S. commercial loans held-for-investment. The facility carries a ~~three year~~two-year initial term with ~~two~~3 one-year extension options and includes an ~~annual interest rate of LIBOR + 2.00% to 2.75%. In May 2017, we upsized the maximum facility size to $140.0 million utilizing an available accordion feature.~~

~~In March 2017, we amended the Lender 3 Repo 1 facility~~option to extend the maturity ~~from May 2017~~for each underlying asset for up to ~~May 2018.~~

In June 2017, we entered into a $200.0 million repurchase facility (“Lender 11 Repo 1”) to finance certain mortgage loans held-for-sale. The facility carries a two year initial term with a one-year extension option and an initial annual interest rate of LIBOR + 2.75%.

~~In July 2017, we acquired a captive insurance entity that is a member of the Federal Home Loan Bank (“FHLB”) of Chicago. This membership, which expires in February 2021, provides us~~four additional ~~financing capacity from the FHLB of Chicago on qualifying collateral.~~years. The facility has an annual interest rate of GBP LIBOR + ~~0.15%~~1.75%. This facility shares up to ~~0.34% and expires in February 2021. As~~$500.0 million of ~~September 30, 2017, the facility had outstanding~~$2.0 billion of maximum borrowings ~~of $250.0 million.~~with a Commercial Loans repurchase facility.

In ~~September 2017,~~June 2020, we amended a Residential Loans repurchase facility with a maximum facility size of $400.0 million to extend the current maturity from February 2021 to June 2022.

In June 2020, we amended a Commercial Loans repurchase facility and a Conduit Loans repurchase facility with an aggregate maximum facility size of $950.0 million to extend the current maturity from June 2022 to June 2023.

During the three months ended June 30, 2020, we entered into a $250.0 million repurchase facility (“Lender 11 Repo 2”) to finance certain loans held-for-investment. The facility carries a one year initial term with four one-year extension options and an annual interest rate of LIBOR + 2.25% to 2.75%.

~~In September 2017, we entered into two~~ mortgage loans with total borrowings of ~~$265.9~~$217.1 million ~~(“Master Lease Portfolio Mortgages”)~~ to ~~finance the acquisition of the Master Lease~~refinance our Woodstar I Portfolio. The loans carry ~~ten year~~ten-year terms and ~~fixed~~weighted average annual interest rates of ~~4.36% and 4.38%, respectively.~~LIBOR + 2.71%. A portion of the net proceeds from the mortgage loans was used to repay $117.0 million of outstanding government sponsored mortgage loans. We recognized a loss on extinguishment of debt of $2.2 million in our condensed consolidated statements of operations in connection with the repayment of the government sponsored mortgage loans.

~~In September 2017, we amended the Lender 6 Repo 1 facility to upsize available borrowings from $500.0 million to $600.0 million and extend the maturity from August 2019 to August 2020.~~

Our secured financing agreements contain certain financial tests and covenants. As of ~~September~~June 30, ~~2017,~~2020, we were in compliance with all such covenants.

Repurchase

Other Secured


Agreements

Financing

Total
2017 (remainder of)

$
781,261

$
14,461

$
795,722
2018

988,168

76,952

1,065,120
2019

395,715

1,355

397,070
2020

1,041,480

358,102

1,399,582
2021

2,289

565,815

568,104
Thereafter

82,611

1,247,511

1,330,122
Total

$
3,291,524

$
2,264,196

$
5,555,720

Class of Collateral

September 30, 2017

December 31, 2016
Loans held-for-investment

$
2,692,642

$
1,890,925
Loans held-for-sale

144,520

34,024
Investment securities

454,362

551,328

$
3,291,524

$
2,476,277

Table of Contents

For the three and six months ended June 30, 2020, approximately $9.0 million and $17.8 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations. For the three and six months ended June 30, 2019, approximately $8.1 million and $16.8 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 six months ended June 30, 2020, we utilized the reinvestment feature, contributing $85.3 million of additional interests into the CLO.

The following table is a summary of our CLO as of June 30, 2020 and December 31, 2019 (amounts in thousands):

Face

Carrying

Weighted

June 30, 2020

Count

Amount

Value

Average Spread

Maturity

Collateral assets

1,099,442

1,099,405

LIBOR + 3.66%

(a)

Jan 2024

(b)

Financing

936,375

929,307

LIBOR + 1.64%

(c)

July 2038

(d)

��

December 31, 2019

Collateral assets

1,073,504

LIBOR + 3.34%

(a)

Nov 2023

(b)

Financing

936,375

928,060

LIBOR + 1.65%

(c)

July 2038

(d)

(a)	Represents the weighted-average coupon earned on variable rate loans during the respective year-to-date period. Of the loans financed by the CLO as of June 30, 2020, 9% earned fixed-rate weighted average interest of 6.84%.

(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 the three and six months ended June 30, 2020, approximately $0.6 million and $1.2 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of June 30, 2020 and December 31, 2019, our unamortized issuance costs were $7.1 million and $8.3 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.

Table of Contents

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
2020 (remainder of)	$	220,863	$	186,076	$	—		$	406,939
2021		566,939		791,713		—			1,358,652
2022		1,269,283		548,974		—			1,818,257
2023		1,026,265		710,656		—			1,736,921
2024		1,312,435		238,357		—			1,550,792
Thereafter		494,914		1,555,521		936,375	(a)		2,986,810
Total	$	4,890,699	$	4,031,297	$	936,375		$	9,858,371

(a)	Assumes utilization of the reinvestment feature.

10. Unsecured Senior Notes

The following table is a summary of our unsecured senior notes outstanding as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


						Remaining
	Coupon		Effective		Maturity	Period of		Carrying Value at
	Rate		Rate (1)		Date	Amortization		June 30, 2020		December 31, 2019
2021 Senior Notes (February)	3.63	%	3.89	%	2/1/2021	0.6	years	$	500,000	$	500,000
2021 Senior Notes (December)	5.00	%	5.32	%	12/15/2021	1.5	years		700,000		700,000
2023 Convertible Notes	4.38	%	4.86	%	4/1/2023	2.8	years		250,000		250,000
2025 Senior Notes	4.75	%	5.04	%	3/15/2025	4.7	years		500,000		500,000
Total principal amount									1,950,000		1,950,000
Unamortized discount—Convertible Notes									(3,091)		(3,610)
Unamortized discount—Senior Notes									(9,922)		(12,144)
Unamortized deferred financing costs									(4,427)		(5,624)
Carrying amount of debt components								$	1,932,560	$	1,928,622
Carrying amount of conversion option equity components recorded in additional paid-in capital for outstanding convertible notes								$	3,755	$	3,755

Remaining

Coupon

Effective

Maturity

Period of

Carrying Value at

Rate

Rate (1)

Date

Amortization

September 30, 2017

December 31, 2016
2017 Convertible Notes

3.75
%
5.87
%
10/15/2017

0.0
years

$
411,885

$
411,885
2018 Convertible Notes

4.55
%
6.10
%
3/1/2018

0.4
years

369,981

599,981
2019 Convertible Notes

4.00
%
5.35
%
1/15/2019

1.3
years

341,363

341,363
2021 Senior Notes

5.00
%
5.32
%
12/15/2021

4.2
years

700,000

700,000
2023 Convertible Notes

4.38
%
4.86
%
4/1/2023

5.5
years

250,000

—
Total principal amount

2,073,229

2,053,229
Unamortized discount—Convertible Notes

(14,268)

(26,135)
Unamortized discount—Senior Notes

(8,420)

(9,728)
Unamortized deferred financing costs

(6,018)

(5,822)
Carrying amount of debt components

$
2,044,523

$
2,011,544
Carrying amount of conversion option equity components recorded in additional paid-in capital

$
31,638

$
45,988

(1)

~~(1)~~

Effective rate includes the effects of underwriter purchase discount and the adjustment for the conversion option on our ~~convertible notes,~~Convertible Notes, the value of which reduced the initial liability and was recorded in additional ~~paid‑in capital.~~

paid-in-capital.

~~Senior Notes Due 2021~~

On December 16, 2016, we issued $700.0 million of 5.00% Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes mature on December 15, 2021. Prior to September 15, 2021, we may redeem some or all of the 2021 Notes at a price equal to 100% of the principal amount thereof, plus the applicable “make-whole” premium as of the applicable date of redemption. On and after September 15, 2021, we may redeem some or all of the 2021 Notes at a price equal to 100% of the principal amount thereof. In addition, we may redeem up to 35% of the 2021 Notes at the applicable redemption prices using the proceeds of certain equity offerings.

Convertible Senior Notes

~~On March 29, 2017, we issued $250.0 million~~We recognized interest expense of ~~4.375% Convertible Senior Notes due 2023 (the “2023 Notes”) resulting in gross proceeds of $247.5 million. At issuance, we allocated $243.7~~$3.1 million and ~~$3.8~~$6.1 million during the three and six months ended June 30, 2020, respectively, from our unsecured Convertible Notes. We recognized interest expense of the carrying value of the 2023 Notes to its debt and equity components, respectively. Also on March 29, 2017, the proceeds from the issuance of the 2023 Notes were used to repurchase $230.0 million of the 4.55% Convertible Senior Notes due 2018 (the “2018 Notes”) for $250.7 million. The repurchase price was allocated between the fair value of the liability component and the fair value of the equity component of the 2018 Notes at the repurchase date. The portion of the repurchase price attributable to the equity component totaled $18.1$3.0 million and ~~was recognized as a reduction of additional paid-in capital~~$6.2 million during the ~~nine~~three and six months ended ~~September~~June 30, 2017. The portion of the repurchase price attributable to the liability component exceeded the net carrying amount of the liability component by $5.9 million, which was recognized as a loss on extinguishment of debt in2019, respectively, from our condensed consolidated statement of operations during the nine months ended September 30, 2017. The repurchase of the 2018 Notes was not considered part of the repurchase program approved by our board of directors (refer to Note 16) and therefore does not reduce our available capacity forunsecured Convertible Notes.

Table of Contents

~~future repurchases under the repurchase program. There were no repurchases of Convertible Notes during the nine months ended September 30, 2016.~~

On October 8, 2014, we issued $431.3 million of 3.75% Convertible Senior Notes due 2017 (the “2017 Notes”). On February 15, 2013, we issued $600.0 million of 4.55% Convertible Senior Notes due 2018 (the “2018 Notes”). On July 3, 2013, we issued $460.0 million of 4.00% Convertible Senior Notes due 2019 (the “2019 Notes”).

The following table details the conversion attributes of our Convertible Notes outstanding as of ~~September~~June 30, ~~2017 (amounts in thousands, except rates):~~2020:


	June 30, 2020
	Conversion	Conversion
	Rate (1)	Price (2)
2023 Convertible Notes	38.5959	$	25.91

September 30, 2017

Conversion Spread Value - Shares (3)

Conversion

Conversion

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Rate (1)

Price (2)

2017

2016

2017

2016
2017 Notes

41.7397

$
23.96

—

—

—

—
2018 Notes

48.0666

$
20.80

742

1,595

733

1,743
2019 Notes

50.7031

$
19.72

1,571

1,850

1,551

2,023
2023 Notes

38.5959

$
25.91

—

—

—

—

2,313

3,445

2,284

3,766

(1)

~~(1)~~

The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount of Convertible Notes converted, as adjusted in accordance with the indentures governing the Convertible Notes (including the applicable supplemental indentures) ~~as a result of the spin-off of our former single family residential segment to our stockholders in January 2014 and cash dividend payments.~~

(2)

~~(2)~~

As of ~~September~~June 30, ~~2017 and 2016,~~2020, the market price of the Company’s common stock was ~~$21.72 and $22.52~~$14.96 per ~~share, respectively.~~

share.

~~(3)~~

The conversion spread value represents the portion of the convertible senior notes that are “in-the-money”, representing the value that would be delivered to investors in shares upon an assumed conversion.

The if-converted ~~values~~value of the ~~2018~~2023 Convertible Notes ~~and 2019 Notes exceeded~~was less than their principal ~~amounts~~amount by ~~$16.4~~$105.7 million ~~and $34.6 million, respectively,~~ at ~~September~~June 30, ~~2017~~2020 as the closing market priceof the Company’s common stock of $21.72 per share exceeded the implicit conversion prices of $20.80 and $19.72 per share, respectively. However, the if‑converted values of the 2017 Notes and 2023 Notes were less than their principal amounts by $38.5 million and $40.4 million, respectively, at September 30, 2017 as the closing market price of the Company’s common stock$14.96 was less than the implicit conversion ~~prices~~price of ~~$23.96 and~~ $25.91 per ~~share, respectively.~~

share. The ~~Company has asserted its intent and ability to settle~~if-converted value of the principal amount of the 2023 Convertible Notes ~~in cash. As such, only the conversion spread value, if any, is included in the computation~~was $144.3 million as of ~~diluted EPS.~~ June 30, 2020.

~~Conditions for Conversion~~

Prior to July 15, 2018 for the 2019 Notes and October 1, 2022 for the 2023 Notes, those 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%, in the case of the 2023 Notes, or 130%, in the case of the 2019 Notes, of the conversion price of the respective 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 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.

~~Table of Contents~~

On or after July 15, 2018, in the case of the 2019 Notes, and October 1, 2022, in the case of the 2023 Notes, holders may convert each of their Convertible 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. On September 1, 2017, the 2018 Notes entered the open conversion period and may be converted at any time through their maturity date of March 1, 2018.

~~In October 2017, we repaid the full principal amount of the 2017 Notes in cash upon their maturity.~~

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.~~VIE by third parties. Within the Commercial and Residential Lending Segment, we acquire residential mortgage 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 ~~a subordinated~~an interest in the CMBS or RMBS VIE ~~and~~and/or 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 following summarizes the ~~fair value~~face amount and ~~par value~~proceeds of commercial and residential loans ~~sold from our conduit platform, as well as the amount of sale proceeds used in part to repay the outstanding balance of the repurchase agreements associated with these loans~~securitized for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):


	Commercial Loans				Residential Loans
	Face Amount		Proceeds		Face Amount		Proceeds
For the Three Months Ended June 30,
2020	$	—	$	—	$	583,501	$	589,693
2019		345,221		365,377		—		—
For the Six Months Ended June 30,
2020	$	335,835	$	352,393	$	964,780	$	988,440
2019		524,632		552,218		340,211		352,012

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.

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016
Fair value of loans sold

$
517,351

$
648,179

$
987,828

$
1,123,512
Par value of loans sold

498,022

599,997

938,879

1,056,859
Repayment of repurchase agreements

376,687

366,268

709,666

709,049

Table of Contents

Commercial and Residential Loan Sales

Within the Commercial and Residential Lending Segment, we originate or acquire commercial mortgage loans, ~~and then~~ subsequently ~~sell~~selling all or a portion ~~which can be in various forms including first mortgages, A-Notes, senior participations and mezzanine loans.~~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. InWe also may sell certain ~~instances, we continue~~of our previously-acquired residential loans to ~~service the loan following its sale.~~third parties outside a securitization. The following table summarizes our loans sold ~~and loans transferred as secured borrowings~~ by the Commercial and Residential Lending Segment, net of expenses (amounts in thousands):



	Loan Transfers Accounted for as Sales
	Commercial				Residential
	Face Amount (1)		Proceeds (1)		Face Amount		Proceeds
For the Three Months Ended June 30,
2020	$	399,132	$	396,078	$	—	$	—
2019		102,681		102,141		1,635		1,653
For the Six Months Ended June 30,
2020	$	399,132	$	396,078	$	550	$	604
2019		501,422		498,451		23,842		24,517

Loan Transfers

Loan Transfers Accounted

Accounted for as Secured

for as Sales

Borrowings


Face Amount

Proceeds

Face Amount

Proceeds
For the Three Months Ended September 30,

2017

$
—

$
—

$
75,000

$
74,200
2016

116,000

115,157

—

—
For the Nine Months Ended September 30,

2017

$
38,750

$
37,079

$
75,000

$
74,200
2016

238,514

236,433

—

—

(1)

During both the three and six months ended June 30, 2020, we sold $230.9 million and $168.2 million of senior interests in first mortgage loans and whole loan interests, respectively, for proceeds of $224.1 million and $172.0 million, respectively. During the three and six months ended June 30, 2019, all sales were of senior interests in first mortgage loans.

During both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, gains (losses)~~2020, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $1.0 million. During the three and six months ended June 30, 2019, gains recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $0.2 million and $3.0 million, respectively. The sale of residential loans does not ~~material.~~result in a discrete gain or loss since they are carried under the fair value option.

Infrastructure Loan Sales

During the six months ended June 30, 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 by the Infrastructure Lending Segment during the three months ended June 30, 2020. During the three and six months ended June 30, 2019, the Infrastructure Lending Segment sold loans held-for-sale with an aggregate face amount of $176.5 million and $356.8 million, respectively, for proceeds of $173.6 million and $346.3 million, respectively, recognizing gains of $2.3 million and $3.1 million, respectively. In connection with these sales, we sold an interest rate swap guarantee for cash payment of $3.1 million and recognized a decrease in fair value of $2.7 million within loss on derivative financial instruments, net in our condensed consolidated statements of operations during the three and six months ended June 30, 2019. Refer to Note 12 for further discussion of our interest rate swap guarantees.

~~Table of Contents~~

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

~~In connection with our repurchase agreements, we have entered into four outstanding interest rate swaps that have been designated as cash flow hedges of~~The Company does not generally elect to apply the ~~interest rate risk associated with forecasted interest payments.~~hedge accounting designation to its hedging instruments. As of ~~September~~June 30, ~~2017,~~2020 and December 31, 2019, the aggregate notional amount of our interest rate swaps designated as cash flow hedges of interest rate risk totaled $40.0 million. Under these agreements, we will pay fixed monthly coupons at fixed rates ranging from 0.64% to 1.52% of the notional amount to the counterparty and receive floating rate LIBOR. Our interest rate swaps designated as cash flow hedges of interest rate risk have maturities ranging from November 2017 to May 2021.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2017 and 2016, weCompany did not ~~recognize~~have any ~~hedge ineffectiveness in earnings.~~designated hedges.

Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the associated variable-rate debt. Over the next 12 months, we estimate that an immaterial amount will be reclassified as a decrease to interest expenses. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period

Table of ~~44 months.~~Contents

Non-designated Hedges and Derivatives

We have entered into ~~a series~~the following types of forward contracts whereby we agreed to sell an amount of foreign currency for an agreed upon amount of USD at various dates through July 2020. We entered into these forward contracts to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to certain foreign denominated loan investmentsnon-designated hedges and ~~properties.~~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.

The following table summarizes our non-designated ~~foreign exchange (“Fx”) forwards, interest rate contracts, and credit index instruments~~derivatives as of ~~September~~June 30, ~~2017~~2020 (notional amounts in thousands):

Type of Derivative

Number of Contracts

Aggregate Notional Amount

Notional Currency

Maturity
Fx contracts – Sell Euros ("EUR") (1)

44

283,394

EUR

November 2017 – June 2020
Fx contracts – Sell Pounds Sterling ("GBP")

129

263,925

GBP

October 2017 – July 2020
Interest rate swaps – Paying fixed rates

30

815,730

USD

April 2019 – September 2027
Interest rate caps

2

294,000

EUR

May 2020
Interest rate caps

8

68,194

USD

June 2018 – October 2021
Credit index instruments

10

59,000

USD

September 2058 – November 2059
Total

223

~~(1)~~

Includes 33 Fx contracts entered into to hedge our Euro currency exposure created by our acquisition of the Ireland Portfolio. As of September 30, 2017, these contracts have an aggregate notional amount of €231.1 million and varying maturities through June 2020.


Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros ("EUR")	1	1,915	EUR	November 2022
Fx contracts – Sell EUR	277	228,011	EUR	August 2020 – November 2025
Fx contracts – Sell Pounds Sterling ("GBP")	97	315,411	GBP	July 2020 – December 2023
Fx contracts – Sell Australian dollar ("AUD")	10	85,592	AUD	August 2021 – November 2021
Interest rate swaps – Paying fixed rates	45	1,950,878	USD	August 2022 – March 2030
Interest rate swaps – Receiving fixed rates	2	970,000	USD	January 2021- March 2025
Interest rate caps	23	959,706	USD	September 2020 – April 2025
Credit index instruments	4	69,000	USD	September 2058 – August 2061
Interest rate swap guarantees	6	388,783	USD	March 2022 – June 2025
Total	465

~~Table of Contents~~

The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (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
	June 30,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Interest rate contracts	$	42,491	$	14,385	$	23	$	—
Interest rate swap guarantees		—		—		1,219		614
Foreign exchange contracts		47,875		14,558		2,638		7,834
Credit index instruments		539		—		—		292
Total derivatives	$	90,905	$	28,943	$	3,880	$	8,740

Fair Value of Derivatives

Fair Value of Derivatives

in an Asset Position (1) as of

in a Liability Position (2) as of

September 30,

December 31,

September 30,

December 31,


2017

2016

2017

2016
Derivatives designated as hedging instruments:

Interest rate swaps

$
33

$
30

$
2

$
56
Total derivatives designated as hedging instruments

33

30

2

56
Derivatives not designated as hedging instruments:

Interest rate contracts

23,961

26,591

—

3,484
Foreign exchange contracts

13,644

62,295

22,888

364
Credit index instruments

655

445

—

—
Total derivatives not designated as hedging instruments

38,260

89,331

22,888

3,848
Total derivatives

$
38,293

$
89,361

$
22,890

$
3,904

(1)

~~(1)~~

Classified as derivative assets in our condensed consolidated balance sheets.

(2)

~~(2)~~

Classified as derivative liabilities in our condensed consolidated balance sheets.

Table of Contents

The tables below present the effect of our derivative financial instruments on the condensed consolidated statements of operations ~~and of comprehensive income~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):

Gain (Loss)




Gain (Loss)

Reclassified

Gain (Loss)

Recognized

from AOCI

Recognized

Derivatives Designated as Hedging Instruments

in OCI

into Income

in Income

Location of Gain (Loss)
For the Three Months Ended September 30,

(effective portion)

(effective portion)

(ineffective portion)

Recognized in Income
2017

$
(3)

$
19

$
—

Interest expense
2016

$
107

$
(78)

$
—

Interest expense

For the Nine Months Ended September 30,

2017

$
45

$
(11)

$
—

Interest expense
2016

$
(397)

$
(261)

$
—

Interest expense


		Amount of Gain (Loss)				Amount of Gain (Loss)
		Recognized in Income for the				Recognized in Income for the
Derivatives Not Designated	Location of Gain (Loss)	Three Months Ended June 30,				Six Months Ended June 30,
as Hedging Instruments	Recognized in Income	2020		2019		2020		2019
Interest rate contracts	Loss on derivative financial instruments	$	(7,263)	$	(10,077)	$	(52,388)	$	(13,835)
Interest rate swap guarantees	Loss on derivative financial instruments		70		(2,990)		(605)		(3,171)
Foreign exchange contracts	Loss on derivative financial instruments		(7,107)		13,245		46,158		15,689
Credit index instruments	Loss on derivative financial instruments		(1,798)		(210)		447		(922)
		$	(16,098)	$	(32)	$	(6,388)	$	(2,239)

Amount of Gain (Loss)

Amount of Gain (Loss)

Recognized in Income for the

Recognized in Income for the
Derivatives Not Designated

Location of Gain (Loss)

Three Months Ended September 30,

Nine Months Ended September 30,
as Hedging Instruments

Recognized in Income

2017

2016

2017

2016
Interest rate contracts

Loss on derivative financial instruments

$
(3,836)

$
(626)

$
(10,190)

$
(25,899)
Foreign exchange contracts

Loss on derivative financial instruments

(19,650)

(189)

(54,814)

21,160
Credit index instruments

Loss on derivative financial instruments

(738)

(1,513)

(1,155)

(2,054)

$
(24,224)

$
(2,328)

$
(66,159)

$
(6,793)

~~Table of Contents~~

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 September 30, 2017

																			(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 June 30, 2020
Derivative assets	$	38,293	$	—	$	38,293	$	13,677	$	—	$	24,616	$	90,905	$	—	$	90,905	$	2,638	$	42,096	$	46,171
Derivative liabilities	$	22,890	$	—	$	22,890	$	13,677	$	6,859	$	2,354	$	3,880	$	—	$	3,880	$	2,638	$	23	$	1,219
Repurchase agreements		3,291,524		—		3,291,524		3,291,524		—		—		4,890,699		—		4,890,699		4,890,699		—		—
	$	3,314,414	$	—	$	3,314,414	$	3,305,201	$	6,859	$	2,354
As of December 31, 2016
													$	4,894,579	$	—	$	4,894,579	$	4,893,337	$	23	$	1,219
As of December 31, 2019
Derivative assets	$	89,361	$	—	$	89,361	$	491	$	—	$	88,870	$	28,943	$	—	$	28,943	$	5,312	$	14,208	$	9,423
Derivative liabilities	$	3,904	$	—	$	3,904	$	491	$	3,413	$	—	$	8,740	$	—	$	8,740	$	5,312	$	292	$	3,136
Repurchase agreements		2,476,277		—		2,476,277		2,476,277		—		—		4,609,457		—		4,609,457		4,609,457		—		—
	$	2,480,181	$	—	$	2,480,181	$	2,476,768	$	3,413	$	—
													$	4,618,197	$	—	$	4,618,197	$	4,614,769	$	292	$	3,136

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, an allocable portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.

Table of Contents

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.

The following table details the assets and liabilities of our consolidated CLO as of June 30, 2020 and December 31, 2019 (amounts in thousands):


	June 30, 2020		December 31, 2019
Assets:
Loans held-for-investment	$	1,099,405		1,073,504
Accrued interest receivable		1,875		3,129
Other assets		558		26,496
Total Assets	$	1,101,838	$	1,103,129
Liabilities
Accounts payable, accrued expenses and other liabilities	$	635	$	1,362
Collateralized loan obligations, net		929,307		928,060
Total Liabilities	$	929,942	$	929,422

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 ~~certain~~ other non-securitization entities that are considered ~~VIEs,~~VIEs. SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which ~~were established to facilitate~~holds the ~~purchase of certain properties acquired with~~Woodstar II Portfolio, is a VIE because the third party ~~minority~~ interest ~~partners.~~holders do not carry kick-out rights or substantive participating rights. We ~~are~~were deemed to be the primary ~~beneficiaries~~beneficiary of ~~these VIEs as~~the VIE because we possess both the power to direct the activities of the ~~VIEs~~VIE that most significantly

~~Table of Contents~~

impact ~~their~~its economic performance and ~~hold~~a significant economic ~~interests. These VIEs~~interest in the entity. This VIE had total assets of ~~$167.3~~$677.1 million and liabilities of ~~$114.3~~$445.9 million as of ~~September~~June 30, ~~2017.~~2020.

In December 2019, we entered into a newly-formed 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 hold a 51% ownership interest and are deemed the primary beneficiary of the CMBS JV. This VIE had total assets of $330.3 million and liabilities of $85.2 million as of June 30, 2020. Refer to Note 16 for further discussion.

In total, our other consolidated non-securitization VIEs had total assets of $1.1 billion and liabilities of $585.1 million as of June 30, 2020.

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.

Table of Contents

As of ~~September~~June 30, ~~2017, two~~2020, 4 of our ~~CDO~~collateralized debt obligation (“CDO”) structures within our Investing and Servicing Segment were in default ~~one of~~or imminent default, which, ~~entered default during the nine months ended September 30, 2017. Pursuant~~pursuant to the underlying indentures, changes the rights of the variable interest ~~holders change upon~~holders. Upon default of a CDO, ~~such that~~ 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. During the nine months ended September 30, 2017, we deconsolidated the CDO that went into default, resulting in a reduction to each of VIE assets and VIE liabilities of $467.1 million. The carrying value of our investment in this CDO was zero at the time of deconsolidation and at September 30, 2017. As of ~~September~~June 30, ~~2017, neither~~2020, NaN of these CDO structures were consolidated.

As noted above, we are not obligated to provide, nor have we provided, any financial support for any of our securitization VIEs, whether or not we are deemed to be the primary beneficiary. As such, the risk associated with our involvement in these VIEs is limited to the carrying value of our investment in the entity. As of ~~September~~June 30, ~~2017,~~2020, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was ~~$23.8~~$23.5 million on a fair value basis.

As of ~~September~~June 30, ~~2017,~~2020, the securitization VIEs which we do not consolidate had debt obligations to beneficial interest holders with unpaid principal balances, excluding the notional value of ~~$5.3~~interest-only securities, of $4.1 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 ~~$118.8~~$21.2 million as of ~~September~~June 30, ~~2017,~~2020, 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~~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.

~~Table of Contents~~

Base Management Fee. For the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, approximately ~~$16.9~~$19.1 million and ~~$15.2~~$18.9 million, respectively, was incurred for base management fees. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, approximately ~~$50.7~~$38.2 million and ~~$45.4~~$38.5 million, respectively, was incurred for base management fees. In April 2020, our board of directors authorized the payment of our first quarter base management fee of $19.1 million in 1,422,143 shares of our common stock. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~$16.9~~$19.1 million and ~~$15.7~~$19.3 million, respectively, of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.

Incentive Fee. ~~For~~ There were 0 incentive fees incurred during the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019. For the six months ended June 30, 2020 and 2019, approximately ~~$10.4~~$15.8 million and ~~$6.3 million, respectively, was incurred for incentive fees. For the nine months ended September 30, 2017 and 2016, approximately $20.2 million and $13.8~~$0.2 million, respectively, was incurred for incentive fees. As of ~~September 30, 2017 and~~ December 31, ~~2016, approximately $10.4~~2019, there were $18.1 million ~~and $19.0 million, respectively,~~ of unpaid incentive fees ~~were~~ included in related-party payable in our condensed consolidated balance sheets. There were 0 unpaid incentive fees as of June 30, 2020.

Expense Reimbursement. For the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, approximately ~~$1.7~~$1.5 million and ~~$1.5~~$1.7 million, respectively, was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. For the ~~nine~~six months

Table of Contents

ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, approximately ~~$4.5~~$3.7 million and ~~$4.1~~$3.9 million, respectively, was incurred for executive compensation and other reimbursable expenses. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, approximately ~~$2.7~~$1.8 million and ~~$3.0~~$3.5 million, respectively, of unpaid reimbursable executive compensation and other expenses were 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 ~~September~~June 30, ~~2017 and 2016, there~~2019, we granted 68,645 RSAs at a grant date fair value of $1.5 million. There were no RSAs ~~granted.~~granted during the three months ended June 30, 2020. Expenses related to the vesting of awards to employees of affiliates of our Manager were ~~$0.7~~$1.3 million and ~~$0.6~~$1.0 million during the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we granted ~~138,264~~341,635 and ~~169,104~~182,861 RSAs, respectively, at grant date fair values of ~~$3.1~~$3.9 million and ~~$3.3~~$4.1 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were ~~$2.1~~$2.4 million and ~~$1.6~~$1.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. These shares generally vest over a three-year period.

Manager Equity Plan

In ~~March~~May 2017, ~~we granted 1,000,000 RSUs to our~~the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager ~~under~~Equity Plan (the “2017 Manager Equity Plan”), which replaced the Starwood Property Trust, Inc. Manager Equity Plan (“Manager Equity Plan”). In ~~May 2015,~~September 2019, we granted ~~675,000~~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 ~~$3.0~~$3.4 million and ~~$5.7~~$3.2 million within management fees in our condensed consolidated statements of operations for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, we recognized ~~$7.4~~$8.6 million and ~~$15.8~~$6.4 million, respectively, related to these awards. Refer to Note 16 for further discussion of these grants.

In May 2017, the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”) which replaces the Manager Equity Plan. Refer to Note 16 for further discussion.

Investments in Loans ~~and Securities~~

In ~~March 2017, we were fully~~January 2020, the Company originated a $3.5 million bridge loan to a third party borrower for the development and recapitalization of luxury cabin rentals. In February 2020, the bridge loan was repaid, ~~$59.0 million upon the maturity of a subordinate single-borrower CMBS that we acquired in March 2015. The bond was secured by 85 U.S. hotel properties,~~ and the ~~borrower was an affiliate of Starwood Distressed Opportunity Fund IX, an affiliate of our Manager.~~

In May 2017, our conduit business acquired certain commercial real estate loans from an unaffiliated third party for an aggregate purchase price of $50.0 million. The underlying borrowers are affiliates of our Manager. During the three months ended September 30, 2017, $25.0 million of such loans were sold. The remaining $25.0 million of such

~~Table of Contents~~

~~loans, which were included within loans held-for-sale in our condensed consolidated balance sheet as of September 30, 2017, were sold subsequent to September 30, 2017.~~

~~In June 2017, we amended~~Company originated a ~~£75.0~~$99.0 million first mortgage ~~for~~loan to the ~~development~~same borrower. The loan bears interest at a fixed rate of 10.5% plus fees and contains a ~~three-property mixed use portfolio located~~term of 36 months with 2 one-year extension options. Certain members of our executive team and board of directors own equity interests in ~~Greater London, which we~~the borrower. The investment was approved by our independent directors.

In January 2020, the Company co-originated a €70.3 million mezzanine loan with SEREF, an affiliate of our Manager, to the third party that acquired our property portfolio in ~~2016.~~Ireland in December 2019. The ~~amendment reduced the first mortgage’s total commitment to £69.3 million, of which our share is £55.4~~Company and SEREF each originated €35.2 million. The loan matures in October 2025.

During the three and six months ended June ~~2019.~~30, 2020, the Company acquired $26.6 million and $127.4 million, respectively, of loans from a residential mortgage originator in which it holds an equity interest. Refer to Note 7 for further discussion.

Lease Arrangements

In ~~August 2017,~~March 2020, we ~~originated~~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 ~~$339.2~~$1.9 million ~~first mortgage~~cash security deposit to the landlord. Prior to the execution of this lease, we engaged an independent third party leasing firm and ~~mezzanine loan~~external counsel to advise the independent directors of our board of directors on market terms for the ~~acquisition~~lease. The terms of ~~an office campus located in Irvine, California. An affiliate~~the lease were approved by our independent directors.

Table of ~~our Manager has a non-controlling equity interest in the borrower.~~ Contents

Other Related-Party Arrangements

~~Investment in Unconsolidated Entities~~

~~In October 2014, we committed $150.0 million for a 33% equity interest in four regional shopping malls (the “Retail Fund”~~Highmark Residential (“Highmark”). In August 2017, we funded the remaining $15.5 million capital commitment associated with this investment (see Note 7). All leasing services and asset management functions for the properties are conducted by, an affiliate of our Manager, ~~which specializes in redeveloping, managing~~provides property management services for 21 properties within our Woodstar I Portfolio. Fees paid to Highmark are calculated as a percentage of gross receipts and ~~repositioning retail real estate assets. In addition, another affiliate~~are at market terms. During the three months ended June 30, 2020 and 2019, property management fees to Highmark of ~~our Manager serves as general partner of the Retail Fund.~~

~~Acquisitions from Consolidated CMBS Trusts~~

~~Our Investing~~$0.5 million and Servicing Segment acquires interests in properties for its REIS Equity Portfolio from CMBS trusts, some of which are consolidated as VIEs on our balance sheet. Acquisitions from consolidated VIEs are reflected as repayment of debt of consolidated VIEs$0.4 million, respectively, were recognized in our condensed consolidated statements of ~~cash flows.~~operations. During the ~~three~~six months ended ~~September~~June 30, ~~2016, we acquired $3.3 million~~2020 and 2019, property management fees to Highmark of net real estate assets from consolidated CMBS trusts. No real estate assets were acquired from consolidated CMBS trusts during the three months ended September 30, 2017. During the nine months ended September 30, 2017 and 2016, we acquired $19.7$1.0 million and ~~$88.4~~$0.7 million, respectively, were recognized in our condensed consolidated statements of net real estate assets from consolidated CMBS trusts and subsequently issued non-controlling interests of $5.5 million on the 2016 acquisitions. No non-controlling interests were issued during the nine months ended September 30, 2017. Refer to Note 3 for further discussion of these acquisitions. operations.

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

16. Stockholders’ Equity and Non-Controlling Interests

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, our board of directors declared the following dividends:

Declaration Date

Record Date

Ex-Dividend Date

Payment Date

Amount

Frequency
8/9/17

9/29/17

9/28/17

10/13/17

$
0.48

Quarterly
5/9/17

6/30/17

6/28/17

7/14/17

$
0.48

Quarterly
2/23/17

3/31/17

3/29/17

4/14/17

$
0.48

Quarterly


Declaration Date	Record Date	Ex-Dividend Date	Payment Date	Amount		Frequency
6/16/20	6/30/20	6/29/20	7/15/20	$	0.48	Quarterly
2/25/20	3/31/20	3/30/20	4/15/20		0.48	Quarterly

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, there were no0 shares issued under our At-The-Market Equity Offering Sales Agreement. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.

In February ~~2017,~~2020, our board of directors ~~extended~~authorized the ~~term~~repurchase of up to $400.0 million of our ~~$500.0 million~~outstanding common ~~stock~~shares and Convertible ~~Note repurchase program through January 2019. Refer to Note 17~~Notes over a period of one year. Purchases made pursuant to the ~~consolidated financial statements included~~program will be made either in ~~our Form 10-K for further information regarding~~ the ~~repurchase program.~~open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements.The timing, manner, price and amount of any repurchases are discretionary and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, we repurchased ~~1,052,889~~1,925,421 shares of common stock for ~~$19.7~~$28.8 million and no0 Convertible Notes under our repurchase program. ~~There were no share repurchases or Convertible Note repurchases under the repurchase~~

~~Table of Contents~~

program during the nine months ended September 30, 2017. The repurchase of the 2018 Notes discussed in Note 10 was not considered part of the repurchase program and therefore does not reduce our available capacity for future repurchases under the repurchase program. As of ~~September~~June 30, ~~2017,~~2020, we had ~~$262.2~~$371.2 million of remaining capacity to repurchase common stock and/or Convertible Notes under the repurchase ~~program through January 2019.~~program.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollar amounts in thousands):


Grant Date	Type	Amount Granted	Grant Date Fair Value		Vesting Period
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

Grant Date

Type

Amount Granted

Grant Date Fair Value

Vesting Period

March 2017

RSU

1,000,000

$
22,240

3 years

May 2015

RSU

675,000

16,511

3 years

January 2014

RSU

489,281

14,776

3 years

January 2014

RSU

2,000,000

55,420

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.

Table of Contents

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, 2020	1,413,170	1,305,597	2,718,767	$	22.74
Granted	965,847	—	965,847		10.77
Vested	(474,367)	(376,017)	(850,384)		22.40
Forfeited	(5,647)	—	(5,647)		14.69
Balance as of June 30, 2020	1,899,003	929,580	2,828,583		18.77

As of ~~September~~June 30, ~~2017,~~2020, there were ~~11.0~~6.5 million shares of common stock available for future grants under the 2017 Manager Equity Plan and the 2017 Equity Plan.

~~Schedule~~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 ~~Non-Vested Shares~~June 30, 2020, 1.8 million 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 1-for-one basis, with the consideration paid in either cash or the Company’s common stock, at the determination of the Company. During the six months ended June 30, 2020, redemptions of 0.4 million of the Class A Units were received and ~~Share Equivalents (1)~~

2017

Weighted Average

2017

Manager

Grant Date Fair

Equity Plan

Equity Plan

Total

Value (per share)
Balance as of January 1, 2017

539,124

281,250

820,374

$
22.34
Granted

548,160

1,000,000

1,548,160

22.27
Vested

(337,192)

(335,416)

(672,608)

22.69
Forfeited

(34,531)

—

(34,531)

22.56
Balance as of September 30, 2017

715,561

945,834

1,661,395

22.09

~~(1)~~

Equity-based award activity for awards granted under the Equity Plan and Non-Executive Director Stock Plan is reflected within the 2017 Equity Plan column, and for awards granted under the Manager Equity Plan, within the 2017 Manager Equity Plan column.

settled in common stock, leaving 10.6 million Class A Units outstanding as of June 30, 2020. There were 0 redemptions of the Class A units during the three months ended June 30, 2020. 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 $227.1 million and $235.9 million as of June 30, 2020 and December 31, 2019, 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 the three and six months ended June 30, 2020, we recognized net income attributable to non-controlling interests of $5.1 million and $10.2 million, respectively, associated with these Class A Units. During the three and six months ended June 30, 2019, we recognized net income attributable to non-controlling interests of $5.4 million and $11.1 million, respectively, associated with these Class A Units.

As discussed in Note 14, we entered into the CMBS JV within our Investing and Servicing Segment in December 2019. Because the CMBS JV was deemed a VIE for which we were the primary beneficiary, this transaction was not recognized as a sale for GAAP purposes. Instead, the 49% interest of our joint venture partner is reflected as a non-controlling interest in consolidated subsidiaries on our 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 $126.4 million and $175.6 million as of June 30, 2020 and December 31, 2019, respectively. During the three and six months ended June 30, 2020, net income attributable to non-controlling interests was $6.8 million and $0.8 million, respectively.

Table of Contents

17. Earnings per Share

The following table provides a reconciliation of net income and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Basic Earnings
Income attributable to STWD common stockholders	$	139,656	$	127,016	$	72,887	$	197,399
Less: Income attributable to participating shares not already deducted as non-controlling interests		(1,143)		(751)		(2,365)		(1,575)
Basic earnings	$	138,513	$	126,265	$	70,522	$	195,824

Diluted Earnings
Income attributable to STWD common stockholders	$	139,656	$	127,016	$	72,887	$	197,399
Less: Income attributable to participating shares not already deducted as non-controlling interests		(1,143)		(751)		(2,365)		(1,575)
Add: Interest expense on Convertible Notes (1)		3,051		3,049		*		6,235
Add: Undistributed earnings to participating shares		120		—		—		—
Less: Undistributed earnings reallocated to participating shares		(116)		—		—		—
Diluted earnings	$	141,568	$	129,314	$	70,522	$	202,059

Number of Shares:
Basic — Average shares outstanding		281,461		279,239		281,225		278,396
Effect of dilutive securities — Convertible Notes (1)		9,649		9,649		*		9,963
Effect of dilutive securities — Unvested non-participating shares		183		184		215		170
Diluted — Average shares outstanding		291,293		289,072		281,440		288,529

Earnings Per Share Attributable to STWD Common Stockholders:
Basic	$	0.49	$	0.45	$	0.25	$	0.70
Diluted	$	0.49	$	0.45	$	0.25	$	0.70

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016
Basic Earnings

Income attributable to STWD common stockholders

$
88,428

$
105,766

$
308,166

$
243,896
Less: Income attributable to participating shares

(761)

(456)

(2,489)

(1,743)
Basic earnings

$
87,667

$
105,310

$
305,677

$
242,153

Diluted Earnings

Basic — Income attributable to STWD common stockholders

$
88,428

$
105,766

$
308,166

$
243,896
Less: Income attributable to participating shares

(761)

(456)

(2,489)

(1,743)
Add: Undistributed earnings to participating shares

—

—

—

—
Less: Undistributed earnings reallocated to participating shares

—

—

—

—
Diluted earnings

$
87,667

$
105,310

$
305,677

$
242,153

Number of Shares:

Basic — Average shares outstanding

259,759

237,429

259,412

237,017
Effect of dilutive securities — Convertible Notes

2,313

3,445

2,284

3,766
Effect of dilutive securities — Contingently issuable shares

236

138

236

138
Effect of dilutive securities — Unvested non-participating shares

129

79

123

61
Diluted — Average shares outstanding

262,437

241,091

262,055

240,982

Earnings Per Share Attributable to STWD Common Stockholders:

Basic

$
0.34

$
0.44

$
1.18

$
1.02
Diluted

$
0.33

$
0.44

$
1.17

$
1.00

(1)

The Company does not intend to fully settle the principal amount of the Convertible Notes in cash upon conversion. Accordingly, under GAAP, the dilutive effect to EPS for the periods presented above is determined using the “if-converted” method whereby interest expense or any loss on extinguishment of our Convertible Notes is added back to the diluted EPS numerator and the full number of potential shares contingently issuable upon their conversion is included in the diluted EPS denominator, if dilutive. Refer to Note 10 for further discussion.

* Our Convertible Notes were not dilutive for the six months ended June 30, 2020.

As of ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, participating shares of ~~1.6~~13.0 million and ~~0.9~~12.8 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.

~~Additionally, as of September~~ Such participating shares at June 30, ~~2017, there were 61.9~~2020 and 2019 included 10.6 million and 11.2 million potential shares, respectively, of our common stock ~~contingently~~ issuable upon ~~the conversion~~redemption of the ~~Convertible Notes. The Company has asserted its intent and ability to settle the principal amount of the Convertible Notes~~Class A Units in ~~cash. As a result, this principal amount, representing 59.6 million shares at September 30, 2017, was not included in the computation of diluted EPS. However,~~SPT Dolphin, as discussed in Note 10, the conversion options associated with the 2018 Notes and 2019 Notes are “in-the-money” as the if-converted values of the 2018 Notes and 2019 Notes exceeded their principal amounts by $16.4 million and $34.6 million, respectively, at September 30, 2017. The dilutive effect to EPS is determined by dividing this “conversion spread value” by the average share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the Convertible Notes, upon an assumed conversion. In calculating the dilutive effect of these shares, the treasury stock method was used and resulted in a dilution of 2.3 million shares for the three and nine months ended September 30, 2017. The conversion options associated with the 2017 Notes and 2023 Notes are “out-of-the-money” because the if-converted values of the 2017 Notes and 2023 Notes were less than their principal amounts by $38.5 million and $40.4 million, respectively, at September 30, 2017; therefore, there was no dilutive effect to EPS for the 2017 Notes and 2023 Notes.

16.

Table of Contents

18. Accumulated Other Comprehensive Income

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


			Cumulative
			Unrealized Gain
	Effective Portion of		(Loss) on		Foreign
	Cumulative Loss on		Available-for-		Currency
	Cash Flow Hedges		Sale Securities		Translation		Total
Three Months Ended September 30, 2017
Balance at July 1, 2017	$	52	$	51,682	$	4,247	$	55,981

									Cumulative
									Unrealized Gain
									(Loss) on		Foreign
									Available-for-		Currency
									Sale Securities		Translation		Total
Three Months Ended June 30, 2020
Balance at April 1, 2020									$	35,948	$	(64)	$	35,884
OCI before reclassifications		(3)		3,975		5,337		9,309		6,982		—		6,982
Amounts reclassified from AOCI		(19)		—		—		(19)		—		—		—
Net period OCI		(22)		3,975		5,337		9,290		6,982		—		6,982
Balance at September 30, 2017	$	30	$	55,657	$	9,584	$	65,271
Three Months Ended September 30, 2016
Balance at July 1, 2016	$	(386)	$	39,858	$	(6,845)	$	32,627
Balance at June 30, 2020									$	42,930	$	(64)	$	42,866
Three Months Ended June 30, 2019
Balance at April 1, 2019									$	53,128	$	2,670	$	55,798
OCI before reclassifications		107		6,105		1,331		7,543		(79)		1,405		1,326
Amounts reclassified from AOCI		78		—		—		78		—		—		—
Net period OCI		185		6,105		1,331		7,621		(79)		1,405		1,326
Balance at September 30, 2016	$	(201)	$	45,963	$	(5,514)	$	40,248
Nine Months Ended September 30, 2017
Balance at January 1, 2017	$	(26)	$	44,929	$	(8,765)	$	36,138
Balance at June 30, 2019									$	53,049	$	4,075	$	57,124
Six Months Ended June 30, 2020
Balance at January 1, 2020									$	50,996	$	(64)	$	50,932
OCI before reclassifications		45		10,823		18,349		29,217		(8,066)		—		(8,066)
Amounts reclassified from AOCI		11		(95)		—		(84)		—		—		—
Net period OCI		56		10,728		18,349		29,133		(8,066)		—		(8,066)
Balance at September 30, 2017	$	30	$	55,657	$	9,584	$	65,271
Nine Months Ended September 30, 2016
Balance at January 1, 2016	$	(65)	$	37,307	$	(7,513)	$	29,729
Balance at June 30, 2020									$	42,930	$	(64)	$	42,866
Six Months Ended June 30, 2019
Balance at January 1, 2019									$	53,515	$	5,145	$	58,660
OCI before reclassifications		(397)		8,656		1,999		10,258		(466)		(1,070)		(1,536)
Amounts reclassified from AOCI		261		—		—		261		—		—		—
Net period OCI		(136)		8,656		1,999		10,519		(466)		(1,070)		(1,536)
Balance at September 30, 2016	$	(201)	$	45,963	$	(5,514)	$	40,248
Balance at June 30, 2019									$	53,049	$	4,075	$	57,124

~~The reclassifications out of AOCI impacted the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 as follows (amounts in thousands):~~

Amounts Reclassified from

Amounts Reclassified from

AOCI during the Three Months

AOCI during the Nine Months

Affected Line Item

Ended September 30,

Ended September 30,

in the Statements
Details about AOCI Components

2017

2016

2017

2016

of Operations
Gain (loss) on cash flow hedges:

Interest rate contracts

$
19

$
(78)

$
(11)

$
(261)

Interest expense
Unrealized gains on available-for-sale securities:

Interest realized upon collection

—

—

95

—

Interest income from investment securities
Total reclassifications for the period

$
19

$
(78)

$
84

$
(261)

Table of Contents

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. ~~Refer~~In the event that observable inputs are not available, the control processes are designed to ~~Note 20~~assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.

Pricing Verification—We use recently executed transactions, other observable market data such as exchange data, broker/dealer quotes, third party pricing vendors and aggregation services for validating the fair values generated using valuation models. Pricing data provided by approved external sources is evaluated using a number of approaches; for example, by corroborating the external sources’ prices to executed trades, analyzing the methodology and assumptions used by the external source to generate a price and/or by evaluating how active the third party pricing source (or originating sources used by the third party pricing source) is in the market.

Unobservable Inputs—Where inputs are not observable, we review the appropriateness of the proposed valuation methodology to ensure it is consistent with how a market participant would arrive at the unobservable input. The valuation methodologies utilized in the absence of observable inputs may include extrapolation techniques and the use of comparable observable inputs.

Any changes to the ~~consolidated financial statements included in~~valuation methodology will be reviewed by our ~~Form 10-K for further discussion~~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 ~~process.~~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

Table of Contents

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 mortgage 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 mortgage loans with similar characteristics. Unobservable inputs include the expectation of future cash flows, which involves judgments about the underlying collateral, the creditworthiness of the borrower, estimated prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements and certain other factors. At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs, these loans have been classified within Level III.

RMBS

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

CMBS

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

Equity security

The equity security is publicly registered and traded in the U.S. and its market price is listed on the London Stock Exchange. The security has been classified within Level I.

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

Table of Contents

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 June 30, 2020 and December 31, 2019, 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.

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

Table of Contents

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 on a Nonrecurring Basis

We determine the fair value of our financial assets and liabilities measured at fair value on a nonrecurring basis as follows:

Loans held-for-sale, infrastructure

We measure the fair value of infrastructure loans held-for-sale, which are carried at the lower of amortized cost or fair value, utilizing bids periodically received from third parties to acquire these assets. As these bids represent observable market data, we have determined that the fair value of these assets would be classified in Level II 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, CLO and unsecured senior notes not convertible

The fair value of the secured financing agreements, CLO and unsecured senior notes not convertible 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.

Convertible Notes

The fair value of the debt component of our Convertible Notes is estimated by discounting the contractual cash flows at the interest rate we estimate such notes would bear if sold in the current market without the embedded conversion option which, in accordance with ASC 470, is reflected as a component of equity. We have determined that our valuation of our Convertible Notes should be classified in Level III of the ~~methodology described in our Form 10-K.~~fair value hierarchy.

Table of Contents

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


	September 30, 2017
	Total		Level I		Level II		Level III

									June 30, 2020
									Total		Level I		Level II		Level III
Financial Assets:
Loans held-for-sale, fair value option	$	608,624	$	—	$	—	$	608,624
Loans under fair value option									$	894,613	$	—	$	—	$	894,613
RMBS		253,252		—		—		253,252		174,281		—		—		174,281
CMBS		23,841		—		—		23,841		23,530		—		1,639		21,891
Equity security		13,529		13,529		—		—		9,791		9,791		—		—
Domestic servicing rights		33,781		—		—		33,781		13,955		—		—		13,955
Derivative assets		38,293		—		38,293		—		90,905		—		90,905		—
VIE assets		51,197,981		—		—		51,197,981		64,175,387		—		—		64,175,387
Total	$	52,169,301	$	13,529	$	38,293	$	52,117,479	$	65,382,462	$	9,791	$	92,544	$	65,280,127
Financial Liabilities:
Derivative liabilities	$	22,890	$	—	$	22,890	$	—	$	3,880	$	—	$	3,880	$	—
VIE liabilities		50,150,781		—		47,890,998		2,259,783		62,617,975		—		60,488,446		2,129,529
Total	$	50,173,671	$	—	$	47,913,888	$	2,259,783	$	62,621,855	$	—	$	60,492,326	$	2,129,529


	December 31, 2019
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	1,436,194	$	—	$	—	$	1,436,194
RMBS		189,576		—		—		189,576
CMBS		37,360		—		12,352		25,008
Equity security		12,664		12,664		—		—
Domestic servicing rights		16,917		—		—		16,917
Derivative assets		28,943		—		28,943		—
VIE assets		62,187,175		—				62,187,175
Total	$	63,908,829	$	12,664	$	41,295	$	63,854,870
Financial Liabilities:
Derivative liabilities	$	8,740	$	—	$	8,740	$	—
VIE liabilities		60,743,494		—		58,206,102		2,537,392
Total	$	60,752,234	$	—	$	58,214,842	$	2,537,392

December 31, 2016


Total

Level I

Level II

Level III
Financial Assets:

Loans held-for-sale, fair value option

$
63,279

$
—

$
—

$
63,279
RMBS

253,915

—

—

253,915
CMBS

31,546

—

—

31,546
Equity security

12,177

12,177

—

—
Domestic servicing rights

55,082

—

—

55,082
Derivative assets

89,361

—

89,361

—
VIE assets

67,123,261

—

—

67,123,261
Total

$
67,628,621

$
12,177

$
89,361

$
67,527,083
Financial Liabilities:

Derivative liabilities

$
3,904

$
—

$
3,904

$
—
VIE liabilities

66,130,592

—

63,545,223

2,585,369
Total

$
66,134,496

$
—

$
63,549,127

$
2,585,369


							Domestic
	Loans at						Servicing				VIE
Six Months Ended June 30, 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		18,316		—		5,387		(2,962)		(1,089,145)		137,596		(930,808)
Net accretion		—		5,334		—		—		—		—		5,334
Included in OCI		—		(8,066)		—		—		—		—		(8,066)
Purchases / Originations		887,580		—		—		—		—		—		887,580
Sales		(1,341,440)		—		(7,940)		—		—		—		(1,349,380)
Issuances		—		—		—		—		—		(24,376)		(24,376)
Cash repayments / receipts		(106,037)		(12,563)		(564)		—		—		(9,260)		(128,424)
Transfers into Level III		—		—		—		—		—		(757,207)		(757,207)
Transfers out of Level III		—		—		—		—		—		1,132,205		1,132,205
Consolidation of VIEs		—		—		—		—		3,077,357		(71,095)		3,006,262
June 30, 2020 balance	$	894,613	$	174,281	$	21,891	$	13,955	$	64,175,387	$	(2,129,529)	$	63,150,598
Amount of unrealized gains (losses) attributable to assets still held at June 30, 2020:
Included in earnings	$	1,589	$	5,334	$	(999)	$	(2,962)	$	(1,089,145)	$	137,596	$	(948,587)
Included in OCI	$	—	$	(8,066)	$	—	$	—	$	—	$	—	$	(8,066)


							Domestic
	Loans						Servicing				VIE
Nine Months Ended September 30, 2017	Held‑for‑sale		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2017 balance	$	63,279	$	253,915	$	31,546	$	55,082	$	67,123,261	$	(2,585,369)	$	64,941,714

																					Domestic
															Loans at						Servicing				VIE
Six Months Ended June 30, 2019															Fair Value		RMBS		CMBS		Rights		VIE Assets		Liabilities		Total
January 1, 2019 balance															$	671,282	$	209,079	$	25,228	$	20,557	$	53,446,364	$	(1,441,446)	$	52,931,064
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale		45,484		—		(4,359)		(21,301)		(15,773,529)		749,757		(15,003,948)		33,157		—		721		(1,683)		420,934		37,449		490,578
OTTI		—		(109)		—		—		—		—		(109)
Net accretion		—		10,375		—		—		—		—		10,375		—		5,038		—		—		—		—		5,038
Included in OCI		—		10,728		—		—		—		—		10,728		—		(466)		—		—		—		—		(466)
Purchases / Originations		1,527,364		7,433		11,798		—		—		—		1,546,595		1,652,234		—		—		—		—		—		1,652,234
Sales		(987,828)		—		(11,134)		—		—		—		(998,962)		(928,747)		—		(3,978)		—		—		—		(932,725)
Issuances		—		—		—		—		—		(11,657)		(11,657)		—		—		—		—		—		(58,723)		(58,723)
Cash repayments / receipts		(39,675)		(29,090)		(8,754)		—		—		(40,946)		(118,465)		(55,528)		(12,777)		(5,590)		—		—		(3,270)		(77,165)
Transfers into Level III		—		—		—		—		—		(616,794)		(616,794)		—		—		5,350		—		—		(1,265,141)		(1,259,791)
Transfers out of Level III		—		—		—		—		—		231,012		231,012		—		—		—		—		—		430,819		430,819
Consolidation of VIEs		—		—		—		—		2,092,516		(75,585)		2,016,931		—		—		—		—		4,104,135		(107,850)		3,996,285
Deconsolidation of VIEs		—		—		4,744		—		(2,244,267)		89,799		(2,149,724)		—		—		12,552		—		(303,827)		34,160		(257,115)
September 30, 2017 balance	$	608,624	$	253,252	$	23,841	$	33,781	$	51,197,981	$	(2,259,783)	$	49,857,696
Amount of total (losses) gains included in earnings attributable to assets still held at September 30, 2017	$	(2,621)	$	10,159	$	56	$	(21,301)	$	(15,773,529)	$	749,757	$	(15,037,479)
June 30, 2019 balance															$	1,372,398	$	200,874	$	34,283	$	18,874	$	57,667,606	$	(2,374,002)	$	56,920,033
Amount of total gains (losses) included in earnings attributable to assets still held at June 30, 2019															$	5,145	$	5,038	$	(157)	$	(1,683)	$	420,934	$	37,449	$	466,726

Domestic






Loans

Servicing

VIE

Nine Months Ended September 30, 2016

Held‑for‑sale

RMBS

CMBS

Rights

VIE Assets

Liabilities

Total
January 1, 2016 balance

$
203,865

$
176,224

$
212,981

$
119,698

$
76,675,689

$
(2,552,448)

$
74,836,009
Impact of ASU 2015-02 adoption (1)

—

—

—

(17,467)

17,467

—

—
Total realized and unrealized gains (losses):

Included in earnings:

Change in fair value / gain on sale

70,122

—

(677)

(33,213)

(16,483,798)

946,703

(15,500,863)
Net accretion

—

11,354

—

—

—

—

11,354
Included in OCI

—

8,656

—

—

—

—

8,656
Purchases / Originations

1,197,801

97,204

57,576

—

—

—

1,352,581
Sales

(1,123,512)

—

(18,725)

—

—

—

(1,142,237)
Issuances

—

—

—

—

—

(596)

(596)
Cash repayments / receipts

(786)

(32,925)

(31,734)

—

—

28,591

(36,854)
Transfers into Level III

—

—

—

—

—

(972,588)

(972,588)
Transfers out of Level III

—

—

—

—

—

187,683

187,683
Consolidation of VIEs

—

—

(162,745)

—

19,118,645

(593,818)

18,362,082
Deconsolidation of VIEs

—

—

2,109

—

(5,404,304)

44,976

(5,357,219)
September 30, 2016 balance

$
347,490

$
260,513

$
58,785

$
69,018

$
73,923,699

$
(2,911,497)

$
71,748,008
Amount of total gains (losses) included in earnings attributable to assets still held at September 30, 2016

$
9,746

$
11,354

$
263

$
(33,213)

$
(16,483,798)

$
946,703

$
(15,548,945)

~~(1)~~

Our implementation of ASU 2015-02 resulted in the consolidation of certain CMBS trusts effective January 1, 2016, which required the elimination of $17.5 million of domestic servicing rights associated with these newly consolidated trusts.

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.

September 30, 2017

December 31, 2016


Carrying

Fair

Carrying

Fair

Value

Value

Value

Value
Financial assets not carried at fair value:

Loans held-for-investment and loans transferred as secured borrowings

$
6,456,710

$
6,539,259

$
5,882,995

$
5,934,219
HTM securities

411,196

408,442

509,980

504,165
Financial liabilities not carried at fair value:

Secured financing agreements and secured borrowings on transferred loans

$
5,588,895

$
5,559,888

$
4,189,126

$
4,198,136
Unsecured senior notes

2,044,523

2,097,835

2,011,544

2,088,374

Table of Contents

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)
	June 30, 2020		Technique	Input	June 30, 2020	December 31, 2019
Loans under fair value option	$	894,613	Discounted cash flow	Yield (b)	2.9% - 8.9% (4.8%)	3.4% - 5.9%
				Duration (c)	1.5 - 11.2 years (5.1 years)	1.3 - 11.3 years
RMBS		174,281	Discounted cash flow	Constant prepayment rate (a)	3.2% - 16.4% (7.3%)	3.1% - 24.9%
				Constant default rate (b)	1.3% - 5.0% (2.6%)	0.5% - 5.0%
				Loss severity (b)	0% - 79% (27%) (e)	0% - 93% (e)
				Delinquency rate (c)	8% - 28% (18%)	5% - 29%
				Servicer advances (a)	24% - 85% (61%)	27% - 85%
				Annual coupon deterioration (b)	0% - 0.9% (0.1%)	0% - 1.6%
				Putback amount per projected total collateral loss (d)	0% - 25% (2.7%)	0% - 28%
CMBS		21,891	Discounted cash flow	Yield (b)	0% - 180.5% (5.5%)	0% - 122.9%
				Duration (c)	0 - 6.7 years (3.5 years)	0 - 9.7 years
Domestic servicing rights		13,955	Discounted cash flow	Debt yield (a)	7.75% (7.75%)	7.50%
				Discount rate (b)	15% (15%)	15%
VIE assets		64,175,387	Discounted cash flow	Yield (b)	0% - 866.4% (14.5%)	0% - 690.7%
				Duration (c)	0 - 18.1 years (4.1 years)	0 - 19.2 years
VIE liabilities		(2,129,529)	Discounted cash flow	Yield (b)	0% - 866.4% (14.6%)	0% - 690.7%
				Duration (c)	0 - 11.3 years (4.1 years)	0 - 12.7 years

Carrying Value at

Valuation

Unobservable

Range as of (1)


September 30, 2017

Technique

Input

September 30, 2017

December 31, 2016
Loans held-for-sale, fair value option

$
608,624

Discounted cash flow

Yield (b)

4.3% - 5.9%

5.0% - 5.7%

Duration (c)

3.3 - 12.8 years

10.0 years
RMBS

253,252

Discounted cash flow

Constant prepayment rate (a)

2.4% - 19.4%

2.8% - 17.0%

Constant default rate (b)

0.8% - 5.8%

1.1% - 8.1%

Loss severity (b)

16% - 79% (e)

12% - 79% (e)

Delinquency rate (c)

4% - 34%

2% - 29%

Servicer advances (a)

20% - 84%

23% - 94%

Annual coupon deterioration (b)

0% - 0.8%

0% - 0.6%

Putback amount per projected total collateral loss (d)

0% - 15%

0% - 15%
CMBS

23,841

Discounted cash flow

Yield (b)

0% - 167.1%

0% - 172.0%

Duration (c)

0 - 9.9 years

0 - 18.7 years
Domestic servicing rights

33,781

Discounted cash flow

Debt yield (a)

7.75%

7.75%

Discount rate (b)

15%

15%

Control migration (b)

0% - 80%

0% - 80%
VIE assets

51,197,981

Discounted cash flow

Yield (b)

0% - 813.9%

0% - 960.4%

Duration (c)

0 - 11.6 years

0 - 12.0 years
VIE liabilities

2,259,783

Discounted cash flow

Yield (b)

0% - 813.9%

0% - 960.4%

Duration (c)

0 - 11.6 years

0 - 12.0 years

(1)

~~(1)~~

The ranges and weighted averages of significant unobservable inputs are represented in percentages and years.

Unobservable inputs were weighted by the relative carrying value of the instruments as of June 30, 2020.

~~Sensitivity~~Information about Uncertainty of ~~the~~ Fair Value ~~to Changes in the Unobservable Inputs~~Measurements

(a)

~~(a)~~

Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement.

(b)

~~(b)~~

Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement.

(c)

~~(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)

~~(d)~~

Any delay in the putback recovery date leads to a decrease in fair value for the majority of securities in our RMBS portfolio.

(e)

~~81%~~17% and ~~57%~~34% of the portfolio falls within a range of 45%~~-80%~~ - 80% as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

~~Table of Contents~~

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 commercial mortgage loans, and investing in entities which engage in real ~~estate related~~estate-related operations. ~~The majority of our TRSs are held within the Investing and Servicing Segment.~~ As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, approximately ~~$779.8 million~~$1.0 billion and ~~$634.4 million,~~$1.6 billion, respectively, of assets ~~including $139.4 million and $181.0 million in cash, respectively,~~ 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.

Table of Contents

The following table is a reconciliation of our U.S. federal income tax (benefit) provision determined using our statutory federal tax rate to our reported income tax (benefit) provision for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2017				2016				2017				2016

																	For the Three Months Ended June 30,								For the Six Months Ended June 30,
																	2020				2019				2020				2019
Federal statutory tax rate	$	35,915	35.0	%	$	37,968	35.0	%	$	118,010	35.0	%	$	86,939	35.0	%	$	31,849	21.0	%	$	28,556	21.0	%	$	16,520	21.0	%	$	44,692	21.0	%
REIT and other non-taxable income		(26,242)	(25.5)	%		(35,541)	(32.7)	%		(99,668)	(29.6)	%		(83,676)	(33.7)	%
REIT and other non-taxable loss																		(26,923)	(17.8)	%		(26,013)	(19.1)	%		(17,009)	(21.6)	%		(42,172)	(19.8)	%
State income taxes		200	0.2	%		247	0.2	%		81	—	%		224	0.1	%		1,619	1.1	%		666	0.5	%		(160)	(0.2)	%		660	0.3	%
Federal benefit of state tax deduction		(70)	(0.1)	%		(86)	(0.1)	%		(28)	—	%		(78)	—	%		(340)	(0.2)	%		(140)	(0.1)	%		34	—	%		(139)	(0.1)	%
Net operating loss carryback rate differential																		(3,717)	(2.5)	%		—	—	%		(3,717)	(4.7)	%		—	—	%
Intra-entity transfer																		(3,781)	(2.5)	%		—	—	%		(3,781)	(4.8)	%		—	—	%
Other		13	—	%		79	0.1	%		(110)	—	%		58	—	%		(5)	—	%		464	0.3	%		86	0.1	%		826	0.4	%
Effective tax rate	$	9,816	9.6	%	$	2,667	2.5	%	$	18,285	5.4	%	$	3,467	1.4	%	$	(1,298)	(0.9)	%	$	3,533	2.6	%	$	(8,027)	(10.2)	%	$	3,867	1.8	%

~~During~~

The Company has used the ~~three and nine months ended September 30, 2017, we recognized $28.2 million and $53.9 million, respectively,~~discrete tax approach in earnings from unconsolidated entities related to our interest in an investor entity which owns equity in an online real estate company (see Note 7). Our investment in this entity is held within a TRS. In calculating ~~our effective~~the tax ~~rate~~benefit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, these earnings were deemed~~2020 due to ~~be both unusual~~the fact that a relatively small change in ~~nature~~the Company’s projected pre-tax net income could result in a volatile effective tax rate. Under the discrete method, the Company determines its tax benefit based upon actual results as if the interim period was an annual period.

In response to the COVID-19 pandemic, the U.S. and ~~infrequent in occurrence. As a result, pursuant~~many other governments have enacted, or are contemplating enacting, measures to ~~ASC 740,~~provide aid and economic stimulus. These measures include deferring the ~~income~~due dates of tax ~~effect of these earnings, net of the related Manager incentive fee, was excluded from ordinary~~payments and other changes to their income and ~~discretely calculated. This calculation resulted~~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., includes measures to assist companies, including temporary changes to income and non-income-based tax laws, and to allow 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 this year to a year in which the federal tax rate was 35%, resulting in a ~~discrete income~~ tax ~~provision of $8.4 million and $18.3 million in our condensed consolidated statements of operations~~benefit from the NOL carryback for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~ 2020. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

Table of Contents

21. Commitments and ~~Contingencies~~Contingencies

As of ~~September~~June 30, ~~2017, we~~2020, our Commercial and Residential Lending Segment had future commercial loan funding commitments ~~on 51 loans~~ totaling ~~$1.5~~$2.0 billion, of which we expect to fund ~~$1.3~~$1.9 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions.

During the three months ended June 30, 2020, we entered into a trade confirmation which would allow us to acquire $557.9 million unpaid principal balance of residential loans at a discount to the par amount of the loans. The closing date on all or a portion of these loans will be as mutually agreed between us and the seller.

As of June 30, 2020, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $272.7 million, including $139.8 million under revolvers and letters of credit (“LCs”), and $132.9 million under delayed draw term loans. As of June 30, 2020, $24.9 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 June 30, 2020, we had 6 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.

As of June 30, 2020, no contingencies have been recorded on our consolidated balance sheet as a result of COVID-19. However, if the global pandemic continues and the economic implications worsen, it may have long-term impacts on our financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.

22. Segment ~~Data~~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~~Note is reported on that basis.

Investing





Investing


Lending

Property

and Servicing

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total
Revenues:

Interest income from loans

$
134,149

$
—

$
4,450

$
—

$
138,599

$
—

$
138,599
Interest income from investment securities

11,540


—

31,740

—

43,280

(30,829)

12,451
Servicing fees

142


—

23,093

—

23,235

(8,393)

14,842
Rental income

—

47,663

12,490

—

60,153

—

60,153
Other revenues

181

164

441

—

786

(64)

722
Total revenues

146,012

47,827

72,214

—

266,053

(39,286)

226,767
Costs and expenses:

Management fees

482

—

18

30,370

30,870

110

30,980
Interest expense

27,929

11,360

5,710

31,709

76,708

(277)

76,431
General and administrative

5,302

1,090

24,167

2,251

32,810

82

32,892
Acquisition and investment pursuit costs

807

245

(28)

—

1,024

—

1,024
Costs of rental operations

—

18,660

5,139

—

23,799

—

23,799
Depreciation and amortization

17

17,852

5,002

—

22,871

—

22,871
Loan loss allowance, net

(171)

—

—

—

(171)

—

(171)
Other expense

72

97

207

—

376

—

376
Total costs and expenses

34,438

49,304

40,215

64,330

188,287

(85)

188,202
Income (loss) before other income (loss), income taxes and non-controlling interests

111,574

(1,477)

31,999

(64,330)

77,766

(39,201)

38,565
Other income (loss):

Change in net assets related to consolidated VIEs

—

—

—

—

—

56,177

56,177
Change in fair value of servicing rights

—

—

(5,652)

—

(5,652)

785

(4,867)
Change in fair value of investment securities, net

276

—

13,962

—

14,238

(14,635)

(397)
Change in fair value of mortgage loans held-for-sale, net

(397)

—

19,882

—

19,485

—

19,485
Earnings (loss) from unconsolidated entities

848

(33,731)

30,225

—

(2,658)

(2,031)

(4,689)
Gain on sale of investments and other assets, net

—

—

11,877

—

11,877

—

11,877
Loss on derivative financial instruments, net

(10,813)

(11,276)

(2,135)

—

(24,224)

—

(24,224)
Foreign currency gain (loss), net

10,657

(1)

4

—

10,660

—

10,660
Other income, net

—

—

28

—

28

—

28
Total other income (loss)

571

(45,008)

68,191

—

23,754

40,296

64,050
Income (loss) before income taxes

112,145

(46,485)

100,190

(64,330)

101,520

1,095

102,615
Income tax benefit (provision)

11

—

(9,827)

—

(9,816)

—

(9,816)
Net income (loss)

112,156

(46,485)

90,363

(64,330)

91,704

1,095

92,799
Net income attributable to non-controlling interests

(357)

—

(2,919)

—

(3,276)

(1,095)

(4,371)
Net income (loss) attributable to Starwood Property Trust, Inc.

$
111,799

$
(46,485)

$
87,444

$
(64,330)

$
88,428

$
—

$
88,428

The table below presents our results of operations for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2019 by business segment (amounts in thousands):


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total

															Commercial and
															Residential		Infrastructure				Investing
															Lending		Lending		Property		and Servicing						Securitization
															Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	360,188	$	—	$	10,906	$	—	$	371,094	$	—	$	371,094	$	163,071	$	25,291	$	—	$	3,104	$	—	$	191,466	$	—	$	191,466
Interest income from investment securities		35,870		—		104,768		—		140,638		(100,593)		40,045		24,367		868		—		31,163		—		56,398		(33,853)		22,545
Servicing fees		568		—		86,837		—		87,405		(39,833)		47,572		90		—		—		15,880		—		15,970		(6,962)		9,008
Rental income		—		138,795		37,366		—		176,161		—		176,161		—		—		72,326		14,971		—		87,297		—		87,297
Other revenues		553		430		1,450		—		2,433		(249)		2,184		252		7		88		515		6		868		(3)		865
Total revenues		397,179		139,225		241,327		—		777,731		(140,675)		637,056		187,780		26,166		72,414		65,633		6		351,999		(40,818)		311,181
Costs and expenses:
Management fees		1,405		—		54		78,328		79,787		210		79,997		353		—		—		18		22,107		22,478		45		22,523
Interest expense		72,372		32,466		14,924		94,667		214,429		(821)		213,608		58,564		16,258		19,132		8,515		27,821		130,290		(164)		130,126
General and administrative		14,872		3,471		69,536		7,719		95,598		243		95,841		6,754		4,830		1,706		20,177		4,019		37,486		92		37,578
Acquisition and investment pursuit costs		1,707		516		9		—		2,232		—		2,232		160		14		—		(100)		—		74		—		74
Costs of rental operations		—		51,843		15,858		—		67,701		—		67,701		741		—		23,125		6,789		—		30,655		—		30,655
Depreciation and amortization		50		52,288		14,793		—		67,131		—		67,131		285		—		23,076		5,191		—		28,552		—		28,552
Loan loss allowance, net		(3,170)		—		—		—		(3,170)		—		(3,170)
Credit loss provision, net																2,096		422		—		—		—		2,518		—		2,518
Other expense		72		63		1,141		—		1,276		—		1,276		76		—		1,173		194		—		1,443		—		1,443
Total costs and expenses		87,308		140,647		116,315		180,714		524,984		(368)		524,616		69,029		21,524		68,212		40,784		53,947		253,496		(27)		253,469
Income (loss) before other income (loss), income taxes and non-controlling interests		309,871		(1,422)		125,012		(180,714)		252,747		(140,307)		112,440
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		203,108		203,108		—		—		—		—		—		—		55,158		55,158
Change in fair value of servicing rights		—		—		(28,956)		—		(28,956)		7,655		(21,301)		—		—		—		(1,159)		—		(1,159)		243		(916)
Change in fair value of investment securities, net		299		—		45,263		—		45,562		(49,623)		(4,061)		(948)		—		—		15,815		—		14,867		(14,200)		667
Change in fair value of mortgage loans held-for-sale, net		(549)		—		46,033		—		45,484		—		45,484
Earnings (loss) from unconsolidated entities		2,548		(28,782)		67,134		—		40,900		(13,137)		27,763
(Loss) gain on sale of investments and other assets, net		(59)		77		16,986		—		17,004		—		17,004
Loss on derivative financial instruments, net		(30,274)		(32,268)		(3,617)		—		(66,159)		—		(66,159)
Foreign currency gain, net		28,402		16		16		—		28,434		—		28,434
OTTI		(109)		—		—		—		(109)		—		(109)
Change in fair value of mortgage loans, net																5,363		—		—		16,528		—		21,891		—		21,891
Earnings from unconsolidated entities																5,492		—		1,044		2,754		—		9,290		(473)		8,817
Gain on sale of investments and other assets, net																239		2,276		—		—		—		2,515		—		2,515
Gain (loss) on derivative financial instruments, net																5,592		(2,833)		(11,147)		(6,953)		15,309		(32)		—		(32)
Foreign currency (loss) gain, net																(6,927)		(83)		(8)		1		—		(7,017)		—		(7,017)
Loss on extinguishment of debt		—		—		—		(5,916)		(5,916)		—		(5,916)		—		(2,816)		—		—		—		(2,816)		—		(2,816)
Other income, net		—		—		1,097		—		1,097		(613)		484
Total other income (loss)		258		(60,957)		143,956		(5,916)		77,341		147,390		224,731		8,811		(3,456)		(10,111)		26,986		15,309		37,539		40,728		78,267
Income (loss) before income taxes		310,129		(62,379)		268,968		(186,630)		330,088		7,083		337,171		127,562		1,186		(5,909)		51,835		(38,632)		136,042		(63)		135,979
Income tax provision		(331)		—		(17,954)		—		(18,285)		—		(18,285)
Income tax (provision) benefit																(1,832)		186		—		(1,887)		—		(3,533)		—		(3,533)
Net income (loss)		309,798		(62,379)		251,014		(186,630)		311,803		7,083		318,886		125,730		1,372		(5,909)		49,948		(38,632)		132,509		(63)		132,446
Net income attributable to non-controlling interests		(1,064)		—		(2,573)		—		(3,637)		(7,083)		(10,720)		(21)		—		(5,355)		(117)		—		(5,493)		63		(5,430)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	308,734	$	(62,379)	$	248,441	$	(186,630)	$	308,166	$	—	$	308,166	$	125,709	$	1,372	$	(11,264)	$	49,831	$	(38,632)	$	127,016	$	—	$	127,016

The table below presents our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 by business segment (amounts in thousands):


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total

															Commercial and
															Residential		Infrastructure				Investing
															Lending		Lending		Property		and Servicing						Securitization
															Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	348,460	$	—	$	12,854	$	—	$	361,314	$	—	$	361,314	$	342,517	$	41,539	$	—	$	4,474	$	—	$	388,530	$	—	$	388,530
Interest income from investment securities		33,975		—		115,335		—		149,310		(95,431)		53,879		35,973		1,384		—		49,724		—		87,081		(57,197)		29,884
Servicing fees		560		—		111,145		—		111,705		(40,784)		70,921		314		—		—		15,033		—		15,347		(3,896)		11,451
Rental income		—		85,048		25,214		—		110,262		—		110,262		768		—		127,527		18,561		—		146,856		—		146,856
Other revenues		180		35		4,110		—		4,325		(511)		3,814		232		243		180		793		—		1,448		(3)		1,445
Total revenues		383,175		85,083		268,658		—		736,916		(136,726)		600,190		379,804		43,166		127,707		88,585		—		639,262		(61,096)		578,166
Costs and expenses:
Management fees		1,295		—		54		75,015		76,364		146		76,510		690		—		—		459		62,661		63,810		33		63,843
Interest expense		67,585		16,163		11,443		78,236		173,427		(190)		173,237		95,821		22,795		33,063		13,371		56,630		221,680		(162)		221,518
General and administrative		13,529		2,259		95,726		7,631		119,145		532		119,677		16,747		8,760		2,359		35,677		7,669		71,212		167		71,379
Acquisition and investment pursuit costs		1,602		1,517		1,551		1,012		5,682		—		5,682		1,438		1,117		12		(68)		—		2,499		—		2,499
Costs of rental operations		—		34,923		11,595		—		46,518		—		46,518		1,766		—		47,555		8,525		—		57,846		—		57,846
Depreciation and amortization		—		41,922		11,263		—		53,185		—		53,185		845		159		38,441		7,956		—		47,401		—		47,401
Loan loss allowance, net		3,395		—		—		—		3,395		—		3,395
Credit loss provision, net																51,511		7,360		—		—		—		58,871		—		58,871
Other expense		—		513		298		—		811		—		811		153		—		337		—		—		490		—		490
Total costs and expenses		87,406		97,297		131,930		161,894		478,527		488		479,015		168,971		40,191		121,767		65,920		126,960		523,809		38		523,847
Income (loss) before other income (loss), income taxes and non-controlling interests		295,769		(12,214)		136,728		(161,894)		258,389		(137,214)		121,175
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		94,388		94,388		—		—		—		—		—		—		5,768		5,768
Change in fair value of servicing rights		—		—		(33,710)		—		(33,710)		497		(33,213)		—		—		—		5,646		—		5,646		(8,608)		(2,962)
Change in fair value of investment securities, net		(37)		—		(43,449)		—		(43,486)		42,772		(714)		(22,425)		—		—		(39,275)		—		(61,700)		65,031		3,331
Change in fair value of mortgage loans held-for-sale, net		—		—		70,122		—		70,122		—		70,122
Earnings from unconsolidated entities		2,544		7,313		3,280		—		13,137		(288)		12,849
Gain on sale of investments and other assets, net		165		—		—		—		165		—		165
Change in fair value of mortgage loans, net																(2,507)		—		—		20,823		—		18,316		—		18,316
Earnings (loss) from unconsolidated entities																722		(1,118)		—		30,146		—		29,750		(877)		28,873
(Loss) gain on sale of investments and other assets, net																(961)		296		—		7,433		—		6,768		—		6,768
Gain (loss) on derivative financial instruments, net		17,824		(6,837)		(17,780)		—		(6,793)		—		(6,793)		19,069		(1,438)		(34,837)		(22,934)		33,752		(6,388)		—		(6,388)
Foreign currency (loss) gain, net		(23,501)		(41)		2,962		—		(20,580)		—		(20,580)
Foreign currency loss, net																(27,059)		(163)		(67)		(24)		—		(27,313)		—		(27,313)
Loss on extinguishment of debt																(22)		(170)		(2,185)		—		—		(2,377)		—		(2,377)
Other income, net		—		9,102		112		1,784		10,998		—		10,998		—		—		241		89		—		330		—		330
Total other income (loss)		(3,005)		9,537		(18,463)		1,784		(10,147)		137,369		127,222
Total other (loss) income																(33,183)		(2,593)		(36,848)		1,904		33,752		(36,968)		61,314		24,346
Income (loss) before income taxes		292,764		(2,677)		118,265		(160,110)		248,242		155		248,397		177,650		382		(30,908)		24,569		(93,208)		78,485		180		78,665
Income tax provision		(75)		—		(3,392)		—		(3,467)		—		(3,467)
Income tax benefit																1,165		89		—		6,773		—		8,027		—		8,027
Net income (loss)		292,689		(2,677)		114,873		(160,110)		244,775		155		244,930		178,815		471		(30,908)		31,342		(93,208)		86,512		180		86,692
Net (income) loss attributable to non-controlling interests		(1,050)		—		171		—		(879)		(155)		(1,034)
Net income attributable to non-controlling interests																(7)		—		(10,222)		(3,396)		—		(13,625)		(180)		(13,805)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	291,639	$	(2,677)	$	115,044	$	(160,110)	$	243,896	$	—	$	243,896	$	178,808	$	471	$	(41,130)	$	27,946	$	(93,208)	$	72,887	$	—	$	72,887

Table of Contents

The table below presents our results of operations for the six months ended June 30, 2019 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	$	317,666	$	52,206	$	—	$	5,010	$	—	$	374,882	$	—	$	374,882
Interest income from investment securities		44,275		1,753		—		55,456		—		101,484		(61,307)		40,177
Servicing fees		213		—		—		43,123		—		43,336		(9,895)		33,441
Rental income		—		—		142,847		28,283		—		171,130		—		171,130
Other revenues		456		693		166		711		26		2,052		(21)		2,031
Total revenues		362,610		54,652		143,013		132,583		26		692,884		(71,223)		621,661
Costs and expenses:
Management fees		764		—		—		36		45,095		45,895		94		45,989
Interest expense		120,168		34,835		38,122		16,261		55,736		265,122		(324)		264,798
General and administrative		13,522		9,309		3,224		39,028		7,245		72,328		180		72,508
Acquisition and investment pursuit costs		409		30		—		(23)		—		416		—		416
Costs of rental operations		760		—		46,062		13,484		—		60,306		—		60,306
Depreciation and amortization		356		—		46,972		10,478		—		57,806		—		57,806
Credit loss provision, net		2,085		1,196		—		—		—		3,281		—		3,281
Other expense		153		—		1,307	��	194		—		1,654		—		1,654
Total costs and expenses		138,217		45,370		135,687		79,458		108,076		506,808		(50)		506,758
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		102,994		102,994
Change in fair value of servicing rights		—		—		—		(1,674)		—		(1,674)		(9)		(1,683)
Change in fair value of investment securities, net		(2,642)		—		—		33,955		—		31,313		(30,584)		729
Change in fair value of mortgage loans, net		6,749		—		—		26,408		—		33,157		—		33,157
Earnings (loss) from unconsolidated entities		6,069		—		(42,761)		3,348		—		(33,344)		(1,039)		(34,383)
Gain on sale of investments and other assets, net		2,994		3,066		—		940		—		7,000		—		7,000
(Loss) gain on derivative financial instruments, net		(3,705)		(3,228)		(9,857)		(10,385)		24,936		(2,239)		—		(2,239)
Foreign currency (loss) gain, net		(1,688)		217		1		—		—		(1,470)		—		(1,470)
(Loss) gain on extinguishment of debt		—		(6,120)		—		—		6		(6,114)		—		(6,114)
Other loss, net		—		—		—		—		(73)		(73)		—		(73)
Total other income (loss)		7,777		(6,065)		(52,617)		52,592		24,869		26,556		71,362		97,918
Income (loss) before income taxes		232,170		3,217		(45,291)		105,717		(83,181)		212,632		189		212,821
Income tax (provision) benefit		(1,584)		271		(258)		(2,296)		—		(3,867)		—		(3,867)
Net income (loss)		230,586		3,488		(45,549)		103,421		(83,181)		208,765		189		208,954
Net (income) loss attributable to non-controlling interests		(392)		—		(11,072)		98		—		(11,366)		(189)		(11,555)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	230,194	$	3,488	$	(56,621)	$	103,519	$	(83,181)	$	197,399	$	—	$	197,399

Table of Contents

The table below presents our condensed consolidated balance sheet as of ~~September~~June 30, ~~2017~~2020 by business segment (amounts in thousands):


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total

															Commercial and
															Residential		Infrastructure				Investing
															Lending		Lending		Property		and Servicing						Securitization
															Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	43,513	$	8,581	$	58,584	$	298,006	$	408,684	$	5,161	$	413,845	$	13,959	$	299	$	30,237	$	35,855	$	266,333	$	346,683	$	1,051	$	347,734
Restricted cash		22,527		20,189		11,875		—		54,591		—		54,591		114,656		34,160		7,537		20,044		—		176,397		—		176,397
Loans held-for-investment, net		6,378,468		—		3,903		—		6,382,371		—		6,382,371		8,960,410		1,459,239		—		1,153		—		10,420,802		—		10,420,802
Loans held-for-sale		418,618		—		190,006		—		608,624		—		608,624		432,786		44,876		—		194,097		—		671,759		—		671,759
Loans transferred as secured borrowings		74,339		—		—		—		74,339		—		74,339
Investment securities		677,977		—		1,026,634		—		1,704,611		(1,002,793)		701,818		1,120,624		40,312		—		1,094,613		—		2,255,549		(1,503,524)		752,025
Properties, net		—		2,234,646		286,696		—		2,521,342		—		2,521,342		27,283		—		1,998,759		198,281		—		2,224,323		—		2,224,323
Intangible assets		—		116,856		91,591		—		208,447		(26,582)		181,865		—		—		43,580		67,567		—		111,147		(34,854)		76,293
Investment in unconsolidated entities		36,831		109,607		117,772		—		264,210		(20,760)		243,450		49,853		24,744		—		47,114		—		121,711		(16,798)		104,913
Goodwill		—		—		140,437		—		140,437		—		140,437		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		13,513		22,480		2,300		—		38,293		—		38,293		47,875		—		348		586		42,096		90,905		—		90,905
Accrued interest receivable		34,569		—		478		—		35,047		—		35,047		55,877		3,163		—		520		13,589		73,149		(1,401)		71,748
Other assets		10,286		40,705		61,787		2,293		115,071		(2,806)		112,265		29,864		5,616		81,859		57,321		9,512		184,172		(25)		184,147
VIE assets, at fair value		—		—		—		—		—		51,197,981		51,197,981		—		—		—		—		—		—		64,175,387		64,175,387
Total Assets	$	7,710,641	$	2,553,064	$	1,992,063	$	300,299	$	12,556,067	$	50,150,201	$	62,706,268	$	10,853,187	$	1,731,818	$	2,162,320	$	1,857,588	$	331,530	$	16,936,443	$	62,619,836	$	79,556,279
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	27,821	$	71,726	$	78,398	$	24,739	$	202,684	$	1,098	$	203,782	$	27,941	$	10,285	$	45,277	$	36,400	$	91,765	$	211,668	$	54	$	211,722
Related-party payable		—		—		43		29,946		29,989		—		29,989		—		—		—		5		20,936		20,941		—		20,941
Dividends payable		—		—		—		125,674		125,674		—		125,674		—		—		—		—		138,778		138,778		—		138,778
Derivative liabilities		14,105		8,784		1		—		22,890		—		22,890		2,260		1,620		—		—		—		3,880		—		3,880
Secured financing agreements, net		3,223,863		1,501,006		516,933		296,593		5,538,395		(23,700)		5,514,695		4,749,321		1,221,001		1,792,818		683,466		389,714		8,836,320		—		8,836,320
Collateralized loan obligations, net																929,307		—		—		—		—		929,307		—		929,307
Unsecured senior notes, net		—		—		—		2,044,523		2,044,523		—		2,044,523		—		—		—		—		1,932,560		1,932,560		—		1,932,560
Secured borrowings on transferred loans, net		74,200		—		—		—		74,200		—		74,200
VIE liabilities, at fair value		—		—		—		—		—		50,150,781		50,150,781		—		—		—		—		—		—		62,617,975		62,617,975
Total Liabilities		3,339,989		1,581,516		595,375		2,521,475		8,038,355		50,128,179		58,166,534		5,708,829		1,232,906		1,838,095		719,871		2,573,753		12,073,454		62,618,029		74,691,483
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock		—		—		—		2,654		2,654		—		2,654		—		—		—		—		2,916		2,916		—		2,916
Additional paid-in capital		1,808,624		981,129		747,298		1,167,993		4,705,044		—		4,705,044		1,473,921		504,262		137,777		(228,654)		3,306,266		5,193,572		—		5,193,572
Treasury stock		—		—		—		(92,104)		(92,104)		—		(92,104)		—		—		—		—		(133,024)		(133,024)		—		(133,024)
Accumulated other comprehensive income (loss)		55,687		9,668		(84)		—		65,271		—		65,271		42,930		—		—		(64)		—		42,866		—		42,866
Retained earnings (accumulated deficit)		2,495,536		(19,249)		639,359		(3,299,719)		(184,073)		—		(184,073)		3,627,392		(5,350)		(40,699)		1,222,945		(5,418,381)		(614,093)		—		(614,093)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,359,847		971,548		1,386,573		(2,221,176)		4,496,792		—		4,496,792		5,144,243		498,912		97,078		994,227		(2,242,223)		4,492,237		—		4,492,237
Non-controlling interests in consolidated subsidiaries		10,805		—		10,115		—		20,920		22,022		42,942		115		—		227,147		143,490		—		370,752		1,807		372,559
Total Equity		4,370,652		971,548		1,396,688		(2,221,176)		4,517,712		22,022		4,539,734		5,144,358		498,912		324,225		1,137,717		(2,242,223)		4,862,989		1,807		4,864,796
Total Liabilities and Equity	$	7,710,641	$	2,553,064	$	1,992,063	$	300,299	$	12,556,067	$	50,150,201	$	62,706,268	$	10,853,187	$	1,731,818	$	2,162,320	$	1,857,588	$	331,530	$	16,936,443	$	62,619,836	$	79,556,279

6062

Table of Contents

The table below presents our condensed consolidated balance sheet as of December 31, ~~2016~~2019 by business segment (amounts in thousands):


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total

															Commercial and
															Residential		Infrastructure				Investing
															Lending		Lending		Property		and Servicing						Securitization
															Segment		Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	7,085	$	7,701	$	38,798	$	560,790	$	614,374	$	1,148	$	615,522	$	26,278	$	2,209	$	30,123	$	61,693	$	356,864	$	477,167	$	1,221	$	478,388
Restricted cash		17,885		9,146		8,202		—		35,233		—		35,233		36,135		41,967		7,171		10,370		—		95,643		—		95,643
Loans held-for-investment, net		5,827,553		—		20,442		—		5,847,995		—		5,847,995		9,187,332		1,397,448		—		1,294		—		10,586,074		—		10,586,074
Loans held-for-sale		—		—		63,279		—		63,279		—		63,279		605,384		119,528		—		159,238		—		884,150		—		884,150
Loans transferred as secured borrowings		35,000		—		—		—		35,000		—		35,000
Investment securities		776,072		—		990,570		—		1,766,642		(959,024)		807,618		992,974		45,153		—		1,177,148		—		2,215,275		(1,405,037)		810,238
Properties, net		—		1,667,108		277,612		—		1,944,720		—		1,944,720		26,834		—		2,029,024		210,582		—		2,266,440		—		2,266,440
Intangible assets		—		128,159		125,327		—		253,486		(34,238)		219,248		—		—		47,303		64,644		—		111,947		(26,247)		85,700
Investment in unconsolidated entities		30,874		124,977		56,376		—		212,227		(7,622)		204,605		46,921		25,862		—		32,183		—		104,966		(20,637)		84,329
Goodwill		—		—		140,437		—		140,437		—		140,437		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		45,282		42,893		1,186		—		89,361		—		89,361		14,718		7		3		7		14,208		28,943		—		28,943
Accrued interest receivable		25,831		—		2,393		—		28,224		—		28,224		45,996		3,134		133		2,388		13,242		64,893		(806)		64,087
Other assets		13,470		29,569		59,503		1,866		104,408		(2,645)		101,763		59,170		6,101		82,910		54,238		8,911		211,330		(7)		211,323
VIE assets, at fair value		—		—		—		—		—		67,123,261		67,123,261		—		—		—		—		—		—		62,187,175		62,187,175
Total Assets	$	6,779,052	$	2,009,553	$	1,784,125	$	562,656	$	11,135,386	$	66,120,880	$	77,256,266	$	11,041,742	$	1,760,818	$	2,196,667	$	1,914,222	$	393,225	$	17,306,674	$	60,735,662	$	78,042,336
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	20,769	$	81,873	$	68,603	$	26,003	$	197,248	$	886	$	198,134	$	30,594	$	6,443	$	48,370	$	73,021	$	53,494	$	211,922	$	84	$	212,006
Related-party payable		—		—		440		37,378		37,818		—		37,818		—		—		—		5		40,920		40,925		—		40,925
Dividends payable		—		—		—		125,075		125,075		—		125,075		—		—		—		—		137,427		137,427		—		137,427
Derivative liabilities		3,388		—		516		—		3,904		—		3,904		7,698		750		—		292		—		8,740		—		8,740
Secured financing agreements, net		2,258,462		1,196,830		426,683		295,851		4,177,826		(23,700)		4,154,126		5,038,876		1,217,066		1,698,334		574,507		391,215		8,919,998		(13,950)		8,906,048
Collateralized loan obligations, net																928,060		—		—		—		—		928,060		—		928,060
Unsecured senior notes, net		—		—		—		2,011,544		2,011,544		—		2,011,544		—		—		—		—		1,928,622		1,928,622		—		1,928,622
Secured borrowings on transferred loans		35,000		—		—		—		35,000		—		35,000
VIE liabilities, at fair value		—		—		—		—		—		66,130,592		66,130,592		—		—		—		—		—		—		60,743,494		60,743,494
Total Liabilities		2,317,619		1,278,703		496,242		2,495,851		6,588,415		66,107,778		72,696,193		6,005,228		1,224,259		1,746,704		647,825		2,551,678		12,175,694		60,729,628		72,905,322
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock		—		—		—		2,639		2,639		—		2,639		—		—		—		—		2,874		2,874		—		2,874
Additional paid-in capital		2,218,671		696,049		883,761		892,699		4,691,180		—		4,691,180		1,522,360		529,668		208,650		(123,210)		2,995,064		5,132,532		—		5,132,532
Treasury stock		—		—		—		(92,104)		(92,104)		—		(92,104)		—		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		44,903		(8,328)		(437)		—		36,138		—		36,138		50,996		—		—		(64)		—		50,932		—		50,932
Retained earnings (accumulated deficit)		2,186,727		43,129		390,994		(2,736,429)		(115,579)		—		(115,579)		3,463,158		6,891		5,431		1,194,998		(5,052,197)		(381,719)		—		(381,719)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,450,301		730,850		1,274,318		(1,933,195)		4,522,274		—		4,522,274		5,036,514		536,559		214,081		1,071,724		(2,158,453)		4,700,425		—		4,700,425
Non-controlling interests in consolidated subsidiaries		11,132		—		13,565		—		24,697		13,102		37,799		—		—		235,882		194,673		—		430,555		6,034		436,589
Total Equity		4,461,433		730,850		1,287,883		(1,933,195)		4,546,971		13,102		4,560,073		5,036,514		536,559		449,963		1,266,397		(2,158,453)		5,130,980		6,034		5,137,014
Total Liabilities and Equity	$	6,779,052	$	2,009,553	$	1,784,125	$	562,656	$	11,135,386	$	66,120,880	$	77,256,266	$	11,041,742	$	1,760,818	$	2,196,667	$	1,914,222	$	393,225	$	17,306,674	$	60,735,662	$	78,042,336

6163

Table of Contents

23. Subsequent Events

Our significant events subsequent to ~~September~~June 30, ~~2017~~2020 were as follows:

~~Convertible Senior Notes Due 2017~~Commercial Mortgage Loan Securitization

In ~~October 2017,~~July 2020, we ~~repaid~~securitized commercial mortgage loans held-for-sale with a principal balance of $151.3 million.

Secured Financing Agreements

In July 2020, we amended the ~~full principal amount~~Infrastructure Loans repurchase facility with a maximum facility size of $500.0 million to extend the ~~2017 Notes in cash upon their maturity.~~current maturity from February 2021 to February 2022.

~~Dividend Declaration~~

On November 8, 2017, our board of directors declared a dividend of $0.48 per share for the fourth quarter of 2017, which is payable on January 15, 2018 to common stockholders of record as of December 29, 2017.

6264

Table of Contents

Item 2. Management’s Discussion and ~~Analysis~~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, ~~2016 (the~~2019 (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. See also “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for a detailed 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.

Overview

We have ~~three~~four reportable business segments as of ~~September~~June 30, ~~2017:~~2020 and we refer to the investments within these segments as our target assets:

●

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

●

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.

6365

Table of Contents

COVID-19 Pandemic

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, has spread to every state in the United States, and is continuing to spread. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and since then, numerous countries, including the U.S., have declared national emergencies with respect to COVID-19 and have instituted “stay-at-home” guidelines or orders to help prevent its spread. Such actions are creating disruptions in global supply chains, increasing rates of unemployment and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The outbreak of COVID-19 and its impact on the current 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 II, Item 1A of this Quarterly Report on Form 10-Q.

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 to 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.

During the three months ended June 30, 2020, we closed nine payment related loan modifications, representing an aggregate principal balance of $887.0 million and $4.4 million of interest deferrals in the quarter. Subsequent to quarter end, we closed an additional two payment related loan modifications, representing an aggregate principal balance of $180.5 million. These loan modifications principally included 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’ initial 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.

Within residential lending, we continue to monitor the impact of forbearance arrangements granted by our master servicer. For loans which have been securitized, the servicer has advanced 100% of all unpaid principal and interest.

In our property segment, we collected 97% of rents due in the three months ended June 30, 2020 and granted no lease modifications. 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 and decreased turnover.

Table of Contents

In our infrastructure segment, we collected 100% of interest due in the three months ended June 30, 2020. Our borrowers did not request, nor did we grant, any payment related loan modifications during the three months ended June 30, 2020.

Developments During the ~~Third~~Second Quarter of ~~2017~~2020

~~Master Lease Portfolio Acquisition~~Commercial and Residential Lending Segment

~~Other Developments~~

●

Received gross proceeds of $224.5 million and $172.1 million ($37.7 million and $172.1 million, net of debt repayments) from sales of senior interests in first mortgage loans and whole loan interests, respectively.

~~The Lending Segment originated the following~~●

Originated or acquired $197.7 million of commercial loans during the ~~quarter:~~

quarter, including the following:

$~~339.2~~119.5 million first mortgage loan to refinance a 54-story oceanfront residential building located in Florida, of which the Company funded $97.4 million.

$58.2 million of a Euro (“EUR”) and ~~mezzanine~~pound sterling (“GBP”) denominated first mortgage loan for the acquisition of ~~a 1.0 million square foot office campus~~31 industrial and logistics properties located in ~~Irvine, California, of~~the United Kingdom, Germany, Poland and Hungary, which the Company ~~funded $291.2 million.~~

fully funded.

●

~~$252.0 million first mortgage loan for the refinancing of a 1.3 million square foot office tower located in downtown Houston, Texas, of which the Company funded $232.0 million.~~

~~$140.0 million first mortgage and mezzanine loan for the refinancing of a 510-room hotel portfolio located in Boston, Massachusetts, which was fully funded upon origination.~~

~~$133.6 million first mortgage for the refinancing of a 22-property office portfolio located in Woodbury, New York, of which the Company funded $123.6 million.~~

~~$72.0 million mezzanine loan for the development of a 200-room luxury hotel and 80-villa residential resort in Phoenix, Arizona. The loan was unfunded as of September 30, 2017.~~

Funded ~~$186.8~~$219.9 million of previously originated commercial loan and preferred equity commitments.

●

Received gross proceeds of ~~$951.4~~$169.2 million ($70.9 million, net of debt repayments) from maturities ~~sales~~ and principal repayments on our commercial loans ~~held-for-investment~~ and single-borrower CMBS.

●

Acquired $134.7 million of residential mortgage loans.

~~Originated conduit loans of $396.1 million and received~~●

Received proceeds of ~~$517.4~~$589.7 million, including retained RMBS of $185.4 million, from ~~sales.~~

the securitization of $583.5 million of residential mortgage loans.

Infrastructure Lending Segment

●

Received proceeds of $35.8 million from maturities and principal repayments on our infrastructure loans and bonds.

●

Funded $50.5 million of pre-existing infrastructure loan commitments.

Property Segment

●

Refinanced our Woodstar I Portfolio by entering into mortgage loans with total borrowings of $217.1 million. The loans carry ten-year terms and weighted average annual interest rates of LIBOR + 2.71%. A portion of the net proceeds from the mortgage loans was used to repay $117.0 million of outstanding government sponsored mortgage loans.

Investing and Servicing Segment

●

Sold ~~88%~~a portion of our equity interest in a servicing and advisory business for $10.3 million in cash, resulting in a gain of $10.3 million. The transaction also resulted in an ~~online real estate company for cash proceeds~~increase to our remaining investment to reflect its implied fair value based on the sales price, resulting in an additional gain of ~~$66.0 million, which were received subsequent to September 30, 2017.~~

$17.6 million.

●

~~Named~~Obtained four new special ~~servicer on two new issue~~servicing assignments for CMBS ~~deals~~trusts with a total unpaid principal balance of ~~$2.1 billion at issuance; in the case of one of these CMBS deals, we retained the related B-piece.~~

$3.6 billion.

●

~~Acquired commercial real estate from CMBS trusts for a gross purchase price of $18.9 million.~~

Sold commercial real estate for ~~total~~ gross proceeds of ~~$26.0~~$24.1 million and recognized a net ~~gains~~gain of ~~$8.8~~$7.4 million.

6467

Table of Contents

Developments During the ~~Nine Months Ended September 30, 2017~~First Quarter of 2020

Commercial and Residential Lending Segment

●

~~Acquired 20 retail properties and three industrial properties comprising our Master Lease Portfolio as discussed in our “Developments During the Third Quarter of 2017.”~~

~~The Lending Segment originated~~Originated or acquired ~~the following~~$853.4 million of commercial loans during the ~~quarter:~~

quarter, including the following:

$~~339.2~~220.0 million first mortgage and mezzanine loan on a 41-property extended stay portfolio located across the U.S, of which the Company funded $205.0 million.

$197.2 million first mortgage loan to refinance the existing leasehold debt and provide acquisition financing for the ~~acquisition of a 1.0 million square foot~~fee interest in an 878,843 square-foot, six building office ~~campus~~park located in ~~Irvine,~~ California, of which the Company funded ~~$291.2~~$193.2 million.

$~~280.0~~150.0 million first mortgage and mezzanine loan ~~for~~to refinance 13 newly constructed self-storage facilities located across the ~~refinancing of a 367-room hotel and 11-unit condominium project located in Manhattan’s Lower East Side, of which the Company funded $264.3 million.~~

$280.0 million first mortgage loan to finance the development of a 36-floor luxury residential tower with parking and ground floor retail space located in Brooklyn, New York, of which the Company funded $30.0 million and sold the $80.0 million subordinated first mortgage.

~~$252.0 million first mortgage loan for the refinancing of a 1.3 million square foot office tower located in downtown Houston, Texas, of which the Company funded $232.0 million.~~

~~$250.0 million first mortgage and mezzanine loan for the refinancing and renovation of two adjoined 12-floor office buildings located in Washington, D.C.~~U.S., of which the Company funded ~~$140.5 million and sold $75.0 million during the current quarter.~~

$128.5 million.

●

$223.6 million first mortgage and mezzanine loan for the development of a waterfront residential community located in Glen Cove, New York. The $160.0 million first mortgage was subsequently sold during the first quarter and the mezzanine loan was unfunded as of September 30, 2017.

~~$175.0 million first mortgage and mezzanine loan for the acquisition of a portfolio of four office buildings located in Tysons Corner, Virginia, of which the Company funded $171.1 million.~~

$175.0 million first mortgage loan to finance the completion of a 2.7 million square foot shopping and entertainment complex located in East Rutherford, New Jersey, of which the Company funded $30.0 million.

Funded ~~$448.0~~$349.6 million of previously originated commercial loan commitments.

●

Received gross proceeds of ~~$1.9 billion~~$703.0 million ($390.0 million, net of debt repayments) from maturities ~~sales~~ and principal repayments on our commercial loans, ~~held-for-investment~~single-borrower CMBS and ~~single-borrower CMBS.~~

preferred equity interests.

●

Acquired $386.1 million of residential mortgage loans.

●

Received proceeds of $398.7 million, including retained RMBS of $29.3 million, from the securitization of $381.3 million of residential mortgage loans.

Infrastructure Lending Segment

●

Received proceeds of $38.4 million from sales of infrastructure loans and $39.7 million from maturities and principal repayments on our infrastructure loans and bonds.

●

Acquired $15.2 million of infrastructure loans and funded $48.5 million of pre-existing infrastructure loan commitments.

Investing and Servicing Segment

●

Originated ~~or acquired~~commercial conduit loans of ~~$1.1 billion and~~$360.8 million. Separately, received proceeds of ~~$987.8~~$352.4 million from ~~sales.~~

sales of previously originated commercial conduit loans.

●

~~Purchased $92.6 million of CMBS in the Investing and Servicing Segment.~~

~~Named special servicer on~~Obtained five new ~~issue~~special servicing assignments for CMBS ~~deals~~trusts with a total unpaid principal balance of ~~$4.9 billion at issuance; in the case of two of these~~$4.2 billion.

●

Acquired CMBS ~~deals, we retained the related B-piece.~~

~~Sold 88% of our equity interest in an online real estate company for cash proceeds of $66.0 million, which were received subsequent to September 30, 2017.~~

~~Acquired commercial real estate from CMBS trusts~~ for a ~~gross~~ purchase price of ~~$38.2 million.~~

~~Sold commercial real estate~~$7.7 million and sold CMBS for total gross proceeds of ~~$44.6 million and recognized net gains of $14.0 million.~~

~~Table of Contents~~

~~Issued $250.0~~$32.3 million, of ~~4.375% Convertible Senior Notes due 2023 (the “2023 Notes”) and utilized the proceeds~~which $10.9 million related to ~~repurchase $230.0 million aggregate principal amount of our 2018 Notes for $250.7 million, recognizing a loss on extinguishment of debt of $5.9 million.~~

non-controlling interests.

Corporate Financing

●

Repurchased 1,925,421 shares of common stock with a weighted average repurchase price of $14.95 per share for a total cost of $28.8 million.

Subsequent Events

Refer to Note 23 to the Condensed Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to ~~September~~June 30, ~~2017.~~2020.

Table of Contents

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 ~~Non-GAAP~~section captioned “Non-GAAP Financial ~~Measures section herein.~~Measures”.

~~Table of Contents~~

The following table compares our summarized results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 by business segment (amounts in thousands):


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020		2019		$ Change		2020		2019		$ Change
Revenues:
Commercial and Residential Lending Segment	$	168,367	$	187,780	$	(19,413)	$	379,804	$	362,610	$	17,194
Infrastructure Lending Segment		19,909		26,166		(6,257)		43,166		54,652		(11,486)
Property Segment		63,624		72,414		(8,790)		127,707		143,013		(15,306)
Investing and Servicing Segment		44,090		65,633		(21,543)		88,585		132,583		(43,998)
Corporate		—		6		(6)		—		26		(26)
Securitization VIE eliminations		(30,384)		(40,818)		10,434		(61,096)		(71,223)		10,127
		265,606		311,181		(45,575)		578,166		621,661		(43,495)
Costs and expenses:
Commercial and Residential Lending Segment		64,191		69,029		(4,838)		168,971		138,217		30,754
Infrastructure Lending Segment		14,112		21,524		(7,412)		40,191		45,370		(5,179)
Property Segment		61,105		68,212		(7,107)		121,767		135,687		(13,920)
Investing and Servicing Segment		28,992		40,784		(11,792)		65,920		79,458		(13,538)
Corporate		53,747		53,947		(200)		126,960		108,076		18,884
Securitization VIE eliminations		85		(27)		112		38		(50)		88
		222,232		253,469		(31,237)		523,847		506,758		17,089
Other income (loss):
Commercial and Residential Lending Segment		33,358		8,811		24,547		(33,183)		7,777		(40,960)
Infrastructure Lending Segment		(1,245)		(3,456)		2,211		(2,593)		(6,065)		3,472
Property Segment		(6,656)		(10,111)		3,455		(36,848)		(52,617)		15,769
Investing and Servicing Segment		47,822		26,986		20,836		1,904		52,592		(50,688)
Corporate		4,517		15,309		(10,792)		33,752		24,869		8,883
Securitization VIE eliminations		30,493		40,728		(10,235)		61,314		71,362		(10,048)
		108,289		78,267		30,022		24,346		97,918		(73,572)
Income (loss) before income taxes:
Commercial and Residential Lending Segment		137,534		127,562		9,972		177,650		232,170		(54,520)
Infrastructure Lending Segment		4,552		1,186		3,366		382		3,217		(2,835)
Property Segment		(4,137)		(5,909)		1,772		(30,908)		(45,291)		14,383
Investing and Servicing Segment		62,920		51,835		11,085		24,569		105,717		(81,148)
Corporate		(49,230)		(38,632)		(10,598)		(93,208)		(83,181)		(10,027)
Securitization VIE eliminations		24		(63)		87		180		189		(9)
		151,663		135,979		15,684		78,665		212,821		(134,156)
Income tax benefit (provision)		1,298		(3,533)		4,831		8,027		(3,867)		11,894
Net income attributable to non-controlling interests		(13,305)		(5,430)		(7,875)		(13,805)		(11,555)		(2,250)

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2017

2016

$ Change

2017

2016

$ Change
Revenues:

Lending Segment

$
146,012

$
128,101

$
17,911

$
397,179

$
383,175

$
14,004
Property Segment

47,827

29,237

18,590

139,225

85,083

54,142
Investing and Servicing Segment

72,214

91,879

(19,665)

241,327

268,658

(27,331)
Investing and Servicing VIEs

(39,286)

(44,512)

5,226

(140,675)

(136,726)

(3,949)

226,767

204,705

22,062

637,056

600,190

36,866
Costs and expenses:

Lending Segment

34,438

30,719

3,719

87,308

87,406

(98)
Property Segment

49,304

31,684

17,620

140,647

97,297

43,350
Investing and Servicing Segment

40,215

58,580

(18,365)

116,315

131,930

(15,615)
Corporate

64,330

55,027

9,303

180,714

161,894

18,820
Investing and Servicing VIEs

(85)

32

(117)

(368)

488

(856)

188,202

176,042

12,160

524,616

479,015

45,601
Other income (loss):

Lending Segment

571

2,212

(1,641)

258

(3,005)

3,263
Property Segment

(45,008)

(2,272)

(42,736)

(60,957)

9,537

(70,494)
Investing and Servicing Segment

68,191

35,304

32,887

143,956

(18,463)

162,419
Corporate

—

234

(234)

(5,916)

1,784

(7,700)
Investing and Servicing VIEs

40,296

44,339

(4,043)

147,390

137,369

10,021

64,050

79,817

(15,767)

224,731

127,222

97,509
Income (loss) before income taxes:

Lending Segment

112,145

99,594

12,551

310,129

292,764

17,365
Property Segment

(46,485)

(4,719)

(41,766)

(62,379)

(2,677)

(59,702)
Investing and Servicing Segment

100,190

68,603

31,587

268,968

118,265

150,703
Corporate

(64,330)

(54,793)

(9,537)

(186,630)

(160,110)

(26,520)
Investing and Servicing VIEs

1,095

(205)

1,300

7,083

155

6,928

102,615

108,480

(5,865)

337,171

248,397

88,774
Income tax provision

(9,816)

(2,667)

(7,149)

(18,285)

(3,467)

(14,818)
Net income attributable to non-controlling interests

(4,371)

(47)

(4,324)

(10,720)

(1,034)

(9,686)
Net income attributable to Starwood Property Trust, Inc.

$
88,428

$
105,766

$
(17,338)

$
308,166

$
243,896

$
64,270

Table of Contents

Net income attributable to Starwood Property Trust, Inc.

139,656

127,016

12,640

72,887

197,399

(124,512)

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2019

Commercial and Residential Lending Segment

Revenues

For the three months ended ~~September~~June 30, ~~2017,~~2020, revenues of our Commercial and Residential Lending Segment ~~increased $17.9~~decreased $19.4 million to ~~$146.0~~$168.4 million, compared to ~~$128.1~~$187.8 million for the three months ended ~~September~~June 30, ~~2016.~~2019. This ~~increase~~decrease was primarily due to ~~(i) a $19.6 million increase~~decreases in interest income from loans ~~principally due to higher average loan balances~~of $12.9 million and ~~LIBOR rates, partially offset by (ii) a $1.8 million~~investment securities of $7.0 million. The decrease in interest income from loans was principally due to (i) lower prepayment related income and (ii) lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), both partially offset by (iii) higher average balances of both commercial and residential loans. The decrease in interest income from ~~CMBS~~investment securities was primarily due to lower prepayment related income and ~~RMBS investments.~~lower average LIBOR rates.

~~Table of Contents~~

Costs and Expenses

For the three months ended ~~September~~June 30, ~~2017,~~2020, costs and expenses of our Commercial and Residential Lending Segment ~~increased $3.7~~decreased $4.8 million to ~~$34.4~~$64.2 million, compared to ~~$30.7~~$69.0 million for the three months ended ~~September~~June 30, ~~2016.~~2019. This ~~increase~~decrease was primarily due to a ~~$5.3~~$16.7 million ~~increase~~decrease in interest expense associated with the various secured financing facilities used to fund a portion of ~~our~~this segment’s investment portfolio, partially offset by a ~~$2.3~~$9.2 million increase in credit loss provision and a $1.9 million increase in general and administrative expenses. The decrease in interest expense was primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding. The increase in the credit loss provision was due to the recognition of current expected credit losses (“CECL”) during the quarter ended June 30, 2020 in accordance with the new credit loss accounting standard effective January 1, 2020 (see Notes 2 and 4 to the Condensed Consolidated Financial Statements). The CECL provision in the 2020 second quarter increased as a result of continued poor macroeconomic conditions due to the economic disruption caused by the COVID-19 pandemic and adjusted expected repayment timing on our ~~loan loss allowance.~~ commercial loans.

Net Interest Income (amounts in thousands)

For the Three Months Ended

September 30,


2017

2016

Change
Interest income from loans

$
134,149

$
114,506

$
19,643
Interest income from investment securities

11,540

13,301

(1,761)
Interest expense

(27,929)

(22,678)

(5,251)
Net interest income

$
117,760

$
105,129

$
12,631


	For the Three Months Ended
	June 30,
	2020		2019		Change
Interest income from loans	$	150,136	$	163,071	$	(12,935)
Interest income from investment securities		17,345		24,367		(7,022)
Interest expense		(41,871)		(58,564)		16,693
Net interest income	$	125,610	$	128,874	$	(3,264)

For the three months ended ~~September~~June 30, ~~2017,~~2020, net interest income of our Commercial and Residential Lending Segment ~~increased $12.6~~decreased $3.3 million to ~~$117.8~~$125.6 million, compared to ~~$105.1~~$128.9 million for the three months ended ~~September~~June 30, ~~2016.~~2019. This ~~increase~~decrease reflects the ~~net increase~~decrease in interest income ~~explained in the~~ ~~Revenues~~ ~~discussion above,~~ partially offset by the ~~increase~~decrease in interest expense on our secured financing ~~facilities.~~ facilities, both as discussed in the sections above.

During the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the weighted average unlevered ~~yield~~yields on the Commercial and Residential Lending Segment’s loans and investment securities were as follows:


	For the Three Months Ended
	June 30,
	2020		2019
Commercial	6.1	%	7.5	%
Residential	6.5	%	6.7	%
Overall	6.1	%	7.4	%

Table of Contents

The overall weighted average unlevered yield was ~~7.4% for each period. The effects~~lower due to the lower levels of ~~increases~~prepayment related income and decreases in ~~LIBOR were offset by a decline in interest rate spreads over the last twelve months.~~LIBOR.

During the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were ~~3.9%~~2.7% and ~~3.4%~~4.5%, ~~respectively, and 3.9% and 3.3%, respectively, excluding the impact of bridge financing.~~respectively. The ~~increases~~decrease in borrowing rates primarily ~~reflect increases~~reflects decreases in LIBOR.

Other Income

For the three months ended ~~September~~June 30, ~~2017,~~2020, other income of our Commercial and Residential Lending Segment ~~decreased $1.6~~increased $24.5 million to ~~$0.6~~$33.3 million compared to ~~$2.2~~$8.8 million for the three months ended ~~September~~June 30, ~~2016. The decrease~~2019. This increase was primarily due to (i) a ~~$15.8~~$27.6 million favorable change in fair value of residential mortgage loans, (ii) a $13.9 million favorable change in foreign currency gain (loss) and (iii) a $6.4 million favorable change in fair value of investment securities, all partially offset by (iv) a $17.3 million unfavorable change in gain (loss) on derivatives and (v) a $4.8 million decrease in earnings from unconsolidated entities. Favorable changes in fair value of residential mortgage loans and investment securities reflect partial recoveries of unfavorable changes in the first quarter of 2020 that were attributable to widening credit spreads resulting from market disruption and dislocation caused by the impacts of COVID-19. Those credit spreads began to tighten in the second quarter of 2020. The unfavorable change in gain (loss) on derivatives reflects a $20.5 million unfavorable change in foreign currency hedges, partially offset by a ~~$14.5~~$3.2 million favorable change in ~~foreign currency gain (loss). The unfavorable change from derivatives reflects a $14.9 million unfavorable change on foreign currency hedges and a $0.9 million unfavorable change 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 ~~CMBS~~ investments. The unfavorable change onin the foreign currency hedges and the favorable change in foreign currency gain (loss) reflect the overall weakening of the U.S. dollar against the ~~pound sterling~~Australian Dollar (“~~GBP”~~AUD”) and EUR in the ~~third~~second quarter of ~~2017 versus~~2020 compared to a strengthening of the U.S. dollar against the GBP in the ~~third~~second quarter of ~~2016.~~2019. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments.

Infrastructure Lending Segment

Revenues

For the three months ended June 30, 2020, revenues of our Infrastructure Lending Segment decreased $6.3 million to $19.9 million, compared to $26.2 million for the three months ended June 30, 2019. This decrease was primarily due to decreases in interest income from loans of $6.2 million and investment securities of $0.2 million. The decrease in interest income from loans was primarily due to lower average LIBOR rates.

Costs and Expenses

For the three months ended June 30, 2020, costs and expenses of our Infrastructure Lending Segment decreased $7.4 million to $14.1 million, compared to $21.5 million for the three months ended June 30, 2019. The decrease was primarily due to a $6.6 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and a $1.5 million decrease in credit loss provision. The decrease in interest expense was primarily due to lower average LIBOR rates. The decrease in the credit loss provision was primarily due to the reversal of a portion of the CECL allowance during the quarter ended June 30, 2020 reflecting adjusted expected repayment timing on our infrastructure loans as well as some loan paydowns.

Net Interest Income (amounts in thousands)


	For the Three Months Ended
	June 30,
	2020		2019		Change
Interest income from loans	$	19,126	$	25,291	$	(6,165)
Interest income from investment securities		683		868		(185)
Interest expense		(9,678)		(16,258)		6,580
Net interest income	$	10,131	$	9,901	$	230

6871

Table of Contents

For the three months ended June 30, 2020, net interest income of our Infrastructure Lending Segment increased $0.2 million to $10.1 million, compared to $9.9 million for the three months ended June 30, 2019. 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 June 30, 2020 and 2019, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:


	For the Three Months Ended
	June 30,
	2020		2019
Loans and investment securities held-for-investment	5.1	%	6.3	%
Loans held-for-sale	3.2	%	4.7	%

During the three months ended June 30, 2020 and 2019, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 3.3% and 4.8%, respectively.

Other Loss

For the three months ended June 30, 2020 and 2019, other loss of our Infrastructure Lending Segment decreased $2.2 million to $1.2 million, compared to $3.4 million for the three months ended June 30, 2019. The decrease in other loss primarily reflects the non-recurrence of a $2.8 million loss on extinguishment of debt in the second quarter of 2019 resulting from the write-off of deferred financing fees relating to partial debt prepayments from proceeds of loan repayments and sales.

Property Segment

Change in Results by Portfolio (amounts in thousands)

$ Change from prior period

Revenues

Cost and expenses

Other income (loss)

Income (loss) before income taxes
Master Lease Portfolio

$
722

$
655

$
(1,665)

$
(1,598)
Medical Office Portfolio

16,961

18,719

(586)

(2,344)
Ireland Portfolio

411

(125)

(4,298)

(3,762)
Woodstar Portfolio

496

(1,821)

—

2,317
Investment in unconsolidated entities

—

—

(36,187)

(36,187)
Other/Corporate

—

192

—

(192)
Total

$
18,590

$
17,620

$
(42,736)

$
(41,766)


	$ 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	$	3	$	74	$	—	$	—	$	(71)
Medical Office Portfolio		(1,312)		(1,792)		5,834		—		6,314
Woodstar I Portfolio		751		2,413		(57)		(1,702)		(3,421)
Woodstar II Portfolio		628		(39)		—		—		667
Ireland Portfolio		(8,874)		(7,510)		756		9		(599)
Investment in unconsolidated entities		—		—		—		(1,044)		(1,044)
Other/Corporate		14		(253)		—		(341)		(74)
Total	$	(8,790)	$	(7,107)	$	6,533	$	(3,078)	$	1,772

See Note 36 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios. The Ireland Portfolio, which was comprised of 11 office properties and one multifamily property all located in Dublin, Ireland, was sold in December 2019.

Revenues

For the three months ended June 30, 2020, revenues of our Property Segment decreased $8.8 million to $63.6 million, compared to $72.4 million for the three months ended June 30, 2019. The decrease in revenues was primarily due to the sale of the Ireland Portfolio in December 2019.

Costs and Expenses

For the three months ended ~~September~~June 30, 2017, revenues of our Property Segment increased $18.6 million to $47.8 million, compared to $29.2 million for the three months ended September 30, 2016. The increase in revenues in the third quarter of 2017 was primarily due to rental income from the Medical Office Portfolio, which was acquired in December 2016. The Master Lease Portfolio was acquired on September 25, 2017.

~~Costs and Expenses~~

~~For the three months ended September 30, 2017,~~2020, costs and expenses of our Property Segment ~~increased $17.6~~decreased $7.1 million to ~~$49.3~~$61.1 million, compared to ~~$31.7~~$68.2 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in costs and expenses primarily reflects ~~increases of $7.0 million in depreciation and amortization, $5.5 million in other rental related costs and $5.8 million in interest expense, all primarily due to~~ the ~~inclusion~~sale of the ~~Medical Office~~Ireland Portfolio ~~acquired~~ in December ~~2016, partially offset by lower amortization related to the Woodstar Portfolio’s in-place lease intangible asset, which is now fully amortized.~~ 2019.

Table of Contents

Other Loss

For the three months ended ~~September~~June 30, ~~2017,~~2020, other loss of our Property Segment ~~increased $42.7~~decreased $3.4 million to ~~$45.0~~$6.7 million, compared to ~~$2.3~~$10.1 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in other loss was primarily due to (i) a $36.2 million unfavorable change in earnings (loss) from unconsolidated entities principally due to unfavorable decreases in fair value of the properties in the Retail Fund, which is an investment company that measures its assets at fair value (see Note 7 to the Condensed Consolidated Financial Statements) and (ii) a $6.5 million ~~increased~~decreased loss on derivatives, ~~primarily related~~$5.8 million of which was attributable to ~~foreign exchange contracts which economically hedge our Euro currency exposure with respect to the Ireland Portfolio and~~ interest rate swaps which primarily hedge the variable interest rate risk on borrowings secured by our Medical Office ~~Portfolio.~~Portfolio, partially offset by (ii) a $2.2 million loss on extinguishment of debt in the second quarter of 2020 in connection with the refinancing of our Woodstar I Portfolio and (iii) $1.0 million of earnings in the second quarter of 2019 that did not recur in the 2020 second quarter from our equity investee that owns four regional shopping malls (the “Retail Fund”), which is an investment company that measures its assets at fair value. Our investment in the Retail Fund was written off as of December 31, 2019 due to continued declines in the estimated fair values of its properties.

Investing and Servicing Segment ~~and VIEs~~

Revenues

For the three months ended ~~September~~June 30, ~~2017,~~2020, revenues of our Investing and Servicing Segment decreased ~~$14.5~~$21.5 million to ~~$32.9 million after consolidated VIE eliminations of $39.3~~$44.1 million, compared to ~~$47.4 million after consolidated VIE eliminations of $44.5~~$65.6 million for the three months ended ~~September~~June 30, ~~2016. The VIE eliminations are merely a function of the number of CMBS trusts consolidated in any given period, and as such, are not a meaningful indicator of the operating results for this segment.~~2019. The decrease in revenues in the ~~third~~second quarter of ~~2017~~2020 was primarily due to decreases of ~~$8.0 million in servicing fees, $4.9 million in interest income from CMBS investments and $2.3~~

~~Table of Contents~~

$7.5 million in interest income from conduit loans ~~partially offset by a $2.0~~and CMBS, $7.3 million ~~increase~~in servicing fees and $6.5 million in rental income onfrom our ~~expanded~~ REIS Equity Portfolio (see Note 36 to the Condensed Consolidated Financial Statements). due to fewer properties held and an owned hotel which was closed during the quarter due to COVID-19. The ~~$8.0~~decrease in interest income primarily reflects a $6.8 million decrease in servicing fees is primarily due to the divestiture of our European servicing and advisory business in October 2016 and lower domestic workout and liquidation fees. The $4.9 million decrease in CMBS interest income reflects a $1.4 million increase in VIE eliminations related to the CMBS trusts we consolidate. Excluding the effect of these eliminations, CMBS interest income decreased by $3.5 million, primarily reflecting a lower level of CMBS interest recoveries ~~from asset liquidations by CMBS trusts.~~on CMBS.

Costs and Expenses

For the three months ended ~~September~~June 30, ~~2017,~~2020, costs and expenses of our Investing and Servicing Segment decreased ~~$18.5~~$11.8 million to ~~$40.1~~$29.0 million, compared to ~~$58.6~~$40.8 million for the three months ended ~~September~~June 30, ~~2016, inclusive of VIE eliminations which were nominal for both periods.~~2019. The decrease in costs and expenses was primarily due to ~~a decrease~~decreases of $5.2 million in general and administrative expenses ~~principally~~ reflecting lower incentive compensation, $4.3 million in costs of rental operations, depreciation and ~~the divestiture of our European servicing~~amortization due to fewer properties held and ~~advisory business.~~$2.3 million in interest expense on borrowings related to properties held and conduit loans.

Other Income

For the three months ended ~~September~~June 30, ~~2017,~~2020, other income of our Investing and Servicing Segment increased ~~$28.9~~$20.8 million to ~~$108.5~~$47.8 million, ~~including additive net VIE eliminations of $40.3 million, from $79.6 million including additive net VIE eliminations of $44.3~~compared to $27.0 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The increase in other income ~~in the third quarter of 2017 compared to the third quarter of 2016~~ was primarily due to (i) realized and unrealized gains totaling $27.9 million resulting from the sale in April 2020 of a ~~$28.2 million increase~~portion of our unconsolidated equity interest in ~~earnings from an unconsolidated investor entity which owns equity~~a servicing and advisory business, as further described in ~~an online real estate company (see~~ Note 7 to the Condensed Consolidated Financial ~~Statements),~~Statements, (ii) ~~an $11.2~~a $7.4 million gain on sale of ~~two~~an operating ~~properties,~~property in the second quarter of 2020, (iii) a ~~$9.4~~$6.5 million ~~lesser decrease~~favorable change in fair value of servicing rights ~~primarily reflecting the effect of VIE eliminations on the expected amortization of this deteriorating asset net of increases in fair value due to the attainment of new servicing contracts~~ and (iv) ~~an $8.3~~a $3.1 million ~~increase in the change in value of net assets related to consolidated VIEs,~~decreased loss on derivatives which primarily hedge our interest rate risk on conduit loans, all partially offset by (v) a ~~$30.1~~$15.1 million lesser increase in ~~the~~ fair value of ~~our~~ conduit loans ~~held-for-sale.~~and (vi) a $7.9 million lesser increase in fair value of CMBS investments.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended June 30, 2020, corporate expenses decreased $0.2 million to $53.7 million, compared to $53.9 million for the three months ended June 30, 2019.

Corporate Other Income

For the three months ended June 30, 2020, corporate other income decreased $10.8 million to $4.5 million, compared to $15.3 million for the three months ended June 30, 2019. The ~~change~~decrease in corporate other income was

Table of Contents

primarily due to decreased gains on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

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, ~~reflects amounts associated with~~” which represents our beneficial interest in those consolidated VIEs. The magnitude of the Investing and Servicing Segment’s variable interests in CMBS trusts it consolidates, including special servicing fees, interest income, and changes in fair value of CMBS and servicing rights. As noted above, this numbersecuritization 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 ~~operating results~~Investing and Servicing Segment is deemed the primary beneficiary and, to a much lesser extent, some CMBS and RMBS trusts for ~~this segment. Before VIE eliminations, there was an increase in fair value of CMBS securities of $14.0 million~~which the Commercial and ~~$0.6 million in~~Residential Lending Segment is deemed the ~~three months ended September 30, 2017 and 2016, respectively.~~primary beneficiary.

Income Tax ~~Provision~~Benefit (Provision)

~~Historically, our~~Our consolidated income ~~tax provision~~taxes principally ~~relates~~relate to the taxable nature of ~~the Investing and Servicing Segment’s~~our loan servicing and loan conduit businesses and certain other real estate related investing activities which are housed in ~~TRSs.~~taxable REIT subsidiaries (“TRSs”). For the three months ended ~~September~~June 30, ~~2017, we had~~2020, our income taxes decreased from a ~~tax~~ provision of ~~$9.8~~$3.5 million ~~compared~~ to a benefit of $1.3 million due to tax ~~provision~~losses of ~~$2.7 million~~our TRSs in the second quarter of 2020.

Net Income Attributable to Non-controlling Interests

During the three months ended ~~September~~June 30, ~~2016. The change primarily reflects an increase in the taxable~~2020, net income ~~of our TRSs associated with earnings from our interest in an investor entity which owns equity in an online real estate company and sold nearly all of its interest~~attributable to non-controlling interests increased $7.9 million to $13.3 million, compared to $5.4 million during the three months ended ~~September~~June 30, ~~2017 (see Notes 7 and 20 to the Condensed Consolidated Financial Statements).~~

~~Corporate~~

~~Costs and Expenses~~

~~For the three months ended September 30, 2017, corporate expenses increased $9.3 million to $64.3 million, compared to $55.0 million for the three months ended September 30, 2016.~~2019. The increase was primarily due to ~~(i)~~non-controlling interests in earnings of a ~~$5.5~~consolidated CMBS joint venture in which we hold a 51% interest.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Commercial and Residential Lending Segment

Revenues

For the six months ended June 30, 2020, revenues of our Commercial and Residential Lending Segment increased $17.2 million to $379.8 million, compared to $362.6 million for the six months ended June 30, 2019. This increase was primarily due to an increase in interest ~~expense principally on our 2021 Senior Notes issued in December 2016,~~income from loans of $24.9 million, partially offset by a decrease in interest ~~expense on our reduced term loan borrowings,~~income from investment securities of $8.3 million. The increase in interest income from loans was principally due to (i) higher prepayment related income and (ii) ~~a $3.2 million increase~~higher average balances of both commercial and residential loans, partially offset by (iii) lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans). The decrease in ~~management fees.~~interest income from investment securities was primarily due to lower prepayment related income and lower average LIBOR rates.

Costs and Expenses

~~Table of Contents~~

~~Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016~~

~~Lending Segment~~

~~Revenues~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2017, revenues~~2020, costs and expenses of our Commercial and Residential Lending Segment increased ~~$14.0~~$30.8 million to ~~$397.2~~$169.0 million, compared to ~~$383.2~~$138.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. This increase was primarily due to ~~(i) an $11.7~~a $49.4 million increase in ~~interest income from loans principally due to higher average loan balances~~credit loss provision and ~~LIBOR rates,~~a $3.2 million increase in general and administrative expenses, partially offset by ~~lower levels of prepayment related income and (ii)~~ a ~~$1.9 million increase in interest income principally from CMBS and RMBS investments.~~

~~Costs and Expenses~~

For the nine months ended September 30, 2017, costs and expenses of our Lending Segment decreased $0.1 million to $87.3 million, compared to $87.4 million for the nine months ended September 30, 2016. This decrease was primarily due to a $6.6$24.3 million decrease ~~in our loan loss allowance, partially offset by (i) a $4.8 million increase~~ in interest expense associated with the various secured financing facilities used to fund a portion of ~~our~~this segment’s investment ~~portfolio and (ii) a $1.3 million~~portfolio. The increase in ~~general, administrative~~the credit loss provision was due to the recognition of current expected credit losses (“CECL”) during the six months ended June 30, 2020 in accordance with the new credit loss accounting standard effective January 1, 2020 (see Notes 2 and ~~other expenses.~~ 4 to the Condensed Consolidated Financial Statements). The CECL provision in the first half of 2020 was magnified by the

Table of Contents

significant deterioration in macroeconomic forecasts between the January 1 CECL effective date and the June 30 period end due to the economic disruption caused by the COVID-19 pandemic. 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 Six Months Ended
	June 30,
	2020		2019		Change
Interest income from loans	$	342,517	$	317,666	$	24,851
Interest income from investment securities		35,973		44,275		(8,302)
Interest expense		(95,821)		(120,168)		24,347
Net interest income	$	282,669	$	241,773	$	40,896

For the Nine Months Ended

September 30,


2017

2016

Change
Interest income from loans

$
360,188

$
348,460

$
11,728
Interest income from investment securities

35,870

33,975

1,895
Interest expense

(72,372)

(67,585)

(4,787)
Net interest income

$
323,686

$
314,850

$
8,836

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, net interest income of our Commercial and Residential Lending Segment increased ~~$8.8~~$40.9 million to ~~$323.7~~$282.7 million, compared to ~~$314.9~~$241.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. This increase reflects the net increase in interest income ~~explained in~~and the ~~Revenues~~ ~~discussion above, partially offset by the increase~~decrease in interest expense, ~~on our secured financing facilities.~~ both as discussed in the sections above.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities were ~~7.4% and 7.9%, respectively.~~ as follows:


	For the Six Months Ended
	June 30,
	2020		2019
Commercial	6.6	%	7.6	%
Residential	6.6	%	6.8	%
Overall	6.6	%	7.5	%

The ~~decrease in the~~overall weighted average unlevered yield ~~is primarily due to~~was lower as higher levels of prepayment related income ~~and declines~~were more than offset by decreases in ~~interest rate spreads, which exceeded the benefits of increases in LIBOR for the nine months ended September 30, 2017.~~LIBOR.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were ~~3.8%~~3.1% and ~~3.4%~~4.6%, ~~respectively, and 3.7% and 3.2%, respectively, excluding the impact of bridge financing.~~respectively. The ~~increases~~decrease in borrowing rates primarily ~~reflect increases~~reflects decreases in LIBOR.

Other Income (Loss)

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, other income (loss) of our Commercial and Residential Lending Segment ~~increased $3.3~~decreased $41.0 million ~~to income of $0.3 million, compared~~ to a loss of ~~$3.0~~$33.2 million compared to income of $7.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The increase~~2019. This decrease was primarily due to (i) a ~~$51.9~~$25.4 million ~~favorable change~~increase in foreign currency ~~gain (loss),~~loss, (ii) a $19.8 million unfavorable change in fair value of investment securities, (iii) a $9.3 million unfavorable change in fair value of residential mortgage loans, (iv) a $5.3 million decrease in earnings from unconsolidated entities and (v) a $4.0 million unfavorable change in gains (losses) on sales of loans and securities, all partially offset by (vi) a ~~$48.1~~$22.8 million ~~unfavorable~~favorable change in gain (loss) on derivatives. Changes in fair value are attributable to widening credit spreads resulting from market disruption and dislocation caused by the impacts of COVID-19. The ~~unfavorable~~favorable change ~~from~~in gain (loss) on derivatives reflects a ~~$55.5~~$41.2 million ~~unfavorable change~~increased gain on foreign currency hedges, partially offset by ~~a $7.4~~an $18.4 million ~~decreased loss on~~unfavorable change in 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 ~~CMBS~~ investments. The ~~favorable change in foreign currency~~increased gain ~~(loss) and the unfavorable change~~ on ~~the~~ foreign currency hedges and the increased foreign currency loss reflect the overall ~~weakening of the U.S.~~

~~Table of Contents~~

~~dollar against the GBP in the nine months ended September 30, 2017 versus a~~ strengthening of the U.S. dollar against the GBP and EUR in the ~~nine months ended September 30, 2016.~~first half of 2020 versus a lesser strengthening of the U.S. dollar against those currencies in the first half of 2019. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments.

Table of Contents

Infrastructure Lending Segment

Revenues

For the six months ended June 30, 2020, revenues of our Infrastructure Lending Segment decreased $11.5 million to $43.2 million, compared to $54.7 million for the six months ended June 30, 2019. This decrease was primarily due to decreases in interest income from loans of $10.7 million and investment securities of $0.4 million. The decrease in interest income from loans was primarily due to lower average loan balances outstanding as a result of sales and repayments and a decrease in average LIBOR rates partially offset by an increase in average spreads on our infrastructure loans.

Costs and Expenses

For the six months ended June 30, 2020, costs and expenses of our Infrastructure Lending Segment decreased $5.2 million to $40.2 million, compared to $45.4 million for the six months ended June 30, 2019. The decrease was primarily due to a $12.0 million decrease 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 $6.2 million increase in credit loss provision. The decrease in interest expense was primarily due to lower average LIBOR rates and lower average borrowings as a result of loan sales and repayments. The increase in the credit loss provision was due to the recognition of CECL during the six months ended June 30, 2020 in accordance with the new credit loss accounting standard effective January 1, 2020. As discussed above, the CECL provision was magnified by the significant deterioration in macroeconomic forecasts due to the economic disruption caused by the COVID-19 pandemic.

Net Interest Income (amounts in thousands)


	For the Six Months Ended
	June 30,
	2020		2019		Change
Interest income from loans	$	41,539	$	52,206	$	(10,667)
Interest income from investment securities		1,384		1,753		(369)
Interest expense		(22,795)		(34,835)		12,040
Net interest income	$	20,128	$	19,124	$	1,004

For the six months ended June 30, 2020, net interest income of our Infrastructure Lending Segment increased $1.0 million to $20.1 million, compared to $19.1 million for the six months ended June 30, 2019. The increase reflects the decrease in interest expense on the secured financing facilities, which was partially offset by the decrease in interest income, both as discussed in the sections above.

During the six months ended June 30, 2020 and 2019, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:


	For the Six Months Ended
	June 30,
	2020		2019
Loans and investment securities held-for-investment	5.6	%	6.2	%
Loans held-for-sale	3.6	%	4.0	%

During the six months ended June 30, 2020 and 2019, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 3.8% and 4.9%, respectively.

Table of Contents

Other Loss

For the six months ended June 30, 2020, other loss of our Infrastructure Lending Segment decreased $3.5 million to $2.6 million, compared to $6.1 million for the six months ended June 30, 2019. The decrease in other loss primarily reflects a decreased loss on extinguishment of debt resulting from the write-off of deferred financing fees relating to partial debt prepayments from proceeds of loan repayments and sales.

Property Segment

Change in Results by Portfolio (amounts in thousands)

$ Change from prior period

Revenues

Cost and expenses

Other income (loss)

Income (loss) before income taxes
Master Lease Portfolio

$
722

$
668

$
(2,354)

$
(2,300)
Medical Office Portfolio

49,549

55,084

(4,187)

(9,722)
Ireland Portfolio

(378)

(1,227)

(18,756)

(17,907)
Woodstar Portfolio

4,249

(11,898)

(9,102)

7,045
Investment in unconsolidated entities

—

—

(36,095)

(36,095)
Other/Corporate

—

723

—

(723)
Total

$
54,142

$
43,350

$
(70,494)

$
(59,702)


	$ Change from prior year
			Costs and		Gain (loss) on derivative				Income (loss) before
	Revenues		expenses		financial instruments		Other income (loss)		income taxes
Master Lease Portfolio	$	3	$	76	$	—	$	—	$	(73)
Medical Office Portfolio		(1,283)		(4,122)		(18,470)		—		(15,631)
Woodstar I Portfolio		2,071		4,593		(57)		(1,702)		(4,281)
Woodstar II Portfolio		1,747		537		—		—		1,210
Ireland Portfolio		(17,858)		(15,011)		(6,453)		—		(9,300)
Investment in unconsolidated entities		—		—		—		42,761		42,761
Other/Corporate		14		7		—		(310)		(303)
Total	$	(15,306)	$	(13,920)	$	(24,980)	$	40,749	$	14,383

~~Revenues~~

See Note 6 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios. The Ireland Portfolio, which was comprised of 11 office properties and one multifamily property all located in Dublin, Ireland, was sold in December 2019.

Revenues

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, revenues of our Property Segment ~~increased $54.1~~decreased $15.3 million to ~~$139.2~~$127.7 million, compared to ~~$85.1~~$143.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in revenues ~~in the nine months ended September 30, 2017~~ was primarily due to the ~~full period inclusion~~sale of the Ireland Portfolio in December 2019, partially offset by increased rental income ~~for the Medical Office Portfolio, which was acquired~~ in ~~December 2016, and~~ the Woodstar ~~Portfolio, which was acquired over a period from October 2015 through April 2016. The Master Lease Portfolio was acquired on September 25, 2017.~~Portfolios due to rental rate increases effective May 2019.

Costs and Expenses

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, costs and expenses of our Property Segment ~~increased $43.3~~decreased $13.9 million to ~~$140.6~~$121.8 million, compared to ~~$97.3~~$135.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in costs and expenses primarily reflects ~~increases of $10.4 million in depreciation and amortization, $16.9 million in other rental related costs and $16.3 million in interest expense, all primarily due to~~ the ~~full period inclusion~~sale of the ~~Medical Office~~Ireland Portfolio ~~and Woodstar Portfolio, partially offset by lower amortization related to the Woodstar Portfolio’s in-place lease intangible asset, which is now fully amortized.~~ in December 2019.

Other ~~Income (Loss)~~Loss

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, other ~~income (loss)~~loss of our Property Segment decreased ~~$70.5~~$15.8 million to ~~a loss of $61.0~~$36.8 million, compared to ~~income of $9.5~~$52.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The decrease in other ~~income (loss)~~loss was primarily due to ~~(i)~~ a ~~$36.1~~$42.8 million ~~unfavorable change~~loss in ~~earnings (loss)~~the 2019 period that did not recur in the 2020 period from ~~unconsolidated entities due to decreases~~our investment in ~~fair value of~~ the ~~properties~~Retail Fund. Our investment in the Retail Fund ~~(ii)~~was written off as of December 31, 2019 due to continued declines in the estimated fair values of its properties. Partially offsetting the effect of the Retail Fund was a ~~$25.4~~$25.0 million increased loss on derivatives, ~~primarily related to foreign exchange contracts which economically hedge our Euro currency exposure with respect to the Ireland Portfolio and~~consisting of (i) an $18.5 million increased loss on interest rate swaps which primarily hedge the variable interest rate risk on borrowings secured by our Medical Office Portfolio and ~~(iii)~~(ii) the non-recurrence of ~~an $8.4~~a $6.5 million ~~bargain purchase~~ gain ~~recognized on the Woodstar Portfolio~~ in the ~~second~~2019 first quarter on foreign exchange contracts which hedged our Euro currency exposure with respect to the Ireland Portfolio.

Table of ~~2016.~~Contents

Investing and Servicing Segment ~~and VIEs~~

Revenues

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, revenues of our Investing and Servicing Segment decreased ~~$31.3~~$44.0 million to ~~$100.6 million after consolidated VIE eliminations of $140.7~~$88.6 million, compared to ~~$131.9 million after consolidated VIE eliminations of $136.7~~$132.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The VIE eliminations are merely a function of the number of CMBS trusts consolidated in any given period, and as such, are not a meaningful~~

~~Table of Contents~~

~~indicator of the operating results for this segment.~~2019. The decrease in revenues ~~in the nine months of 2017~~ was primarily due to decreases of ~~$23.4~~$28.1 million in servicing fees, $9.7 million in rental income from our REIS Equity Portfolio due to fewer properties held and ~~$15.7~~an owned hotel which was closed during the quarter due to COVID-19 and $6.3 million in interest income from conduit loans and CMBS, ~~investments, partially offset by~~which reflects a ~~$12.2 million increase in rental income on our expanded REIS Equity Portfolio. The $23.4~~$5.9 million decrease in servicing fees is primarily due to the divestiture of our European servicing and advisory business in October 2016 and lower domestic servicing fees. The $15.7 million decrease in CMBS interest income reflects a $5.2 million increase in VIE eliminations related to the CMBS trusts we consolidate. Excluding the effect of these eliminations, CMBS interest income decreased by $10.5 million, reflecting a lower level of CMBS interest recoveries ~~from asset liquidations by CMBS trusts.~~on CMBS.

Costs and Expenses

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, costs and expenses of our Investing and Servicing Segment decreased ~~$16.5~~$13.6 million to ~~$115.9~~$65.9 million, compared to ~~$132.4~~$79.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, inclusive of VIE eliminations which were nominal for both periods.~~2019. The decrease in costs and expenses was primarily due to ~~a $26.5 million decrease in general and administrative expenses principally reflecting the divestiture~~decreases of ~~our European servicing and advisory business and lower incentive compensation, partially offset by increases of $4.3~~$7.5 million in costs of rental operations, ~~$3.5~~depreciation and amortization due to fewer properties held, $3.4 million in ~~depreciation~~general and ~~amortization~~administrative expenses reflecting lower incentive compensation and $2.9 million in interest expense ~~all primarily~~on borrowings related to ~~our expanded REIS Equity Portfolio.~~ properties held and conduit loans.

Other Income

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, other income of our Investing and Servicing Segment ~~increased $172.4~~decreased $50.7 million to ~~$291.3~~$1.9 million, ~~including additive net VIE eliminations of $147.4 million, from $118.9 million including additive net VIE eliminations of $137.4~~compared to $52.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in other income ~~in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016~~ was primarily due to (i) a ~~$108.7~~$73.2 million ~~increase in the~~unfavorable change in fair value of ~~net assets related~~CMBS investments primarily due to ~~consolidated VIEs,~~widening credit spreads resulting from market disruption and dislocation caused by the impacts of COVID-19, (ii) a ~~$53.9~~$12.5 million increase in earnings from an unconsolidated investor entity which owns equity in an online real estate company (see Note 7 to the Condensed Consolidated Financial Statements), (iii) a $16.3 million gain on sale of four operating properties, (iv) a $14.2 million decrease inincreased loss on derivatives which ~~principally~~primarily hedge our interest rate risk on conduit loans and ~~(v) an $11.9~~(iii) a $5.6 million lesser ~~decrease~~increase in fair value of conduit loans, all partially offset by (iv) realized and unrealized gains totaling $27.9 million resulting from the sale in April 2020 of a portion of our unconsolidated equity interest in a servicing and advisory business, as further described in Note 7 to the Condensed Consolidated Financial Statements, (v) a $7.3 million favorable change in fair value of servicing rights ~~primarily reflecting~~and (vi) a $6.5 million increased gain on sale of operating properties.

Corporate and Other Items

Corporate Costs and Expenses

For the ~~effect of VIE eliminations on~~six months ended June 30, 2020, corporate expenses increased $18.9 million to $127.0 million, compared to $108.1 million for the ~~expected amortization of this deteriorating asset net of increases in fair value~~six months ended June 30, 2019. The increase was primarily due to ~~the attainment of new servicing contracts, all partially offset by (vi)~~ a ~~$24.1~~$17.6 million ~~lesser~~ increase in management fees.

Corporate Other Income

For the ~~fair value~~six months ended June 30, 2020, corporate other income increased $8.9 million to $33.7 million, compared to $24.8 million for the six months ended June 30, 2019. The increase in corporate other income was primarily due to increased gains on interest rate swaps which hedge a portion of our ~~conduit loans held-for-sale. The change in net assets related~~unsecured senior notes used to ~~consolidated VIEs reflects amounts associated with~~repay variable-rate secured financing.

Securitization VIE Eliminations

Refer to the Investing and Servicing Segment’s variable interests in CMBS trusts it consolidates, including special servicing fees, interest income, and changes in fair value of CMBS and servicing rights. As noted above, this number is merely a functionpreceding comparison of the ~~number of CMBS trusts consolidated in any given period, and as such, is not~~three months ended June 30, 2020 to the three months ended June 30, 2019 for a ~~meaningful indicator~~discussion of the ~~operating results for this segment. Before~~nature of securitization VIE ~~eliminations, there was an increase in fair value of CMBS securities of $45.3 million and a decrease of $43.4 million in the nine months ended September 30, 2017 and 2016, respectively.~~eliminations.

Income Tax ~~Provision~~Benefit (Provision)

Table of Contents

(“TRSs”). For the ~~nine~~six months ended ~~September~~June 30, ~~2017, we had~~2020, our income taxes decreased from a ~~tax~~ provision of ~~$18.3~~$3.9 million to a benefit of $8.0 million due to tax losses of our TRSs in the first half of 2020.

Net Income Attributable to Non-controlling Interests

During the six months ended June 30, 2020, net income attributable to non-controlling interests increased $2.2 million to $13.8 million, compared to ~~a tax provision of $3.5~~$11.6 million induring the ~~nine~~six months ended ~~September~~June 30, 2016. The change primarily reflects an increase in the taxable income of our TRSs associated with earnings from our interest in an investor entity which owns equity in an online real estate company and sold nearly all of its interest during the nine months ended September 30, 2017 (see Notes 7 and 20 to the Condensed Consolidated Financial Statements).

~~Table of Contents~~

~~Corporate~~

~~Costs and Expenses~~

~~For the nine months ended September 30, 2017, corporate expenses increased $18.8 million to $180.7 million, compared to $161.9 million for the nine months ended September 30, 2016.~~2019. The increase was primarily due to ~~(i)~~non-controlling interests in earnings of a ~~$16.4 million increase~~consolidated CMBS joint venture in ~~interest expense principally on our 2021 Senior Notes issued in December 2016, partially offset by~~which we hold a ~~decrease in interest expense on our reduced term loan borrowings, and (ii) a $3.3 million increase in management fees.~~ 51% interest.

~~Other Income (Loss)~~

For the nine months ended September 30, 2017, corporate other loss was $5.9 million, compared to income of $1.8 million for the nine months ended September 30, 2016. Corporate other loss of $5.9 million in the nine months ended September 30, 2017 represents a loss on repurchase of $230.0 million of our 2018 Convertible Notes (see Note 10 to the Condensed Consolidated Financial Statements). Corporate other income of $1.8 million for the nine months ended September 30, 2016 principally represents a reimbursement received related to a partnership guarantee arrangement.

Non-GAAP Financial Measures

Core Earnings is a non-GAAP financial measure. We calculate Core 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; ~~and~~

(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.~~

income (loss); and

(vi)

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

As previously disclosed, we exclude from Core Earnings any deferred income taxes for transactions which are deemed to be either unusual in nature or infrequent in occurrence, as such terms are utilized in ASC 740, until such time as the tax provision related to the discrete item is realized. During the three months ended June 30, 2017, we reflected an adjustment to Core Earnings for a $9.9 million deferred income tax provision associated with unrealized earnings we recorded from our interest in an investor entity which owns equity in an online real estate company. During the three months ended September 30, 2017, 88% of our interest in this entity was sold, and we recognized an additional $8.4 million income tax provision related to this discrete item, for a total income tax provision of $18.3 million during the nine months ended September 30, 2017 (see Notes 7 and 20 to the Condensed Consolidated Financial Statements). As a result, during the three months ended September 30, 2017, $9.4 million of the previously deferred $9.9 million income tax provision was recognized for Core Earnings purposes, and the incremental $8.4 million recorded during the quarter was unadjusted. The remaining deferred income tax amount of $0.5 million relates to the 12% portion of our investment which we retained and will continue to be deferred for Core Earnings purposes until the remaining investment is sold.

The repurchase of our 2018 Notes in March 2017 was considered to be an unrealized event for Core Earnings purposes because the 2018 Notes were effectively exchanged for the 2023 Notes, thereby simply extending the term of this debt. As such, consistent with the above definition, we have deferred the $5.9 million GAAP loss on extinguishment of debt included in our GAAP results for the nine months ended September 30, 2017 and will amortize this loss over the term of our 2023 Notes.

We believe that Core Earnings provides an additional measure of our core operating performance by eliminating the impact of certain non-cash expenses and facilitating a comparison of our financial results to those of

~~Table of Contents~~

other comparable REITs with fewer or no non-cash adjustments and comparison of our own operating results from period to period. Our management uses Core Earnings in this way, and also uses Core Earnings to compute the incentive fee due under our management agreement. The Company believes that its investors also use Core Earnings or a comparable supplemental performance measure to evaluate and compare the performance of the Company and its peers, and as such, the Company believes that the disclosure of Core Earnings is useful to (and expected by) its investors.

However, the Company cautions that Core Earnings does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or an indication of our cash flows from operating activities (determined in accordance with GAAP), a measure of our liquidity, or an indication of funds available to fund our cash needs, including our ability to make cash distributions. In addition, our methodology for calculating Core Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and accordingly, our reported Core Earnings may not be comparable to the Core Earnings reported by other REITs.

~~In assessing the appropriate~~The weighted average diluted share count ~~to apply~~applied to Core Earnings for purposes of determining Core Earnings per share (“EPS”)~~, management considered~~ is computed using the ~~following attributes of our current~~ GAAP diluted share ~~methodology: (i) our unvested stock awards representing participating securities were determined to be anti-dilutive and were thus excluded from~~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 Core Earnings. In order to

Table of the EPS calculation; and (ii) the portion of the convertible senior notes that are “in-the-money” (referred to as the “conversion spread value”), representing the value that would be delivered to investors in shares upon an assumed conversion, is included in the denominator. Because compensation expense related to unvested stock awards is added back for Core Earnings purposes pursuant to the definition above, there is no dilution to Core Earnings resulting from the associated expense recognition. As a result, for purposes of determining Core EPS, our GAAP EPS methodology was adjusted to include (instead of exclude) such unvested awards. Further, conversion of the convertible senior 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 Core Earnings, our GAAP EPS methodology was adjusted to exclude (instead of include) the conversion spread value in determining Core EPS until a conversion actually occurs. Contents

effectuate dilution from these awards in the Core 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 Core 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 Core EPS calculation (amounts in thousands):


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2017	2016	2017	2016

					For the Three Months Ended		For the Six Months Ended
					June 30,		June 30,
					2020	2019	2020	2019
Diluted weighted average shares - GAAP	262,437	241,091	262,055	240,982	291,293	289,072	281,440	288,529
Add: Unvested stock awards	1,807	1,419	1,558	1,644	2,794	2,092	2,635	2,172
Less: Conversion spread value	(2,313)	(3,445)	(2,284)	(3,766)
Add: Woodstar II Class A Units					10,648	11,571	10,693	11,740
Less: Convertible Notes dilution					(9,649)	(9,649)	—	(9,963)
Diluted weighted average shares - Core	261,931	239,065	261,329	238,860	295,086	293,086	294,768	292,478

The definition of Core 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 Core Earnings to be calculated in a manner consistent with its definition and objective. No adjustments to the definition of Core Earnings ~~occurred~~became effective during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

As a reminder, in 2015, we adjusted the calculation of Core Earnings related to the equity component of our Convertible Notes. We previously amortized the equity component of these instruments through interest expense for Core Earnings purposes, consistent with our GAAP treatment. However, for Core Earnings purposes, the amount is not considered realized until the earlier of (a) the entire issuance of the notes has been extinguished; or (b) the equity portion has been fully amortized via repurchases of the notes.

~~Table~~In January 2019, our 2019 Convertible Notes were fully repaid in shares of ~~Contents~~common stock and cash. The equity portion of the 2019 Convertible Notes had been fully amortized.

The following table summarizes our quarterly Core Earnings per weighted average diluted share for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:

Core Earnings For the Three-Month Periods Ended


March 31

June 30

September 30
2017

$
0.51

$
0.52

$
0.65
2016

0.50

0.50

0.59


	Core Earnings For the Three-Month Periods Ended
	March 31		June 30
2020	$	0.55	$	0.43
2019		0.28	$	0.52

Core Earnings per weighted average diluted share for the six months ended June 30, 2019 does not equal the sum of the individual quarters due to rounding and other computational factors.

Table of Contents

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2019

The following table presents our summarized results of operations and reconciliation to Core Earnings for the three months ended ~~September~~June 30, ~~2017,~~2020, by business segment (amounts in thousands, except per share data):


					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total

											Commercial
											and
											Residential		Infrastructure				Investing
											Lending		Lending		Property		and Servicing
											Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	146,012	$	47,827	$	72,214	$	—	$	266,053	$	168,367	$	19,909	$	63,624	$	44,090	$	—	$	295,990
Costs and expenses		(34,438)		(49,304)		(40,215)		(64,330)		(188,287)		(64,191)		(14,112)		(61,105)		(28,992)		(53,747)		(222,147)
Other income (loss)		571		(45,008)		68,191		—		23,754		33,358		(1,245)		(6,656)		47,822		4,517		77,796
Income (loss) before income taxes		112,145		(46,485)		100,190		(64,330)		101,520		137,534		4,552		(4,137)		62,920		(49,230)		151,639
Income tax benefit (provision)		11		—		(9,827)		—		(9,816)
Income tax (provision) benefit												(3,257)		(56)		—		4,611		—		1,298
Income attributable to non-controlling interests		(357)		—		(2,919)		—		(3,276)		(4)		—		(5,111)		(8,166)		—		(13,281)
Net income (loss) attributable to Starwood Property Trust, Inc.		111,799		(46,485)		87,444		(64,330)		88,428		134,273		4,496		(9,248)		59,365		(49,230)		139,656
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units												—		—		5,111		—		—		5,111
Non-cash equity compensation expense		783		33		1,015		3,379		5,210		1,436		481		58		1,247		4,130		7,352
Management incentive fee		—		—		—		10,378		10,378
Acquisition and investment pursuit costs		74		151		49		—		274		206		—		(88)		(72)		—		46
Depreciation and amortization		17		18,102		4,600		—		22,719		370		79		19,236		3,337		—		23,022
Loan loss allowance, net		(171)		—		—		—		(171)
Credit loss provision, net												11,294		(1,092)		—		—		—		10,202
Interest income adjustment for securities		(225)		—		5,071		—		4,846		1,149		—		—		1,627		—		2,776
Income tax adjustment for discrete transactions		—		—		(9,356)		—		(9,356)
Extinguishment of debt, net												—		—		—		—		(247)		(247)
Income tax provision (benefit) associated with fair value adjustments												1,914		—		—		(392)		—		1,522
Other non-cash items		—		(496)		187		—		(309)		4		—		(485)		230		156		(95)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		397		—		(19,882)		—		(19,485)
Reversal of GAAP unrealized (gains) / losses on:
Loans												(33,010)		—		—		(1,440)		—		(34,450)
Securities		(276)		—		(13,962)		—		(14,238)		(5,454)		—		—		(7,941)		—		(13,395)
Derivatives		10,394		11,291		1,555		—		23,240		11,043		420		3,401		3,524		(240)		18,148
Foreign currency		(10,657)		1		(4)		—		(10,660)		(6,942)		(310)		48		31		—		(7,173)
Earnings from unconsolidated entities		(848)		33,731		(30,225)		—		2,658
Purchases and sales of properties		—		—		—		—		—
Recognition of realized gains / (losses) on:
Loans held-for-sale		(397)		—		19,330		—		18,933
(Earnings) loss from unconsolidated entities												(671)		1,118		—		(29,526)		—		(29,079)
Recognition of Core realized gains / (losses) on:
Loans												(5,663)		—		—		(1)		—		(5,664)
Securities		—		—		(2,657)		—		(2,657)		—		—		—		(181)		—		(181)
Derivatives		(290)		(140)		(500)		(247)		(1,177)		4,522		—		(369)		(10)		—		4,143
Foreign currency		549		—		(240)		—		309		(1,969)		52		(50)		(31)		—		(1,998)
Earnings from unconsolidated entities		849		—		52,921		—		53,770
Purchases and sales of properties		—		—		(1,838)		—		(1,838)
(Loss) earnings from unconsolidated entities												(24)		(733)		—		12,992		—		12,235
Sales of properties												—		—		—		(5,789)		—		(5,789)
Core Earnings (Loss)	$	111,998	$	16,188	$	93,508	$	(50,820)	$	170,874	$	112,478	$	4,511	$	17,614	$	36,970	$	(45,431)	$	126,142
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.43	$	0.06	$	0.36	$	(0.20)	$	0.65	$	0.38	$	0.02	$	0.06	$	0.12	$	(0.15)	$	0.43

7681

Table of Contents

The following table presents our summarized results of operations and reconciliation to Core Earnings for the three months ended ~~September~~June 30, ~~2016,~~2019, by business segment (amounts in thousands, except per share data):


					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total

											Commercial
											and
											Residential		Infrastructure				Investing
											Lending		Lending		Property		and Servicing
											Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	128,101	$	29,237	$	91,879	$	—	$	249,217	$	187,780	$	26,166	$	72,414	$	65,633	$	6	$	351,999
Costs and expenses		(30,719)		(31,684)		(58,580)		(55,027)		(176,010)		(69,029)		(21,524)		(68,212)		(40,784)		(53,947)		(253,496)
Other income (loss)		2,212		(2,272)		35,304		234		35,478		8,811		(3,456)		(10,111)		26,986		15,309		37,539
Income (loss) before income taxes		99,594		(4,719)		68,603		(54,793)		108,685		127,562		1,186		(5,909)		51,835		(38,632)		136,042
Income tax provision		—		—		(2,667)		—		(2,667)
(Income) loss attributable to non-controlling interests		(352)		—		100		—		(252)
Income tax (provision) benefit												(1,832)		186		—		(1,887)		—		(3,533)
Income attributable to non-controlling interests												(21)		—		(5,355)		(117)		—		(5,493)
Net income (loss) attributable to Starwood Property Trust, Inc.		99,242		(4,719)		66,036		(54,793)		105,766		125,709		1,372		(11,264)		49,831		(38,632)		127,016
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units												—		—		5,355		—		—		5,355
Non-cash equity compensation expense		824		27		1,298		5,986		8,135		911		563		77		1,702		3,811		7,064
Management incentive fee		—		—		—		6,303		6,303
Acquisition and investment pursuit costs		—		727		89		12		828		(24)		—		(88)		(305)		(356)		(773)
Depreciation and amortization		—		10,908		3,791		—		14,699		285		—		23,416		4,822		—		28,523
Loan loss allowance, net		2,127		—		—		—		2,127
Credit loss provision, net												2,096		422		—		—		—		2,518
Interest income adjustment for securities		(236)		—		3,874		—		3,638		(194)		—		—		3,381		—		3,187
Extinguishment of debt, net												—		—		—		—		(246)		(246)
Other non-cash items		—		(108)		230		—		122		—		—		(452)		371		150		69
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		—		—		(49,996)		—		(49,996)
Reversal of GAAP unrealized (gains) / losses on:
Loans												(5,363)		—		—		(16,528)		—		(21,891)
Securities		(207)		—		(620)		—		(827)		948		—		—		(15,815)		—		(14,867)
Derivatives		(5,624)		4,720		1,932		—		1,028		(5,519)		2,833		12,717		6,927		(15,858)		1,100
Foreign currency		3,839		7		(632)		—		3,214		6,927		83		8		(1)		—		7,017
Earnings from unconsolidated entities		(852)		(2,455)		(617)		—		(3,924)		(5,492)		—		(1,044)		(2,754)		—		(9,290)
Recognition of realized gains / (losses) on:
Loans held-for-sale		—		—		52,919		—		52,919
Recognition of Core realized gains / (losses) on:
Loans												(550)		(755)		—		20,155		—		18,850
Securities		—		—		(3,259)		—		(3,259)		597		—		—		(423)		—		174
Derivatives		7,436		44		(6,042)		—		1,438		736		(2,228)		1,484		(7,614)		—		(7,622)
Foreign currency		(6,145)		(7)		632		—		(5,520)		(1,205)		64		(8)		1		—		(1,148)
Earnings from unconsolidated entities		852		2,487		1,100		—		4,439		4,682		—		—		4,137		—		8,819
Core Earnings (Loss)	$	101,256	$	11,631	$	70,735	$	(42,492)	$	141,130	$	124,544	$	2,354	$	30,201	$	47,887	$	(51,131)	$	153,855
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.42	$	0.05	$	0.30	$	(0.18)	$	0.59	$	0.42	$	0.01	$	0.10	$	0.16	$	(0.17)	$	0.52

Table of Contents

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Core Earnings ~~increased~~decreased by ~~$10.7~~$12.0 million, from ~~$101.3~~$124.5 million during the ~~third~~second quarter of ~~2016~~2019 to ~~$112.0~~$112.5 million in the ~~third~~second quarter of ~~2017.~~2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$145.8~~$169.5 million, costs and expenses were ~~$33.7~~$50.9 million and other ~~income~~loss was ~~$0.3~~$4.8 million.

Core revenues, consisting principally of interest income on loans, ~~increased~~decreased by ~~$17.9~~$18.1 million in the ~~third~~second quarter of ~~2017,~~2020, primarily due to ~~(i) a $19.6 million increase~~decreases in interest income from loans ~~principally due to higher average loan balances~~of $12.9 million and ~~LIBOR rates, partially offset by (ii) a $1.7 million~~investment securities of $5.7 million. The decrease in interest income from loans was principally due to (i) lower prepayment related income and (ii) lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), both partially offset by (iii) higher average balances of both commercial and residential loans. The decrease in interest income from ~~CMBS~~investment securities was primarily due to lower prepayment related income and ~~RMBS investments.~~lower average LIBOR rates.

Core costs and expenses ~~increased~~decreased by ~~$6.0~~$14.9 million in the ~~third~~second quarter of ~~2017,~~2020, primarily due to ~~an increase~~a $16.7 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of ~~our~~this segment’s investment ~~portfolio.~~portfolio primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding. Such decrease was partially offset by higher general and administrative and other expenses.

~~Table of Contents~~

Core other income (loss) decreased by ~~$1.2~~$9.4 million in the second quarter of 2020, primarily due to ~~an unfavorable change~~a $5.1 million core loss on a residential loan securitization in ~~gain (loss) on foreign currency derivatives partially offset by~~the second quarter of 2020 and a ~~favorable change~~$4.7 million decrease in ~~foreign currency gain (loss).~~earnings from unconsolidated entities.

~~Property~~Infrastructure Lending Segment

~~Core Earnings by Portfolio (amounts in thousands)~~

For the Three Months Ended

September 30,


2017

2016

Change
Master Lease Portfolio

$
334

$
—

$
334
Medical Office Portfolio

6,651

—

6,651
Ireland Portfolio

4,538

5,041

(503)
Woodstar Portfolio

5,312

4,690

622
Investment in unconsolidated entities

—

2,489

(2,489)
Other/Corporate

(647)

(589)

(58)
Core Earnings

$
16,188

$
11,631

$
4,557

The ~~Property~~Infrastructure Lending Segment’s Core Earnings increased by ~~$4.6~~$2.1 million, from ~~$11.6 million during the third quarter of 2016 to $16.2~~$2.4 million in the ~~third~~second quarter of ~~2017.~~2019 to $4.5 million in the second quarter of 2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$47.5~~$19.9 million, costs and expenses were ~~$31.2~~$14.6 million and other loss was ~~$0.1~~$0.7 million.

Core revenues, ~~increased~~consisting principally of interest income on loans, decreased by ~~$18.8~~$6.3 million in the ~~third~~second quarter of ~~2017,~~2020, primarily due to ~~the inclusion~~decreases in interest income from loans of ~~rental~~$6.2 million and investment securities of $0.2 million. The decrease in interest income ~~for the Medical Office Portfolio acquired in December 2016.~~from loans was primarily due to lower average LIBOR rates.

Core costs and expenses ~~increased~~decreased by ~~$11.6~~$5.9 million in the ~~third~~second quarter of ~~2017, primarily due to increases in rental related costs of $5.5 million and interest expense of $5.9 million primarily on the secured financing for the Medical Office Portfolio.~~

~~Core other income decreased by $2.6 million to a loss in the third quarter of 2017,~~2020, primarily due to a decrease in ~~equity in earnings recognized from our~~interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates.

Core other loss decreased by $2.8 million in the ~~Retail Fund.~~second quarter of 2020, primarily due to the non-recurrence of a $2.8 million loss on extinguishment of debt in the second quarter of 2019 resulting from the write-off of deferred financing fees relating to partial debt prepayments from proceeds of loan repayments and sales.

~~Investing and Servicing~~

Table of Contents

Property Segment

Core Earnings by Portfolio (amounts in thousands)


	For the Three Months Ended
	June 30,
	2020		2019		Change
Master Lease Portfolio	$	4,230	$	4,300	$	(70)
Medical Office Portfolio		3,782		6,643		(2,861)
Woodstar I Portfolio		4,320		7,746		(3,426)
Woodstar II Portfolio		6,373		5,550		823
Ireland Portfolio		—		6,962		(6,962)
Other/Corporate		(1,091)		(1,000)		(91)
Core Earnings	$	17,614	$	30,201	$	(12,587)

The ~~Investing and Servicing~~Property Segment’s Core Earnings ~~increased~~decreased by ~~$22.8~~$12.6 million, from ~~$70.7~~$30.2 million during the ~~third~~second quarter of ~~2016~~2019 to ~~$93.5~~$17.6 million in the ~~third~~second quarter of ~~2017.~~2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$77.4~~$63.2 million, costs and expenses were ~~$34.5~~$42.3 million and other loss was $3.3 million.

Core revenues decreased by $9.1 million in the second quarter of 2020, primarily due to the sale of the Ireland Portfolio in December 2019.

Core costs and expenses decreased by $2.8 million in the second quarter of 2020, primarily due to the sale of the Ireland Portfolio in December 2019.

Core other income (loss) decreased by $6.3 million in the second quarter of 2020 primarily due to (i) a $4.3 million unfavorable change in realized gains (losses) on certain interest rate and foreign currency derivatives and (ii) a $2.2 million loss on extinguishment of debt in the second quarter of 2020 in connection with the refinancing of our Woodstar I Portfolio.

Investing and Servicing Segment

The Investing and Servicing Segment’s Core Earnings decreased by $10.9 million, from $47.9 million during the second quarter of 2019 to $37.0 million in the second quarter of 2020. After making adjustments for the calculation of Core Earnings, revenues were $46.0 million, costs and expenses were $24.6 million, other income was ~~$72.7~~$15.0 million, income tax ~~provision~~benefit was ~~$19.2~~$4.2 million and the deduction of income attributable to non-controlling interests was ~~$2.9~~$3.6 million.

Core revenues decreased by ~~$18.5~~$23.3 million in the ~~third~~second quarter of ~~2017,~~2020, primarily due to decreases of $14.6 million in servicing fees reflecting the divestiture of our European servicing and advisory business in October 2016 and lower domestic workout and liquidation fees, $2.3 million in interest income from our CMBS portfolio and $2.3$9.3 million in interest income from conduit loans ~~partially offset by a $2.0~~and CMBS, $7.3 million ~~increase~~in servicing fees and $6.5 million in rental income onfrom our ~~expanded~~ REIS Equity ~~Portfolio.~~ Portfolio due to fewer properties held and an owned hotel which was closed during the quarter due to COVID-19. 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 core 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 primarily reflects a $6.8 million decrease in interest recoveries on CMBS.

Core costs and expenses decreased by ~~$18.8~~$9.9 million in the ~~third~~second quarter of ~~2017,~~2020, primarily due to ~~a decrease~~decreases of $4.7 million in general and administrative expenses reflecting lower incentive compensation, $2.8 million in costs of rental operations due to fewer properties held and ~~the divestiture of our European servicing~~$2.3 million in interest expense on borrowings related to properties held and ~~advisory business.~~conduit loans.

7884

Table of Contents

Core other income ~~increased~~includes profit realized upon securitization of loans by $42.0 million principally due to (i) a $52.4 million realized gain from an unconsolidated investor entity which owns equity in an online real estate company and sold nearly all of its interest during the third quarter of 2017, (ii) a $10.9 million decrease in amortization of servicing rights, (iii) an $8.8 million increase in realizedour conduit business, gains on sales of CMBS and operating properties, gains and ~~CMBS and (iv) a $4.7 million decrease in realized~~ 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 ~~foreign currency gain (loss),~~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 ~~partially offset~~changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Core Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Core other income decreased by ~~(v) a $33.6~~$0.1 million ~~decrease~~ in ~~realized gains on conduit loans.~~the second quarter of 2020.

Income taxes, which principally relate to the ~~operating results~~taxable nature of our loan servicing and loan conduit businesses and certain other real estate related investing activities which are ~~held~~housed in TRSs, ~~increased $16.5~~decreased $6.1 million from a provision of $1.9 million to a benefit of $4.2 million due to ~~an increase in the taxable income~~tax losses of our TRSs ~~primarily associated with realized gains from our interest~~ in ~~an investor entity which owns equity in an online real estate company and sold nearly all of its interest during~~ the ~~third~~second quarter of ~~2017.~~2020.

Income attributable to non-controlling interests increased ~~$3.0~~$3.5 million primarily ~~due~~relating to ~~minority investors’ share~~income of ~~gains from two operating properties sold during the third quarter of 2017.~~a consolidated CMBS joint venture in which we hold a 51% interest.

Corporate

Core corporate costs and expenses ~~increased~~decreased by ~~$8.3~~$5.7 million, from ~~$42.5~~$51.1 million during the second quarter of 2019 to $45.4 million in the ~~third~~second quarter of ~~2016 to $50.8 million in the third quarter of 2017,~~2020 primarily due to ~~increases~~a favorable change in realized gain (loss) on interest ~~expense~~rate swaps which hedge a portion of ~~$5.8 million and base management fees of $1.8 million.~~ our unsecured senior notes used to repay variable-rate secured financing.

7985

Table of Contents

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

The following table presents our summarized results of operations and reconciliation to Core Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, by business segment (amounts in thousands, except per share data):


					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total

											Commercial
											and
											Residential		Infrastructure				Investing
											Lending		Lending		Property		and Servicing
											Segment		Segment		Segment		Segment		Corporate		Total
Revenues	$	397,179	$	139,225	$	241,327	$	—	$	777,731	$	379,804	$	43,166	$	127,707	$	88,585	$	—	$	639,262
Costs and expenses		(87,308)		(140,647)		(116,315)		(180,714)		(524,984)		(168,971)		(40,191)		(121,767)		(65,920)		(126,960)		(523,809)
Other income (loss)		258		(60,957)		143,956		(5,916)		77,341
Other (loss) income												(33,183)		(2,593)		(36,848)		1,904		33,752		(36,968)
Income (loss) before income taxes		310,129		(62,379)		268,968		(186,630)		330,088		177,650		382		(30,908)		24,569		(93,208)		78,485
Income tax provision		(331)		—		(17,954)		—		(18,285)
Income tax benefit												1,165		89		—		6,773		—		8,027
Income attributable to non-controlling interests		(1,064)		—		(2,573)		—		(3,637)		(7)		—		(10,222)		(3,396)		—		(13,625)
Net income (loss) attributable to Starwood Property Trust, Inc.		308,734		(62,379)		248,441		(186,630)		308,166		178,808		471		(41,130)		27,946		(93,208)		72,887
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units												—		—		10,222		—		—		10,222
Non-cash equity compensation expense		2,353		82		2,491		8,340		13,266		2,548		947		131		2,510		10,016		16,152
Management incentive fee		—		—		—		20,183		20,183		—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs		74		162		91		—		327		564		—		(177)		(72)		—		315
Depreciation and amortization		50		52,982		13,441		—		66,473		725		130		38,617		7,144		—		46,616
Loan loss allowance, net		(3,170)		—		—		—		(3,170)
Credit loss provision, net												51,511		7,360		—		—		—		58,871
Interest income adjustment for securities		(697)		—		9,436		—		8,739		1,273		—		—		7,942		—		9,215
Income tax adjustment for discrete transactions		—		—		555		—		555
Extinguishment of debt, net												—		—		—		—		(493)		(493)
Income tax benefit associated with fair value adjustment												(3,907)		—		—		(1,834)		—		(5,741)
Other non-cash items		—		(1,665)		1,005		5,916		5,256		7		—		(976)		478		312		(179)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		549		—		(46,033)		—		(45,484)
Reversal of GAAP unrealized (gains) / losses on:
Loans												2,507		—		—		(20,823)		—		(18,316)
Securities		(189)		—		(45,263)		—		(45,452)		22,425		—		—		39,275		—		61,700
Derivatives		28,897		31,510		2,056		—		62,463		(19,520)		1,433		33,970		22,537		(27,889)		10,531
Foreign currency		(28,402)		(16)		(16)		—		(28,434)		27,059		163		67		24		—		27,313
Earnings from unconsolidated entities		(2,548)		28,782		(67,134)		—		(40,900)
Purchases and sales of properties		—		—		(613)		—		(613)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(549)		—		48,950		—		48,401
(Earnings) loss from unconsolidated entities												(722)		1,118		—		(30,146)		—		(29,750)
Recognition of Core realized gains / (losses) on:
Loans												(3,499)		(62)		—		16,558		—		12,997
Securities		—		—		8,332		—		8,332		—		—		—		(4,393)		—		(4,393)
Derivatives		14,567		(18)		(1,251)		(493)		12,805		7,772		118		(404)		(6,097)		—		1,389
Foreign currency		(12,655)		16		(1,138)		—		(13,777)		(6,240)		(142)		(69)		(24)		—		(6,475)
Earnings from unconsolidated entities		2,529		3,563		55,774		—		61,866
Purchases and sales of properties		—		(153)		611		—		458
(Loss) earnings from unconsolidated entities												(580)		(733)		—		16,730		—		15,417
Sales of properties												—		—		—		(5,789)		—		(5,789)
Core Earnings (Loss)	$	309,543	$	52,866	$	229,735	$	(152,684)	$	439,460	$	260,731	$	10,803	$	40,251	$	71,966	$	(95,463)	$	288,288
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.18	$	0.20	$	0.88	$	(0.58)	$	1.68	$	0.88	$	0.04	$	0.14	$	0.24	$	(0.32)	$	0.98

8086

Table of Contents

The following table presents our summarized results of operations and reconciliation to Core Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, 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	$	362,610	$	54,652	$	143,013	$	132,583	$	26	$	692,884
Costs and expenses		(138,217)		(45,370)		(135,687)		(79,458)		(108,076)		(506,808)
Other income (loss)		7,777		(6,065)		(52,617)		52,592		24,869		26,556
Income (loss) before income taxes		232,170		3,217		(45,291)		105,717		(83,181)		212,632
Income tax (provision) benefit		(1,584)		271		(258)		(2,296)		—		(3,867)
(Income) loss attributable to non-controlling interests		(392)		—		(11,072)		98		—		(11,366)
Net income (loss) attributable to Starwood Property Trust, Inc.		230,194		3,488		(56,621)		103,519		(83,181)		197,399
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		11,072		—		—		11,072
Non-cash equity compensation expense		1,617		1,114		146		3,052		7,498		13,427
Management incentive fee		—		—		—		—		173		173
Acquisition and investment pursuit costs		(62)		2		(177)		(305)		(356)		(898)
Depreciation and amortization		356		—		47,627		9,737		—		57,720
Credit loss provision, net		2,085		1,196		—		—		—		3,281
Interest income adjustment for securities		(391)		—		—		9,353		—		8,962
Extinguishment of debt, net		—		—		—		—		(1,457)		(1,457)
Other non-cash items		—		—		(886)		508		318		(60)
Reversal of GAAP unrealized (gains) / losses on:										—
Loans		(6,749)		—		—		(26,408)		—		(33,157)
Securities		2,642		—		—		(33,955)		—		(31,313)
Derivatives		3,986		3,228		13,033		10,251		(26,002)		4,496
Foreign currency		1,688		(217)		(1)		—		—		1,470
(Earnings) loss from unconsolidated entities		(6,069)		—		42,761		(3,348)		—		33,344
Recognition of Core realized gains / (losses) on:										—
Loans		(1,203)		(755)		—		27,585		—		25,627
Securities		597		—		—		7,109		—		7,706
Derivatives		823		(1,460)		1,851		(9,239)		—		(8,025)
Foreign currency		(814)		(827)		1		9		—		(1,631)
Earnings (loss) from unconsolidated entities		4,780		—		(68,905)		12,870		—		(51,255)
Sales of properties		—		—		—		(76)		—		(76)
Core Earnings (Loss)	$	233,480	$	5,769	$	(10,099)	$	110,662	$	(103,007)	$	236,805
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.80	$	0.02	$	(0.04)	$	0.38	$	(0.35)	$	0.81

Investing




Lending

Property

and Servicing

Segment

Segment

Segment

Corporate

Total
Revenues

$
383,175

$
85,083

$
268,658

$
—

$
736,916
Costs and expenses

(87,406)

(97,297)

(131,930)

(161,894)

(478,527)
Other income (loss)

(3,005)

9,537

(18,463)

1,784

(10,147)
Income (loss) before income taxes

292,764

(2,677)

118,265

(160,110)

248,242
Income tax provision

(75)

—

(3,392)

—

(3,467)
(Income) loss attributable to non-controlling interests

(1,050)

—

171

—

(879)
Net income (loss) attributable to Starwood Property Trust, Inc.

291,639

(2,677)

115,044

(160,110)

243,896
Add / (Deduct):

Non-cash equity compensation expense

2,110

89

3,785

16,893

22,877
Management incentive fee

—

—

—

13,770

13,770
Acquisition and investment pursuit costs

—

1,421

904

12

2,337
Depreciation and amortization

—

41,997

8,918

—

50,915
Loan loss allowance, net

3,395

—

—

—

3,395
Interest income adjustment for securities

(740)

—

10,620

—

9,880
Other non-cash items

—

(10,922)

247

—

(10,675)
Reversal of unrealized (gains) / losses on:

Loans held-for-sale

—

—

(70,122)

—

(70,122)
Securities

37

—

43,449

—

43,486
Derivatives

(19,807)

6,837

16,330

—

3,360
Foreign currency

23,501

41

(2,962)

—

20,580
Earnings from unconsolidated entities

(2,544)

(7,313)

(3,280)

—

(13,137)
Recognition of realized gains / (losses) on:

Loans held-for-sale

—

—

71,390

—

71,390
Securities

—

—

(11,136)

—

(11,136)
Derivatives

33,311

(26)

(15,858)

—

17,427
Foreign currency

(31,916)

(41)

2,825

—

(29,132)
Earnings from unconsolidated entities

3,148

4,820

2,855

—

10,823
Core Earnings (Loss)

$
302,134

$
34,226

$
173,009

$
(129,435)

$
379,934
Core Earnings (Loss) per Weighted Average Diluted Share

$
1.26

$
0.14

$
0.73

$
(0.54)

$
1.59

Table of Contents

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Core Earnings increased by ~~$7.4~~$27.2 million, from ~~$302.1~~$233.5 million during the ~~nine~~six months ~~ended September 30, 2016~~of 2019 to ~~$309.5~~$260.7 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017.~~of 2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$396.5~~$381.1 million, costs and expenses were ~~$88.0~~$113.6 million and other ~~income~~loss was ~~$2.5~~$4.0 million.

Core revenues, consisting principally of interest income on loans, increased by ~~$14.0~~$18.9 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to ~~(i)~~ an ~~$11.7 million~~ increase in interest income from loans of $24.9 million, partially offset by a decrease in interest income from investment securities of $6.6 million. The increase in interest income from loans was principally due to (i) higher ~~average loan balances and LIBOR rates, partially offset by lower levels of~~ prepayment related income and (ii) ~~a $1.9 million increase~~higher average balances of both commercial and residential loans, partially offset by (iii) lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans). The decrease in interest income ~~principally~~ from ~~CMBS~~investment securities was primarily due to lower prepayment related income and ~~RMBS investments.~~lower average LIBOR rates.

~~Table of Contents~~

Core costs and expenses ~~increased~~decreased by ~~$6.1~~$20.6 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to ~~(i)~~ a ~~$4.8~~$24.3 million ~~increase~~decrease in interest expense associated with the various secured financing facilities used to fund a portion of ~~our~~this segment’s investment portfolio ~~and (ii) a $1.1 million increase in~~primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding. Such decrease was partially offset by higher general and administrative and other expenses.

Core other income (loss) decreased ~~slightly~~ by ~~$0.3 million.~~$11.4 million in the six months of 2020, primarily due to declines of $6.8 million in gains (losses) on sales and securitizations of commercial and residential loans and $5.4 million in earnings from unconsolidated entities.

~~Property~~Infrastructure Lending Segment

~~Core Earnings by Portfolio (amounts in thousands)~~

For the Nine Months Ended

September 30,


2017

2016

Change
Master Lease Portfolio

$
320

$
—

$
320
Medical Office Portfolio

19,854

—

19,854
Ireland Portfolio

14,248

15,130

(882)
Woodstar Portfolio

16,957

15,771

1,186
Investment in unconsolidated entities

3,563

4,821

(1,258)
Other/Corporate

(2,076)

(1,496)

(580)
Core Earnings

$
52,866

$
34,226

$
18,640

The ~~Property~~Infrastructure Lending Segment’s Core Earnings increased by ~~$18.7~~$5.0 million, from ~~$34.2~~$5.8 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2016~~of 2019 to ~~$52.9~~$10.8 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017.~~of 2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$138.1~~$43.2 million, costs and expenses were ~~$88.0~~$31.7 million and other ~~income~~loss was ~~$2.8~~$0.7 million.

Core revenues, ~~increased~~consisting principally of interest income on loans, decreased by ~~$56.0~~$11.5 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to ~~the inclusion~~decreases in interest income from loans of $10.7 million and investment securities of $0.4 million. The decrease in interest income from loans was primarily due to lower average loan balances outstanding as a ~~full period~~result of ~~rental income for the Medical Office Portfolio~~sales and ~~the Woodstar Portfolio.~~repayments and a decrease in average LIBOR rates partially offset by an increase in average spreads on our infrastructure loans.

Core costs and expenses increased by $34.7 million during the nine months ended September 30, 2017, primarily due to increases in rental related costs of $16.8 million and interest expense of $16.4 million primarily on the secured financing for the Medical Office Portfolio.

~~Core other income~~ decreased by ~~$2.6~~$11.3 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to a decrease in ~~equity in earnings recognized from our~~interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates and lower average borrowings as a result of loan sales and repayments.

Core other loss decreased by $5.4 million in the ~~Retail Fund.~~six months of 2020, primarily due to a decreased loss on extinguishment of debt resulting from the write-off of deferred financing fees relating to partial debt prepayments from proceeds of loan repayments and sales.

~~Investing and Servicing~~

Table of Contents

Property Segment

Core Earnings by Portfolio (amounts in thousands)


	For the Six Months Ended
	June 30,
	2020		2019		Change
Master Lease Portfolio	$	8,538	$	8,352	$	186
Medical Office Portfolio		10,547		13,335		(2,788)
Woodstar I Portfolio		11,105		15,156		(4,051)
Woodstar II Portfolio		12,382		10,963		1,419
Ireland Portfolio		—		13,003		(13,003)
Investment in unconsolidated entities		—		(68,905)		68,905
Other/Corporate		(2,321)		(2,003)		(318)
Core Earnings	$	40,251	$	(10,099)	$	50,350

The ~~Investing and Servicing~~Property Segment’s Core Earnings increased by ~~$56.7~~$50.3 million, from ~~$173.0~~a loss of $10.1 million during the ~~nine~~six months ~~ended September 30, 2016~~of 2019 to ~~$229.7~~income of $40.2 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017.~~of 2020. After making adjustments for the calculation of Core Earnings, revenues were ~~$250.8~~$126.8 million, costs and expenses were ~~$99.3~~$83.7 million and other loss was $2.9 million.

Core revenues decreased by $15.8 million in the six months of 2020, primarily due to the sale of the Ireland Portfolio in December 2019, partially offset by increased rental income in the Woodstar Portfolios due to rental rate increases effective May 2019.

Core costs and expenses decreased by $4.9 million in the six months of 2020, primarily due to the sale of the Ireland Portfolio in December 2019.

Core other loss decreased by $60.9 million in the six months of 2020 primarily due to a $68.9 million other-than-temporary loss recognized on our investment in the Retail Fund in the 2019 period that did not recur in the 2020 period, partially offset by a $6.0 million unfavorable change in realized gains (losses) on certain interest rate and foreign currency derivatives and a $2.2 million loss on extinguishment of debt in the second quarter of 2020 in connection with the refinancing of our Woodstar I Portfolio.

Investing and Servicing Segment

The Investing and Servicing Segment’s Core Earnings decreased by $38.7 million, from $110.7 million during the six months of 2019 to $72.0 million in the six months of 2020. After making adjustments for the calculation of Core Earnings, revenues were $97.2 million, costs and expenses were $56.5 million, other income was ~~$98.2~~$37.2 million, income tax ~~provision~~benefit was ~~$17.4~~$4.9 million and the deduction of income attributable to non-controlling interests was ~~$2.6~~$10.8 million.

Core revenues decreased by ~~$28.7~~$45.3 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to decreases of ~~$24.3~~$28.1 million in servicing fees, ~~reflecting the divestiture of our European servicing and advisory business and lower domestic servicing fees, $11.8 million in interest income from our CMBS portfolio and $1.9~~$7.7 million in interest income from conduit loans ~~partially offset by a $12.0~~and CMBS and $9.6 million ~~increase~~ in rental income onfrom our ~~expanded~~ REIS Equity ~~Portfolio.~~ Portfolio due to fewer properties held and an owned hotel which was closed during the quarter due to COVID-19. The decrease in interest income primarily reflects a $5.9 million decrease in interest recoveries on CMBS.

Core costs and expenses decreased by ~~$18.9~~$10.5 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020, primarily due to ~~a decrease~~decreases of, $5.0 million in costs of rental operations due to fewer properties held, $2.9 million in interest expense on borrowings related to properties held and conduit loans and $2.8 million in general and administrative expenses reflecting ~~the divestiture of our European servicing and advisory business and~~ lower incentive ~~compensation, partially offset by increases in costs of rental operations and interest expense on secured financings for CMBS and the REIS Equity Portfolio.~~compensation.

~~Table of Contents~~

Core other income ~~increased~~decreased by ~~$83.2~~$0.2 million ~~principally due to (i) a $52.4 million realized gain from an unconsolidated investor entity which owns equity~~ in ~~an online real estate company and sold nearly all~~the six months of its interest during the third quarter of 2017, (ii) a $34.5 million increase in realized gains on sales of operating properties and CMBS, (iii) a $10.5 million decrease in realized losses on derivatives net of foreign currency gain (loss) and (iv) a $9.9 million decrease in amortization of servicing rights, all partially offset by (v) a $22.4 million decrease in realized gains on conduit loans.2020.

Income taxes, which principally relate to the ~~operating results~~taxable nature of our loan servicing and loan conduit businesses and certain other real estate related investing activities which are ~~held~~housed in TRSs, ~~increased $14.0~~decreased $7.2 million from a provision of $2.3 million to a benefit of $4.9 million due to ~~an increase in the taxable income~~tax losses of our TRSs ~~primarily associated with realized gains from our interest~~ in ~~an investor entity which owns equity in an online real estate company and sold nearly all~~the six months of ~~its interest during the third quarter~~2020.

Table of ~~2017.~~Contents

Income attributable to non-controlling interests increased ~~$2.7~~$10.9 million primarily ~~due~~relating to ~~minority investors’ share~~income of ~~gains from two operating properties sold during the third quarter of 2017.~~a consolidated CMBS joint venture in which we hold a 51% interest.

Corporate

Core corporate costs and expenses ~~increased~~decreased by ~~$23.3~~$7.5 million, from ~~$129.4~~$103.0 million during the ~~nine~~six months ~~ended September 30, 2016~~of 2019 to ~~$152.7~~$95.5 million ~~during~~in the ~~nine~~six months ~~ended September 30, 2017,~~of 2020 primarily due to ~~increases~~a favorable change in realized gain (loss) on interest ~~expense~~rate swaps which hedge a portion of ~~$16.9 million and base management fees of $5.3 million.~~our unsecured senior notes used to repay variable-rate secured financing.

~~Table of Contents~~

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, ~~2016.~~2019. Refer to our Form 10-K for a description of these strategies. We expect to preserve and build our liquidity to best position the Company to weather near-term market uncertainty, satisfy our loan future funding and financing obligations and to potentially make opportunistic new investments, which will cause us to take some or all of the following actions: raise capital from offerings of securities, borrow additional capital, sell assets, pay our management and incentive fees in shares of our common stock (as was done for the quarter ended March 31, 2020) and/or change our dividend practice, including by reducing the amount of, or temporarily suspending, our future dividends or paying our future dividends in kind for some period of time. We currently expect the pace of loan repayments will slow while the impacts of the COVID-19 pandemic are ongoing.

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 II, Item 1A of this Quarterly Report on Form 10-Q.

Credit Facilities

During the three months ended June 30, 2020, we entered into agreements with seven of the 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. 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.

Table of Contents

Our primary sources of liquidity are as follows:

Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 (amounts in thousands)

VIE

Excluding Investing

GAAP

Adjustments

and Servicing VIEs
Net cash used in operating activities

$
(222,428)

$
(4,013)

$
(226,441)
Cash Flows from Investing Activities:

Origination and purchase of loans held-for-investment

(2,195,258)

—

(2,195,258)
Proceeds from principal collections and sale of loans

1,707,238

—

1,707,238
Purchase of investment securities

(69,231)

(80,770)

(150,001)
Proceeds from sales and collections of investment securities

221,037

81,880

302,917
Real estate business combinations, net of cash and restricted cash acquired

(18,194)

(19,039)

(37,233)
Proceeds from sale of properties

44,219

—

44,219
Purchases and additions to properties and other assets

(564,755)

—

(564,755)
Net cash flows from other investments and assets

(34,057)

—

(34,057)
Net cash used in investing activities

(909,001)

(17,929)

(926,930)
Cash Flows from Financing Activities:

Proceeds from borrowings

4,090,163

—

4,090,163
Principal repayments on and repurchases of borrowings

(2,724,179)

—

(2,724,179)
Payment of deferred financing costs

(17,038)

—

(17,038)
Proceeds from common stock issuances, net of offering costs

(106)

—

(106)
Payment of dividends

(376,061)

—

(376,061)
Contributions from non-controlling interests

105

—

105
Distributions to non-controlling interests

(7,519)

—

(7,519)
Issuance of debt of consolidated VIEs

11,657

(11,657)

—
Repayment of debt of consolidated VIEs

(92,383)

92,383

—
Distributions of cash from consolidated VIEs

62,797

(62,797)

—
Net cash provided by financing activities

947,436

17,929

965,365
Net decrease in cash, cash equivalents and restricted cash

(183,993)

(4,013)

(188,006)
Cash, cash equivalents and restricted cash, beginning of period

650,755

(1,148)

649,607
Effect of exchange rate changes on cash

1,674

—

1,674
Cash, cash equivalents and restricted cash, end of period

$
468,436

$
(5,161)

$
463,275


			VIE		Excluding Investing
	GAAP		Adjustments		and Servicing VIEs
Net cash provided by operating activities	$	769,738	$	(2,049)	$	767,689
Cash Flows from Investing Activities:
Origination and purchase of loans held-for-investment		(1,666,903)		—		(1,666,903)
Proceeds from principal collections and sale of loans		1,434,351		—		1,434,351
Purchase and funding of investment securities		(16,120)		(222,386)		(238,506)
Proceeds from sales and collections of investment securities		58,419		61,365		119,784
Proceeds from sales of real estate		23,805		—		23,805
Purchases and additions to properties and other assets		(13,914)		—		(13,914)
Investment in unconsolidated entities		(3,130)		—		(3,130)
Proceeds from sale of interest in unconsolidated entities		10,313		—		10,313
Net cash flows from other investments and assets		(67,577)		—		(67,577)
Net cash used in investing activities		(240,756)		(161,021)		(401,777)
Cash Flows from Financing Activities:
Proceeds from borrowings		3,686,932		—		3,686,932
Principal repayments on and repurchases of borrowings		(3,716,558)		(13,950)		(3,730,508)
Payment of deferred financing costs		(7,564)		—		(7,564)
Proceeds from common stock issuances, net of offering costs		354		—		354
Payment of dividends		(271,624)		—		(271,624)
Contributions from non-controlling interests		9,406		—		9,406
Distributions to non-controlling interests		(76,514)		2,219		(74,295)
Purchase of treasury stock		(28,830)		—		(28,830)
Issuance of debt of consolidated VIEs		24,376		(24,376)		—
Repayment of debt of consolidated VIEs		(236,336)		236,336		—
Distributions of cash from consolidated VIEs		36,989		(36,989)		—
Net cash used in financing activities		(579,369)		163,240		(416,129)
Net decrease in cash, cash equivalents and restricted cash		(50,387)		170		(50,217)
Cash, cash equivalents and restricted cash, beginning of period		574,031		(1,221)		572,810
Effect of exchange rate changes on cash		487		—		487
Cash, cash equivalents and restricted cash, end of period	$	524,131	$	(1,051)	$	523,080

The discussion below is on a non-GAAP basis, after removing adjustments principally resulting from the consolidation of the ~~Investing and Servicing Segment’s~~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) 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 cash flows from operations or to overall cash resulting from these consolidations. Refer to Note 2 ~~of our~~to the Condensed Consolidated Financial Statements for further discussion.

Cash and cash equivalents decreased by ~~$188.0~~$50.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, reflecting net cash used in investing activities of ~~$926.9~~$401.8 million and net cash used in ~~operating~~financing activities of ~~$226.5~~$416.1 million, partially offset by net cash provided by ~~financing activities of $965.4 million.~~

~~Table of Contents~~

~~Net cash used in~~ operating activities of ~~$226.5~~$767.7 million.

Net cash provided by operating activities of $767.7 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 related primarily to ~~$500.0 million~~proceeds from sales of loans held-for-sale, net of originations and purchases, of $600.2 million and cash interest income of $289.8 million from our loans ~~held-for-sale, net~~and $78.2 million from our investment securities. Net rental income provided cash of ~~proceeds from principal collections~~$88.6 million and ~~sales,~~servicing fees provided cash of $17.7 million. Offsetting these cash inflows was cash interest expense of ~~$177.6~~$202.6 million, general and administrative expenses of $66.5 million, management fees of ~~$65.3~~$37.0 million and a net change in operating assets and liabilities of ~~$8.1~~$9.0 million. ~~Offsetting these cash outflows were cash interest income~~

Table of ~~$277.9~~million from our loan origination and conduit programs, plus cash interest income on investment securities of $131.5 million. Net rental income provided cash of $106.3 million and servicing fees provided cash of $81.1 million.Contents

Net cash used in investing activities of ~~$926.9~~$401.8 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 related primarily to the origination and acquisition of new loans held-for-investment of ~~$2.2~~$1.7 billion, the purchase and funding of ~~commercial real estate~~investment securities of $238.5 million and net additions to properties and other assets of ~~$602.0 million and the purchase of investment securities of $150.0~~$13.9 million, partially offset by proceeds received from principal collections and sales of loans of ~~$1.7~~$1.4 billion and investment securities of ~~$302.9~~$119.8 million, proceeds from the sale of real estate of $23.8 million and proceeds from the sale of interest in unconsolidated entities of $10.3 million.

Net cash ~~provided by~~used in financing activities of ~~$965.4~~$416.1 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 related primarily to ~~net borrowings after repayments of our secured and unsecured debt of $1.3 billion, partially offset by~~ dividend distributions of ~~$376.1~~$271.6 million, net distributions to non-controlling interests of $64.9 million, repayments on our secured debt and deferred loan costs of $51.1 million, net of borrowings, and treasury stock purchases of $28.8 million.

8592

Table of Contents

Our Investment Portfolio

The following is a review of our segments for the six months ended June 30, 2020. Refer to the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for discussion of the potential impacts on us from the COVID-19 pandemic.

Commercial and Residential Lending Segment

The following table sets forth the amount of each category of investments we owned across various property types within our Commercial and Residential Lending Segment as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


											Unlevered
	Face		Carrying			Asset Specific		Net			Return on
	Amount		Value			Financing		Investment		Vintage	Asset
June 30, 2020
First mortgages (1)	$	8,113,339	$	8,094,109		$	4,998,772	$	3,095,337	1998-2020	6.3	%
Subordinated mortgages		70,101		68,891			—		68,891	1998-2019	8.6	%
Mezzanine loans (1)		593,505		593,823			—		593,823	2013-2020	11.7	%
Residential loans, fair value option		260,542		267,730			183,987		83,743	2013-2020	6.0	%
Other loans		34,452		30,804			—		30,804	1999-2017	9.9	%
Loans held-for-sale, fair value option, residential		429,966		432,786			305,148		127,638	2015-2020	6.1	%
RMBS, available-for-sale		266,539		174,281			31,897		142,384	2003-2007	11.4	%
RMBS, fair value option		266,687		328,270	(2)		27,698		300,572	2018-2020	8.5	%
CMBS, fair value option		110,624		104,171	(2)		26,056		78,115	2018	6.6	%
HTM debt securities (3)		508,945		507,994			105,070		402,924	2014-2019	6.7	%
Credit loss allowance		—		(98,830)			—		(98,830)	N/A
Equity security		11,333		9,791			—		9,791	N/A
Investment in unconsolidated entities		N/A		49,853			—		49,853	N/A
Properties, net		N/A		27,283			—		27,283	N/A
	$	10,666,033	$	10,590,956		$	5,678,628	$	4,912,328

December 31, 2019
First mortgages (1)	$	7,961,494	$	7,926,732		$	4,715,244	$	3,211,488	1998-2019	6.4	%
Subordinated mortgages		77,055		75,724			—		75,724	1998-2019	9.5	%
Mezzanine loans (1)		484,408		484,164			—		484,164	2013-2019	12.2	%
Residential loans, fair value option		654,925		671,572			425,423		246,149	2013-2019	5.9	%
Other loans		66,525		62,555			—		62,555	1999-2018	8.9	%
Loans held-for-sale, fair value option, residential		587,144		605,384			454,223		151,161	2015-2019	5.9	%
Credit loss allowance, loans		—		(33,415)			—		(33,415)	N/A
RMBS, available-for-sale		278,853		189,576			102,073		87,503	2003-2007	12.3	%
RMBS, fair value option		87,397		147,034	(2)		32,292		114,742	2018-2019	10.2	%
CMBS, fair value option		118,249		118,215	(2)		58,801		59,414	2018	5.5	%
HTM debt securities (3)		527,338		525,485			178,880		346,605	2014-2019	7.1	%
Equity security		12,119		12,664			—		12,664	N/A
Investment in unconsolidated entities		N/A		46,921			—		46,921	N/A
Properties, net		N/A		26,834			—		26,834	N/A
	$	10,855,507	$	10,859,445		$	5,966,936	$	4,892,509

Unlevered


Face

Carrying

Asset Specific

Net



Return on

Amount

Value

Financing

Investment

Vintage

Asset

September 30, 2017

First mortgages (1)

$
5,546,006

$
5,523,316

$
2,693,742

$
2,829,574

1989-2017

6.7
%

Subordinated mortgages

224,088

222,990

—

222,990

1998-2015

11.4
%

Mezzanine loans (1)

615,724

615,562

—

615,562

2005-2017

11.2
%

Other loans

27,073

23,218

—

23,218

1999-2017

12.8
%

Loans held-for-sale, fair value option

408,346

418,618

249,473

169,145

2013-2017

5.9
%

Loans transferred as secured borrowings

75,000

74,339

74,200

139

N/A

Loan loss allowance

—

(6,618)

—

(6,618)

N/A

RMBS

379,432

253,252

42,216

211,036

2003-2007

9.9
%

HTM securities (2)

415,679

411,196

238,432

172,764

2013-2017

5.4
%

Equity security

12,244

13,529

—

13,529

N/A

Investments in unconsolidated entities

N/A

36,831

—

36,831

N/A

$
7,703,592

$
7,586,233

$
3,298,063

$
4,288,170

December 31, 2016

First mortgages (1)

$
4,861,214

$
4,845,552

$
1,910,078

$
2,935,474

1989-2016

6.4
%

Subordinated mortgages

293,925

278,032

4,021

274,011

1998-2015

11.5
%

Mezzanine loans (1)

714,608

713,757

—

713,757

2006-2016

10.7
%

Loans transferred as secured borrowings

35,000

35,000

35,000

—

N/A

Loan loss allowance

—

(9,788)

—

(9,788)

N/A

RMBS

399,883

253,915

38,832

215,083

2003-2007

10.3
%

HTM securities (2)

515,027

509,980

305,531

204,449

2013-2015

6.0
%

Equity security

11,275

12,177

—

12,177

N/A

Investments in unconsolidated entities

N/A

30,874

—

30,874

N/A

$
6,830,932

$
6,669,499

$
2,293,462

$
4,376,037

(1)

~~(1)~~

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

Table of Contents

(3)

~~(2)~~

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

~~Table of Contents~~

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, our Commercial and Residential Lending Segment’s investment portfolio, excluding residential loans, ~~held-for-sale,~~ RMBS, properties and other investments, had the following characteristics based on carrying values:



Collateral Property Type	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Office	40.1	%	35.8	%	37.2	%	40.2	%
Hotel					22.7	%	20.6	%
Multifamily					11.9	%	12.3	%
Residential					8.3	%	8.7	%
Mixed Use	20.8	%	15.1	%	8.0	%	7.1	%
Hospitality	17.0	%	22.9	%
Multi-family	10.5	%	15.3	%
Retail	6.7	%	7.0	%	2.9	%	3.5	%
Residential	3.3	%	1.9	%
Industrial	1.6	%	2.0	%	1.3	%	0.6	%
	100.0	%	100.0	%
Other					7.7	%	7.0	%
					100.0	%	100.0	%



Geographic Location	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
U.S. Regions:
North East	35.8	%	37.7	%	24.7	%	27.5	%
West	22.0	%	21.5	%	21.8	%	22.2	%
South West	11.4	%	8.9	%	11.1	%	10.7	%
Mid Atlantic					8.7	%	8.3	%
South East	10.6	%	11.6	%	8.6	%	7.9	%
International	9.5	%	9.5	%
Midwest	5.8	%	7.3	%	4.8	%	4.1	%
Mid Atlantic	4.9	%	3.5	%
	100.0	%	100.0	%
International:
Europe/Australia					17.3	%	16.2	%
Bahamas/Bermuda					3.0	%	3.1	%
					100.0	%	100.0	%

Table of Contents

Infrastructure Lending Segment

~~Property Segment~~

The following table sets forth the amount of each category of investments ~~which are comprised~~we owned within our Infrastructure Lending Segment as of ~~properties, intangible lease assets~~June 30, 2020 and ~~liabilities~~December 31, 2019 (dollars in thousands):


									Unlevered
	Face		Carrying		Asset Specific		Net		Return on
	Amount		Value		Financing		Investment		Asset
June 30, 2020
First priority infrastructure loans and HTM securities	$	1,547,019	$	1,518,884	$	1,184,269	$	334,615	5.1	%
Loans held-for-sale, infrastructure		46,111		45,001		36,732		8,269	3.2	%
Credit loss allowance		N/A		(19,458)		—		(19,458)
Investment in unconsolidated entities		N/A		24,744		—		24,744
	$	1,593,130	$	1,569,171	$	1,221,001	$	348,170

December 31, 2019
First priority infrastructure loans and HTM securities	$	1,474,052	$	1,442,601	$	1,121,065	$	321,536	6.4	%
Loans held-for-sale, infrastructure		121,271		119,724		96,001		23,723	5.1	%
Credit loss allowance		N/A		(196)		—		(196)
Investment in unconsolidated entities		N/A		25,862		—		25,862
	$	1,595,323	$	1,587,991	$	1,217,066	$	370,925

As of June 30, 2020 and December 31, 2019, our ~~equity~~Infrastructure Lending Segment’s investment ~~in four regional shopping malls (the “Retail Fund”)~~portfolio had the following characteristics based on carrying values:


Collateral Type	June 30, 2020		December 31, 2019
Natural gas power	70.7	%	72.6	%
Midstream	18.1	%	12.8	%
Renewable power	7.4	%	10.6	%
Other thermal power	3.8	%	4.0	%
	100.0	%	100.0	%


Geographic Location	June 30, 2020		December 31, 2019
U.S. Regions:
North East	42.8	%	43.9	%
Midwest	23.4	%	25.5	%
South West	15.6	%	12.6	%
South East	6.6	%	4.8	%
West	3.8	%	4.2	%
Mid-Atlantic	3.8	%	4.0	%
International:
Mexico	2.9	%	2.9	%
Other	1.1	%	2.1	%
	100.0	%	100.0	%

Table of Contents

Property Segment

The following table sets forth the amount of each category of investments held within our Property Segment as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


	September 30, 2017		December 31, 2016

					June 30, 2020		December 31, 2019
Properties, net	$	2,234,646	$	1,667,108	$	1,998,759	$	2,029,024
Lease intangibles, net		111,997		122,124		41,501		44,986
Investment in unconsolidated entities		109,607		124,977
	$	2,456,250	$	1,914,209
					$	2,040,260	$	2,074,010

The following table sets forth our net investment and other information regarding the Property Segment’s properties and ~~intangible~~ lease ~~assets and liabilities~~intangibles as of ~~September~~June 30, ~~2017~~2020 (dollars in thousands):


			Asset						Weighted Average
	Carrying		Specific		Net		Occupancy		Remaining
	Value		Financing		Investment		Rate		Lease Term

												Asset						Weighted Average
										Carrying		Specific		Net		Occupancy		Remaining
										Value		Financing		Investment		Rate		Lease Term
Office—Medical Office Portfolio	$	768,132	$	488,030	$	280,102	94.1	%	6.0 years	$	760,029	$	591,353	$	168,676	92.8	%	6.1 years
Office—Ireland Portfolio		513,953		329,350		184,603	89.9	%	8.9 years
Multi-family residential—Ireland Portfolio		18,567		12,026		6,541	92.0	%	0.3 years
Multi-family residential—Woodstar Portfolio		613,685		409,596		204,089	98.1	%	0.5 years
Multifamily residential—Woodstar I Portfolio											632,763		571,920		60,843	98.3	%	0.5 years
Multifamily residential—Woodstar II Portfolio											606,984		436,987		169,997	99.6	%	0.5 years
Retail—Master Lease Portfolio		425,190		191,914		233,276	100.0	%	24.6 years		343,790		192,558		151,232	100.0	%	21.8 years
Industrial—Master Lease Portfolio		128,134		70,090		58,044	100.0	%	24.6 years
Subtotal—undepreciated carrying value		2,467,661		1,501,006		966,655					2,343,566		1,792,818		550,748
Accumulated depreciation and amortization		(121,018)		—		(121,018)					(303,306)		—		(303,306)
Net carrying value	$	2,346,643	$	1,501,006	$	845,637				$	2,040,260	$	1,792,818	$	247,442

~~Table of Contents~~

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:



Geographic Location	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Ireland	20.9	%	25.2	%
U.S. Regions:
South East	34.5	%	39.7	%	62.0	%	62.0	%
South West					10.3	%	10.3	%
Midwest	13.1	%	6.2	%	10.1	%	10.1	%
South West	10.0	%	8.7	%
North East					9.7	%	9.7	%
West	9.9	%	7.2	%	7.9	%	7.9	%
North East	9.6	%	13.0	%
Mid-Atlantic	2.0	%	—	%
	100.0	%	100.0	%
					100.0	%	100.0	%

Table of Contents

Investing and Servicing Segment

The following table sets forth the amount of each category of investments we owned within our Investing and Servicing Segment as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):


						Asset
	Face		Carrying			Specific			Net
	Amount		Value			Financing			Investment
June 30, 2020
CMBS, fair value option	$	2,625,096	$	1,094,613	(1)	$	363,333	(2)	$	731,280
Intangible assets - servicing rights		N/A		48,809	(3)		—			48,809
Lease intangibles, net		N/A		17,620			—			17,620
Loans held-for-sale, fair value option, commercial		191,229		194,097			133,900			60,197
Loans held-for-investment		1,153		1,153			—			1,153
Investment in unconsolidated entities		N/A		47,114	(4)		—			47,114
Properties, net		N/A		198,281			186,233			12,048
	$	2,817,478	$	1,601,687		$	683,466		$	918,221
December 31, 2019
CMBS, fair value option	$	2,897,654	$	1,177,148	(1)	$	300,705		$	876,443
Intangible assets - servicing rights		N/A		43,164	(3)		—			43,164
Lease intangibles, net		N/A		20,060			—			20,060
Loans held-for-sale, fair value option, commercial		160,635		159,238			85,873			73,365
Loans held-for-investment		1,294		1,294			—			1,294
Investment in unconsolidated entities		N/A		32,183	(4)		—			32,183
Properties, net		N/A		210,582			187,929			22,653
	$	3,059,583	$	1,643,669		$	574,507		$	1,069,162

Asset


Face

Carrying

Specific

Net

Amount

Value

Financing

Investment

September 30, 2017

CMBS, fair value option

$
4,075,324

$
1,026,634
(1)
$
173,563

$
853,071

Intangible assets - servicing rights

N/A

60,363
(2)

—

60,363

Lease intangibles, net

N/A

25,722

—

25,722

Loans held-for-sale, fair value option

192,705

190,006

144,052

45,954

Loans held-for-investment

3,903

3,903

—

3,903

Investment in unconsolidated entities

N/A

117,772

—

117,772

Properties, net

N/A

286,696

199,318

87,378

$
4,271,932

$
1,711,096

$
516,933

$
1,194,163

December 31, 2016

CMBS, fair value option

$
4,459,655

$
990,570
(1)
$
206,651

$
783,919

Intangible assets - servicing rights

N/A

89,320
(2)

—

89,320

Lease intangibles, net

N/A

29,676

—

29,676

Loans held-for-sale, fair value option

63,065

63,279

33,131

30,148

Loans held-for-investment

20,442

20,442

—

20,442

Investment in unconsolidated entities

N/A

56,376

—

56,376

Properties, net

N/A

277,612

186,901

90,711

$
4,543,162

$
1,527,275

$
426,683

$
1,100,592

(1)

~~(1)~~

Includes ~~$1.0~~$1.07 billion and ~~$959.0 million~~$1.14 billion of CMBS ~~reflected~~eliminated in ~~“VIE liabilities” in accordance with~~consolidation against VIE liabilities pursuant to ASC 810 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

~~(2)~~

~~Includes $26.6~~ Also includes $174.7 million and ~~$34.2~~$186.6 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of June 30, 2020 and December 31, 2019, respectively.

(2)	Includes $41.3 million of non-controlling interests in the consolidated entities which hold certain debt balances as of June 30, 2020.

(3)	Includes $34.9 million and $26.2 million of servicing rights intangibles ~~reflected~~eliminated in ~~“VIE assets” in accordance with~~consolidation against VIE assets pursuant to ASC 810 as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

(4)	Includes $16.8 million and $20.6 million of investment in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of June 30, 2020 and December 31, 2019, respectively.

8897

Table of Contents

Our ~~Investing and Servicing Segment’s~~ REIS Equity Portfolio, as ~~defined~~described in Note 36 to the Condensed Consolidated Financial Statements, had the following characteristics based on carrying values of ~~$291.4~~$200.5 million and ~~$283.5~~$214.9 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively:



Property Type	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Office					50.0	%	52.7	%
Retail	40.6	%	45.8	%	30.5	%	28.8	%
Office	35.1	%	23.9	%
Multi-family	12.7	%	18.1	%
Mixed Use	7.1	%	7.5	%	6.9	%	5.8	%
Self-storage	4.5	%	4.7	%	6.2	%	3.9	%
	100.0	%	100.0	%
Multifamily					4.2	%	6.5	%
Hotel					2.2	%	2.3	%
					100.0	%	100.0	%



Geographic Location	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
South West					24.4	%	22.0	%
North East					24.4	%	22.6	%
South East	49.6	%	51.0	%	15.8	%	22.6	%
North East	14.2	%	17.3	%
South West	12.9	%	7.0	%
West					15.0	%	13.5	%
Mid Atlantic	8.8	%	9.4	%	11.8	%	8.4	%
Midwest	7.6	%	8.0	%	8.6	%	10.9	%
West	6.9	%	7.3	%
	100.0	%	100.0	%
					100.0	%	100.0	%

Table of Contents

New Credit Facilities and Amendments

Refer to Notes 9 and 10 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, ~~2016.~~2019.

~~Table of Contents~~

Secured Borrowings

~~Borrowings under Various Secured Financing Arrangements~~

The following table is a summary of our secured ~~financing facilities~~borrowings as of ~~September~~June 30, ~~2017~~2020 (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	Aug 2020 to Jan 2024	(d)	May 2023 to Mar 2029	(d)	(e)	$	6,293,458		$	9,181,700	(f)	$	4,024,642		$	439,342	$	4,717,716
Residential Loans	Jun 2022		N/A		LIBOR + 2.58%		10,172			400,000			7,669			—		392,331
Infrastructure Loans	Feb 2021		N/A		LIBOR + 2.00%		194,283			500,000			160,483			—		339,517
Conduit Loans	Feb 2021 to Jun 2023		Feb 2022 to Jun 2024		LIBOR + 1.86%		182,001			350,000			134,874			—		215,126
CMBS/RMBS	Sep 2020 to Dec 2029	(g)	Dec 2020 to Jun 2030	(g)	(h)		1,097,024			783,641			563,031	(i)		81,526		139,084
Total Repurchase Agreements							7,776,938			11,215,341			4,890,699			520,868		5,803,774
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25%		33,445			650,000	(j)		29,333			—		620,667
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75%		91,214			73,650			73,650			—		—
Infrastructure Acquisition Facility	Sep 2021		Sep 2022		(k)		723,690			737,137			583,005			—		154,132
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.11%		567,315			1,250,000			462,568			—		787,432
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(l)	N/A		3.81%		1,302,670			1,078,072			1,077,979			—		93
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		LIBOR + 2.53%		951,634			945,400			926,262			—		19,138
Term Loan and Revolver	(m)		N/A		(m)		N/A	(m)		517,000			397,000			120,000		—
FHLB	Feb 2021		N/A		1.99%		690,341			2,000,000			481,500			—		1,518,500
Collateralized Loan Obligation	Jul 2038		N/A		LIBOR + 1.34%		1,099,405			936,375			936,375			—		—
Total Other Secured Financing							5,459,714			8,187,634			4,967,672			120,000		3,099,962
						$	13,236,652		$	19,402,975		$	9,858,371		$	640,868	$	8,903,736
Unamortized net discount													(10,189)
Unamortized deferred financing costs													(82,555)
												$	9,765,627

Pledged





Approved


Asset

Maximum

but

Unallocated

Current

Extended

Carrying

Facility

Outstanding

Undrawn

Financing

Maturity

Maturity (a)

Pricing

Value

Size

Balance

Capacity (b)

Amount (c)
Lender 1 Repo 1

(d)

(d)

LIBOR + 1.75% to 5.75%

$
1,534,069

$
2,000,000

$
1,170,141

$
—

$
829,859
Lender 2 Repo 1

Oct 2017

Oct 2020

LIBOR + 1.75% to 2.75%

350,508

500,000

236,055

25,000

238,945
Lender 3 Repo 1

May 2018

May 2019

LIBOR + 2.75% to 3.10%

110,086

76,820

76,820

—

—
Lender 4 Repo 2

Dec 2018

Dec 2020

LIBOR + 2.00% to 3.25%

571,746

1,000,000
(e)

221,544

130,213

648,243
Lender 6 Repo 1

Aug 2020

N/A

LIBOR + 2.50% to 2.75%

724,164

600,000

475,555

—

124,445
Lender 6 Repo 2

Nov 2019

Nov 2020

GBP LIBOR + 2.75%

173,516

121,280

121,280

—

—
Lender 9 Repo 1

Dec 2017

Dec 2018

LIBOR + 1.65%

340,620

254,447

254,447

—

—
Lender 10 Repo 1

Mar 2020

Mar 2022

LIBOR + 2.00% to 2.75%

169,733

140,000

136,800

—

3,200
Lender 11 Repo 1

Jun 2019

Jun 2020

LIBOR + 2.75%

—

200,000

—

—

200,000
Lender 11 Repo 2

Sep 2018

Sep 2022

LIBOR + 2.25% to 2.75%

—

250,000

—

—

250,000
Lender 7 Secured Financing

Jul 2018

Jul 2019

LIBOR + 2.75%
(f)

46,800

650,000
(g)

—

—

650,000
Lender 8 Secured Financing

Aug 2019

N/A

LIBOR + 4.00%

30,147

75,000

18,226

—

56,774
Conduit Repo 2

Nov 2017

N/A

LIBOR + 2.25%

53,751

150,000

40,842

—

109,158
Conduit Repo 3

Feb 2018

N/A

LIBOR + 2.10%

136,254

150,000

103,678

—

46,322
Conduit Repo 4

Oct 2017

Oct 2020

LIBOR + 2.25%

—

100,000

—

—

100,000
MBS Repo 1

(h)

(h)

LIBOR + 1.90%

10,000

6,510

6,510

—

—
MBS Repo 2

Jun 2020

N/A

LIBOR/EURIBOR + 2.00% to 2.95%

261,066

191,184

191,184

—

—
MBS Repo 3

(i)

(i)

LIBOR + 1.32% to 1.95%

384,546

254,668

254,668

—

—
MBS Repo 4

(j)

N/A

LIBOR + 1.20% to 1.90%

179,384

225,000

2,000

98,226

124,774
Investing and Servicing Segment Property Mortgages

Feb 2018 to Jun 2026

N/A

Various

245,094

201,238

177,217

—

24,021
Ireland Portfolio Mortgage

May 2020

N/A

EURIBOR + 1.69%

491,298

344,525

344,525

—

—
Woodstar Portfolio Mortgages

Nov 2025 to Oct 2026

N/A

3.72% to 3.97%

369,519

276,748

276,748

—

—
Woodstar Portfolio Government Financing

Mar 2026 to Jun 2049

N/A

1.00% to 5.00%

308,805

133,967

133,967

—

—
Medical Office Portfolio Mortgages

Dec 2021 to Feb 2022

Dec 2023 to Feb 2024

LIBOR + 2.50%
(k)

741,304

527,124

497,613

—

29,511
Master Lease Portfolio Mortgages

Oct 2027

N/A

4.36% to 4.38%

471,762

265,900

265,900

—

—
Term Loan A

Dec 2020

Dec 2021

LIBOR + 2.25%
(f)

992,366

300,000

300,000

—

—
Revolving Secured Financing

Dec 2020

Dec 2021

LIBOR + 2.25%
(f)

—

100,000

—

100,000

—
FHLB

Feb 2021

N/A

LIBOR + 0.15% to 0.34%

338,956

250,000

250,000

—

—

$
9,035,494

$
9,344,411

5,555,720

$
353,439

$
3,435,252
Unamortized net premium

2,579

Unamortized deferred financing costs

(43,604)

$
5,514,695

(a)

~~(a)~~

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

(b)

~~(b)~~

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

(c)

~~(c)~~

Unallocated financing amount represents the maximum facility size less the total draw capacity that has been approved by the ~~lender.~~

lenders.

(d)

~~(d)~~

~~Maturity date for~~For certain facilities, borrowings ~~collateralized by loans is September 2018 before extension options and September 2021 assuming the exercise of extension options. Borrowings~~ collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified ~~conditions~~conditions.

(e)	Certain facilities with an outstanding balance of $965.9 million as of June 30, 2020 are indexed to GBP LIBOR and ~~not to exceed September 2025.~~ EURIBOR. The remainder have a weighted average rate of LIBOR + 1.86%.

(f)

~~(e)~~

The aggregate initial maximum facility size of ~~$600.0 million~~$8.9 billion may be increased ~~to $1.0 billion~~ at our option, subject to certain conditions.

This amount includes such upsizes.

(g)	Certain facilities with an outstanding balance of $310.6 million as of June 30, 2020 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 $175.9 million as of June 30, 2020 has a fixed annual interest rate of 3.50%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.78%.

Table of Contents

(i)

~~(f)~~

~~Subject~~Includes: (i) $175.9 million outstanding on a repurchase facility that is not subject to ~~borrower’s option to choose alternative benchmark based rates pursuant~~margin calls; and (ii) $41.3 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 ~~terms of the credit agreement.~~

Condensed Consolidated Financial Statements).

(j)

~~(g)~~

The initial maximum facility size of ~~$450.0~~$300.0 million may be increased to $650.0 million, ~~at our option,~~ subject to certain conditions.

(k)	~~(h)~~Consists of an annual interest rate of the applicable currency benchmark index + 1.75%. The spread will increase 25 bps in September 2020.

(l)

Facility carries a rolling 11-month term which may reset monthly with the lender’s consent not to exceed December 2018. This facility carries no maximum facility size. Amount herein reflects the outstanding balanceThe weighted average maturity is 7.6 years as of ~~September~~June 30, ~~2017.~~

2020.

(m)

Consists of: (i)

~~Facility carries~~ a ~~rolling 12-month~~$397.0 million term loan facility that matures in July 2026 with an annual interest rate of LIBOR + 2.50%; 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 ~~may reset monthly with the lender’s consent. Current maturity is September 2018. This facility carries no maximum facility size. Amount herein reflects the outstanding balance~~totaled $3.8 billion as of ~~September~~June 30, ~~2017.~~

2020.

~~(j)~~

~~The date that is 270 days after the buyer delivers notice to seller, subject to a maximum date of May 2018.~~

~~(k)~~

~~Subject to a 25 basis point floor.~~

~~Table of Contents~~

As of ~~September~~June 30, ~~2017,~~2020, Wells Fargo Bank, N.A. is our largest repurchase facility creditor through ~~two~~a Commercial Loans repurchase ~~facilities (Lender 1 Repo 1~~ facility and ~~mortgage-backed securities (“MBS”) Repo 4 facility).~~a CMBS/RMBS repurchase facility with aggregate outstanding balances of $723.5 million and pledged asset carrying values of $1.2 billion. These facilities have a weighted average extended maturity of 8.6 years.

Refer to Note 9 of ~~our~~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, 2019		9,936,500		9,535,839		400,661	(a)
March 31, 2020		10,714,680		10,194,276		520,404	(b)
June 30, 2020		9,858,371		10,218,089		(359,718)	(c)

Weighted-Average

Explanations

Quarter-End

Balance During

for Significant
Quarter Ended

Balance

Quarter

Variance

Variances
December 31, 2016

4,197,218

4,073,485

123,733

(a)
March 31, 2017

4,456,347

4,154,497

301,850

(b)
June 30, 2017

4,788,996

4,591,428

197,568

(c)
September 30, 2017

5,555,720

5,020,575

535,145

(d)

(a)

~~(a)~~

Variance primarily due to the following: (i) ~~$491.2 million drawn~~the late quarter timing of commercial loan fundings, which resulted in the Company drawing on ~~Medical Office Portfolio Mortgages in December 2016;~~its corresponding credit facilities which financed these assets and (ii) ~~$300.0 million drawn~~borrowings on the Term Loan A facility in December 2016; and (iii) $283.6 million drawn on the Lender 9 Repo 1 facility in December 2016; partially offset by (iv) $653.2 million pay down of the former Term Loan B facility in December 2016.

a new Infrastructure Financing Facility.

(b)

~~(b)~~

Variance primarily due to the following: (i) ~~$336.8 million drawn~~drawing on ~~the Lender 1 Repo 1 facility in March 2017.~~

all available credit facilities at quarter end and (ii) borrowings on two new lending facilities.

(c)

~~(c)~~

Variance primarily due to the ~~following: (i) $136.8~~late quarter timing of a residential loan securitization, which resulted in a $387.4 million ~~drawn on~~paydown of the ~~Lender 10 Repo 1~~FHLB facility, partially offset by the late quarter timing of the refinancing of our Woodstar I Portfolio, which resulted in ~~May 2017; and (ii) $60.0 million drawn on the Lender 4 Repo 2 facility throughout the quarter.~~

net additional borrowings of $100.1 million.

~~(d)~~

Variance primarily due to the following: (i) $265.9 million drawn on the Master Lease Portfolio Mortgages; (ii) $265.3 million drawn on the Lender 6 Repo 1 facility throughout the quarter; and (iii) $250.0 million drawn on FHLB in July 2017.

Borrowings under Unsecured Senior Notes

During both the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the weighted average effective borrowing rate on our unsecured senior notes was ~~5.6% and 5.7%, respectively.~~4.9%. During both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the weighted average effective borrowing rate on our unsecured senior notes was ~~5.6% and 5.7%, respectively.~~5.0%. The effective borrowing rate includes the effects of underwriter purchase discount and the adjustment for the conversion option on the ~~convertible notes,~~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.

91100

Table of Contents

Scheduled Principal Repayments on Investments and Overhang on Financing Facilities

The following scheduled and/or projected principal repayments on our investments were based ~~upon the~~on amounts outstanding and extended contractual ~~terms~~maturities of those investments as of June 30, 2020. 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 ~~financing facilities in effect~~investments that have been pledged as ~~of September 30, 2017~~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
Third Quarter 2020		439,103		22,746		(171,651)			290,198
Fourth Quarter 2020		163,676		113,085		(235,288)	(1)		41,473
First Quarter 2021		191,084		8,230		(1,267,529)	(2)		(1,068,215)
Second Quarter 2021		424,304		9,707		(21,514)			412,497
Total	$	1,218,167	$	153,768	$	(1,695,982)		$	(324,047)

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

Fourth Quarter 2017

$
1,140,742

$
41,295

$
(1,207,607)

$
(25,570)

First Quarter 2018

379,506

26,500

(731,374)

(325,368)

Second Quarter 2018

340,371

48,904

(241,849)

147,426

Third Quarter 2018

681,058

35,277

(275,477)

440,858

Total

$
2,541,677

$
151,976

$
(2,456,307)

$
237,346

(1)	$139.5 million represents borrowings with the FHLB associated with our residential loans, most of which are intended for securitization. The FHLB facility matures in February 2021. We intend to transition any loans not already securitized to alternate facilities beginning later this year.

(2)

$500.0 million represents the maturity of our 2021 Senior Notes. $342.0 million represents borrowings with the FHLB associated with our residential loans (see Note 1 above). $157.9 million represents borrowings on our infrastructure repurchase facility which matures in February 2021. Subsequent to June 30, 2020, this facility was extended to February 2022.

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

Issuances of Equity Securities

We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At ~~September~~June 30, ~~2017,~~2020, we had 100,000,000 shares of preferred stock available for issuance and ~~239,200,262~~215,532,478 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, including other secured as well as unsecured forms of borrowing and sale of ~~certain investment securities which no longer meet our return requirements.~~senior loan interests and other assets.

Repurchases of Equity Securities and Convertible Senior Notes

In ~~September 2014,~~February 2020, our board of directors authorized ~~and announced~~ the repurchase of up to ~~$250.0~~$400.0 million of our outstanding common ~~stock~~shares and convertible senior notes over a period of one year. Subsequent amendments to the repurchase program approved by our board of directors in December 2014, June 2015, January 2016 and February 2017 resulted in the program being (i) amended to increase maximum repurchases to $500.0 million, (ii) expanded to allow for the repurchase of our outstanding convertible senior notes under the program and (iii) extended through January 2019. Purchases made pursuant to the program ~~are~~will be made in either the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases are discretionary and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we repurchased ~~$230.0~~$28.8 million ~~aggregate principal amount~~ of our 2018 Notes for $250.7 million, however, this repurchase was not considered part of the repurchase program and therefore does not reduce our available capacity for future repurchases under the repurchase program. During the nine months ended September 30, 2017, we did not repurchase any common stock and no convertible senior notes under the repurchase program. As of ~~September~~June 30, ~~2017,~~2020, we have ~~$262.2~~$371.2 million of remaining capacity to repurchase common stock and/or convertible senior notes under the repurchase program.

92101

Table of Contents

Off-Balance Sheet Arrangements

We have relationships with unconsolidated entities and financial partnerships, such as entities often referred to as VIEs. Our maximum risk of loss associated with our involvement in VIEs is limited to the carrying value of our investment in the entity and any unfunded capital commitments. Refer to Note 14 of ~~our~~the Condensed Consolidated Financial Statements for further discussion.

Dividends

~~We intend to continue to make regular quarterly distributions to holders of our common stock.~~ U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to ~~continue to pay regular quarterly dividends~~distribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders ~~in an amount approximating our net taxable income,~~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 ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:

Declare Date

Record Date

Payment Date

Amount

Frequency
8/9/17

9/29/17

10/13/17

$
0.48

Quarterly
5/9/17

6/30/17

7/14/17

$
0.48

Quarterly
2/23/17

3/31/17

4/14/17

$
0.48

Quarterly


Declare Date	Record Date	Payment Date	Amount		Frequency
6/16/20	6/30/20	7/15/20	$	0.48	Quarterly
2/25/20	3/31/20	4/15/20	$	0.48	Quarterly

Leverage Policies

Our strategies with regards to use of leverage have not changed significantly since December 31, ~~2016.~~2019. Refer to our Form 10-K for a description of our strategies regarding use of leverage.

93102

Table of Contents

Contractual Obligations and Commitments

Contractual obligations as of ~~September~~June 30, ~~2017~~2020 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)	$	8,921,996	$	1,039,604	$	825,752	$	4,188,245	$	2,868,395
Collateralized loan obligations		936,375		—		—		—		936,375
Unsecured senior notes		1,950,000		500,000		950,000		500,000		—
Loan and preferred equity interest funding commitments (b)		1,877,333		1,244,077		594,783		38,473		—
Infrastructure Lending Segment commitments (c)		272,742		224,555		48,187		—		—
Future lease commitments		33,192		6,945		6,107		3,491		16,649
Total	$	13,991,638	$	3,015,181	$	2,424,829	$	4,730,209	$	3,821,419

Less than





More than

Total

1 year

1 to 3 years

3 to 5 years

5 years

Secured financings (a)

$
5,555,720

$
434,166

$
1,411,460

$
1,312,237

$
2,397,857

Unsecured senior notes

2,073,229

781,866

341,363

700,000

250,000

Secured borrowings on transferred loans (b)

75,000

—

75,000

—

—

Loan funding commitments (c)

1,282,952

633,146

628,186

21,620

—

Future lease commitments

28,895

6,425

11,726

4,236

6,508

Total

$
9,015,796

$
1,855,603

$
2,467,735

$
2,038,093

$
2,654,365

(a)

~~(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)

~~(b)~~

These amounts relate to financial asset sales that were required to be accounted for as secured borrowings. As a result, the assets we sold remain on our consolidated balance sheet for financial reporting purposes. Such assets are expected to provide match funding for these liabilities.

~~(c)~~

Excludes ~~$238.3~~$149.4 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 ~~either~~ earlier than, or in excess of, expectations.

(c)	Represents contractual commitments of $139.8 million under revolvers and letters of credit and $132.9 million under delayed draw term loans.

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

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. Refer to the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” for a full discussion of our critical accounting estimates. ~~Our~~Except as set forth below, our critical accounting estimates have not materially changed since December 31, ~~2016.~~2019.

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.

103

Table of Contents

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 estateand 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 June 30, 2020, we held $10.7 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $2.0 billion. We recognized a provision for credit losses with respect to those loans and securities and expected future funding commitments of $10.2 million and $58.9 million during the three and six months ended June 30, 2020, respectively, and the related credit loss allowance was $127.5 million as of June 30, 2020.

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 June 30, 2020, we held $174.3 million of AFS debt securities. We did not recognize any provision for credit losses with respect to our AFS debt securities during the three and six months ended June 30, 2020 and there was no related credit loss allowance as of June 30, 2020.

104

Table of Contents

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, ~~2016. Refer~~2019 except as described below. However, many of those risks have been magnified due to ~~our Form 10-K, Item 7A for further discussion.~~the continuing economic disruptions caused by the COVID-19 pandemic.

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 ~~Manager’s~~ 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.

~~Table of Contents~~

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):

Face Value of

Aggregate Notional Value of

Number of

Loans Held-for-Sale

Credit Index Instruments

Credit Index Instruments

September 30, 2017

$
192,705

$
59,000

10

December 31, 2016

$
63,065

$
14,000

4


	Face Value of		Aggregate Notional Value of		Number of
	Loans Held-for-Sale		Credit Index Instruments		Credit Index Instruments
June 30, 2020	$	191,229	$	69,000	4
December 31, 2019	$	160,635	$	89,000	5

~~Refer~~The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development and infrastructure projects currently planned or underway. These negative conditions have continued, and may continue into the future and impair our borrowers’ ability to ~~Note 5~~pay principal and interest due to us under our loan agreements and our tenants’ ability to pay rent under various lease arrangements.

As discussed above, 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 have utilized these relationships to address the potential impacts of the COVID-19 pandemic to the assets which secure our loans, particularly hospitality assets. Some of our ~~Condensed Consolidated Financial Statements for a discussion~~borrowers have indicated that due to the impact of ~~weighted average ratings~~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.

Discussions we have had with our borrowers and tenants have addressed potential near-term defensive loan or lease modifications, which could include repurposing of reserves, temporary deferrals of interest, or performance test or covenant waivers on loans collateralized by assets directly impacted by the COVID-19 pandemic.

As discussed above, we have granted loan modifications to certain of our ~~investment securities.~~borrowers. Although we continue to believe that the principal amounts of our assets are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

Capital Market Risk

We are exposed to risks related to the equity capital markets and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which

105

Table of Contents

constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing and terms of capital we raise.

The COVID-19 pandemic has also resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. We may receive margin calls from our lenders as a result of the decline in the market value of the loans or other assets pledged by us to our lenders under our repurchase agreements and warehouse credit facilities, and if we fail to resolve such margin calls when due by payment of cash or delivery of additional collateral, the lenders may exercise remedies including demanding payment by us of our aggregate outstanding financing obligations and/or taking ownership of the loans or other assets securing the applicable obligations.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our investments and the related financing obligations. In general, we seek to match the interest rate characteristics of our investments with the interest rate characteristics of any related financing obligations such as repurchase agreements, bank credit facilities, term loans, revolving facilities and securitizations. In instances where the interest rate characteristics of an investment and the related financing obligation are not matched, we mitigate such interest rate risk through the utilization of interest rate derivatives of the same duration. The following table presents financial instruments where we have utilized interest rate derivatives to hedge interest rate risk and the related interest rate derivatives as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


			Aggregate Notional
	Face Value of		Value of Interest		Number of Interest
	Hedged Instruments		Rate Derivatives		Rate Derivatives
Instrument hedged as of September 30, 2017

								Aggregate Notional
						Face Value of		Value of Interest		Number of Interest
						Hedged Instruments		Rate Derivatives		Rate Derivatives
Instrument hedged as of June 30, 2020
Loans held-for-investment, residential						$	260,542	$	87,800	3
Loans held-for-sale	$	192,705	$	163,490	24		621,195		672,900	33
RMBS, available-for-sale		379,432		69,000	2		266,539		421,000	4
CMBS, fair value option							152,217		71,000	2
HTM debt securities							17,573		17,573	1
Secured financing agreements		1,051,497		1,038,859	18		920,891		1,640,311	25
	$	1,623,634	$	1,271,349	44
Instrument hedged as of December 31, 2016
Loans held-for-investment	$	8,000	$	8,000	1
Unsecured senior notes							1,000,000		970,000	2
						$	3,238,958	$	3,880,584	70
Instrument hedged as of December 31, 2019
Loans held-for-investment, residential						$	654,925	$	169,200	8
Loans held-for-sale		63,065		50,900	18		747,779		344,900	24
RMBS, available-for-sale		399,883		69,000	2		278,853		85,000	2
HTM debt securities							18,784		18,784	1
Secured financing agreements		1,011,067		1,003,064	18		693,496		1,423,881	14
	$	1,482,015	$	1,130,964	39
Unsecured senior notes							1,000,000		970,000	2
						$	3,393,837	$	3,011,765	51

95106

Table of Contents

The following table summarizes the estimated annual change in net investment income for our ~~LIBOR-based~~variable rate investments and our ~~LIBOR-based~~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	$	10,151,307	$	37,508	$	15,215	$	(6,023)	$	(8,225)
Interest expense from variable rate debt, net of interest rate derivatives		(6,196,744)		(68,632)		(34,013)		10,980		11,451
Net investment income from variable rate instruments	$	3,954,563	$	(31,124)	$	(18,798)	$	4,957	$	3,226
Impact per diluted shares outstanding			$	(0.11)	$	(0.07)	$	0.02	$	0.01

Variable-rate








investments and

3.0%

2.0%

1.0%

1.0%
Income (Expense) Subject to Interest Rate Sensitivity

indebtedness (1)

Increase

Increase

Increase

Decrease (2)
Investment income from variable-rate investments

$
6,341,167

$
184,401

$
122,181

$
59,962

$
(41,292)
Interest expense from variable-rate debt, net of interest rate derivatives

(3,515,498)

(112,112)

(76,615)

(39,534)

39,504
Net investment income from variable rate instruments

$
2,825,669

$
72,289

$
45,566

$
20,428

$
(1,788)
Impact per diluted shares outstanding

$
0.27

$
0.17

$
0.08

$
(0.01)

~~(1)~~

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

~~(2)~~

~~Assumes LIBOR does not go below 0%.~~

LIBOR Transition Risk

In July 2017, the United Kingdom’s Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. There is currently no certainty regarding the future utilization of LIBOR or of any particular replacement rate (although the secured overnight financing rate has been proposed as an alternative to U.S.-dollar LIBOR). As indicated in the Interest Rate Risk section above, a substantial portion of our loans, investment securities, borrowings and interest rate derivatives are indexed to LIBOR or similar reference rates. Market participants anticipate that financial instruments tied to LIBOR will require transition to an alternative reference rate if LIBOR is no longer available. Our LIBOR-based loan agreements and borrowing arrangements generally specify alternative reference rates such as the prime rate and federal funds rate, respectively. The potential effect of the discontinuation of LIBOR on our interest income and expense cannot yet be determined and any changes to benchmark interest rates could increase our financing costs and/or result in mismatches between the interest rates of our investments and the corresponding financings.

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.

107

Table of Contents

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,~~contracts) using the ~~September~~June 30, ~~2017~~2020 GBP closing rate of ~~1.3396 and Euro (“EUR”)~~1.2399, EUR closing rate of ~~1.1816):~~1.1235 and AUD closing rate of 0.6902.

Carrying Value of Net Investment

Local Currency

Number of
Foreign Exchange Contracts

Aggregate Notional Value of Hedges Applied

Expiration Range of Contracts
$
220,657

GBP

34

$
227,339

January 2018 – February 2018

37,324

GBP

73

40,750

October 2017 – June 2019

30,133

EUR

5

35,901

December 2017 – December 2018

1,115

EUR

1

1,992

April 2018

20,145

EUR

5

23,922

November 2017 – November 2018

52,237

GBP

13

70,591

November 2017 – July 2020

695

GBP

1

1,206

March 2018

146,773

EUR

33
(1)

273,048

December 2017 – June 2020

13,530

GBP

8

13,667

October 2017 – April 2019
$
522,609

173

$
688,416

~~(1)~~

~~These foreign exchange contracts hedge our EUR currency exposure created by our acquisition of the Ireland Portfolio.~~


Carrying Value of Net Investment		Local Currency	Number of Foreign Exchange Contracts	Aggregate Notional Value of Hedges Applied		Expiration Range of Contracts
$	48,803	AUD	9	$	55,167	November 2021
	17,564	GBP	10		27,960	July 2020 – December 2023
	19,088	EUR	132		18,231	August 2020 – July 2021
	28,521	GBP	1		35,257	July 2023
	72,432	GBP	23		78,762	July 2020 – January 2022
	48,568	EUR	27		52,437	August 2020 – July 2022
	25,916	EUR	45		30,317	August 2020 – August 2022
	89,547	GBP	8		98,871	July 2020 – January 2022
	65,914	GBP	15		57,651	April 2021
	5,531	EUR	8		6,892	November 2020 – July 2022
	11,179	GBP	8		13,899	November 2020 – July 2022
	1,917	AUD	1		3,908	August 2021
	23,641	EUR	26		30,706	August 2020 – June 2023
	38,312	EUR	12		59,539	August 2020 – November 2022
	39,122	EUR	22		48,987	September 2020 – November 2025
	55,131	GBP	24		66,056	August 2020 – November 2021
	8,605	EUR	6		11,207	June 2022
	9,791	GBP	8		12,622	September 2020 – April 2022
$	609,582		385	$	708,469

Real Estate Risk

The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, the impacts of the COVID-19 pandemic discussed above, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

96108

Table of Contents

Item 4. Controls and ~~Procedures.~~Procedures.

Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended ~~September~~June 30, ~~2017~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

97109

Table of Contents

PART II—OTHER ~~INFORMATION~~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.~~Factors.

Except as set forth in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, as updated below, there have been no material changes to the risk factors previously disclosed in ~~the~~our Form 10-K.

Risks Related to ~~Sources~~Our Company

The global COVID-19 pandemic is having, and will likely continue to have, an adverse impact on our operations and financial performance, as well as on the operations and financial performance of ~~Financing~~many of the borrowers underlying our real estate-related assets and tenants of our owned properties. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business, financial condition, results of operations, liquidity, the market price of our common stock and our ability to make distributions to our stockholders.

~~Amendments~~Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused, and is expected to continue to cause, the global slowdown of economic activity and significant volatility and disruption of financial markets. 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 business, financial condition, results of operations, liquidity, the market price of our common stock and our ability to make distributions to our stockholders, remains uncertain and difficult to predict. Further, the ultimate impact of the COVID-19 pandemic 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 depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the ~~Federal Home Loan Bank (“FHLB”) membership regulations~~pandemic (including quarantine and “stay-at-home” orders, restrictions on travel and transport, school closures, limits on the operations of non-essential businesses and other workforce pressures); the impact of the pandemic, and actions taken in response thereto, on global and regional economies and economic activity, including concerns regarding additional surges of the pandemic or the expansion of the economic impact thereof as a result of certain jurisdictions “re-opening” or otherwise lifting certain restrictions prematurely; the availability of U.S. federal, state, local or non-U.S. funding programs aimed at supporting the economy during the COVID 19-pandemic, including uncertainties regarding the potential implementation of new or extended programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.

The COVID-19 pandemic and “stay-at-home” and other measures implemented to prevent its spread and any extended period of economic slowdown or recession could have a material adverse effect 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, among other matters. We expect that these adverse effects are likely to continue as long as the outbreak persists and potentially even longer. Although it is difficult to predict the magnitude of the business and economic implications, the COVID-19 outbreak could affect us in various ways, including, among other factors:

●

the decline in the value of commercial and residential real estate, which negatively impacts the value of our investments, potentially materially.

●

the negative impact on the financial stability of borrowers underlying our real estate-related assets and infrastructure loans, which is expected to increase significantly the number of borrowers who become delinquent or default on their loans, or who seek to defer payment on, or refinance, their loans. Assets relating to certain property types are more likely to experience particular stress as a result of the impact of COVID-19, including in particular assets secured by hotel, multifamily and retail properties. The borrowers underlying these assets, and the tenants at such properties, are facing operational and financial hardships resulting from the

110

Table of Contents

spread of COVID-19 and related governmental measures. For example, certain of the hotel and retail properties securing our assets were or continue to be required to temporarily close or limit their operations significantly as a result of COVID-19 and related governmental measures, which has had a material adverse effect on the businesses of the applicable borrowers. If the disruptions caused by the COVID-19 pandemic continue and the restrictions put in place are not lifted, the businesses of such borrowers, and the tenants at such properties, could continue to suffer materially or such borrowers and tenants could become insolvent.

We have been engaged in discussions with our borrowers, some of whom have indicated that, due to the impact of the COVID-19 pandemic, they have been unable to timely execute their business plans, have had to temporarily close their businesses or have experienced other negative business consequences and have requested or indicated that they will be requesting interest or principal deferral or other modifications of their loans. We therefore anticipate more frequent modifications of our loans and potentially instances of default or foreclosure on assets underlying our loans.

To the extent that borrowers that have been negatively impacted by the COVID-19 pandemic do not timely remit payments of principal and interest relating to their respective real estate-related assets, the value of such assets will likely be impaired, potentially materially. Failure to receive interest when due may adversely affect our liquidity and therefore our ability to fund our operations or address maturing liabilities on a timely basis.

●

we may receive margin calls from our lenders as a result of the decline in the market value of the loans or other assets pledged by us to our lenders under our repurchase agreements and warehouse credit facilities, and if we fail to resolve such margin calls when due by payment of cash or delivery of additional collateral, the lenders may exercise remedies including demanding payment by us of our aggregate outstanding financing obligations and/or taking ownership of the loans or other assets securing the applicable obligations. We may not have the funds available to repay such financing obligations, and we may be unable to raise the funds from alternative sources on favorable terms or at all. Forced sales of the loans or other assets that secure our financing obligations in order to pay outstanding financing obligations may be on terms less favorable to us than might otherwise be available in a regularly functioning market and could result in deficiency judgments and other claims against us.

●

the adverse effect on the financial stability of the tenants in the retail and multifamily properties that we own, which is expected to negatively impact the ability of such tenants to make their rental payments to us on a timely basis or at all. To the extent the number of tenants who are unable to make timely rental payments to us increases significantly, the value of these property investments will likely be impaired, potentially materially. In addition, as a result of the foregoing, these properties may not generate sufficient funds to pay principal and interest on the mortgage loans secured by such properties or may otherwise fail to satisfy financial covenants applicable under the terms of such loans. In this regard, we may enter into agreements with certain of our tenants to allow, among other items, for a deferral of some portion of the rent owed to us for an agreed-upon period of time. Failure to receive rent when due may adversely affect our liquidity and therefore our ability to fund our operations or address maturing liabilities on a timely basis.

●

if we fail to meet or satisfy any of the covenants in our repurchase agreements, warehouse credit facilities or other financing arrangements as a result of the impact of the COVID-19 pandemic, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and our lenders could elect to declare outstanding amounts due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral.

●

as a result of the decline in the market value of the loans in our collateralized loan obligation (the “CLO”), we may not meet certain interest coverage tests, overcollateralization coverage tests or other tests that could result in a change in the priority of distributions, which could result in the reduction or elimination of distributions to the subordinate debt and equity tranches we own until the tests have been met or certain senior classes of securities have been paid in full. Accordingly, we may experience a reduction in our cash flow from those interests which may adversely affect our liquidity and therefore our ability to fund our operations or address maturing liabilities on a timely basis.

111

Table of Contents

●

difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may adversely affect our access to capital necessary to fund our operations or address maturing liabilities on a timely basis, as well as the ability of borrowers underlying our real estate-related assets and infrastructure loans, or of tenants of the properties we own, to meet their obligations to us.

The adverse impact of the COVID-19 pandemic could adversely affect ~~us.~~

~~In July 2017, we acquired a captive insurance company that is a member~~our liquidity position and could limit our ability to grow our business and fully execute our business strategy. We expect to preserve and build our liquidity to best position the Company to weather near-term market uncertainty, satisfy our loan future funding and financing obligations and to potentially make opportunistic new investments, which will cause us to take some or all of the ~~FHLB~~following actions: raise capital from offerings of ~~Chicago (the “FHLBC”). Our subsidiary’s membership~~securities, borrow additional capital, sell assets, pay our management and incentive fees in shares of our common stock (as was done for the quarter ended March 31, 2020) and/or change our dividend practice, including by reducing the amount of, or temporarily suspending, our future dividends or paying our future dividends in kind for some period of time.

●

uncertainties created by the COVID-19 pandemic may make it difficult to estimate provisions for loan losses.

●

a general decline in business activity and demand for mortgage financing, servicing and other real estate and real estate-related transactions, which could adversely affect our ability to source attractive investments or to redeploy the proceeds from repayments of our existing investments.

●

temporary, prolonged or permanent changes involving our investment activities; to the extent we elect or are required to limit or be more selective in making investments, we may strain our relationships or reputation with borrowers, business partners and counterparties, breach actual or perceived obligations to them, or be subject to litigation and claims from such borrowers, business partners and counterparties.

●

prolonged closures of, or other operational issues at, properties that secure our investments, or properties that we own.

●

the long-term impact on the market for office properties in the event a significant number of businesses determine to continue to utilize large-scale work-from-home policies as the COVID-19 pandemic continues and thereafter.

●

government-mandated moratoriums on the construction, development or redevelopment of properties underlying our construction or rehabilitation loans, or with respect to infrastructure projects, may prevent the completion, on a timely basis or at all, of such projects. The repayment of construction or rehabilitation loans often depends on the borrower’s ability to secure permanent “take-out” financing, which requires the successful completion of construction and stabilization of the project, or operation of the property with an income stream sufficient to meet operating expenses. Similarly, because the loan structure for project finance relies primarily on the underlying project’s cash flows for repayment, the ability of the project company to repay a project finance loan is dependent upon the successful development, construction and/or operation of such project rather than upon the existence of independent income or assets of the project company. Accordingly, if a project cannot be completed on a timely basis or at all as a result of the COVID-19 pandemic and related governmental measures, the ability to repay the applicable loan will likely be impaired. In addition, certain of such projects may rely on tax credits which may be available only if construction is completed by certain deadlines, which may not be met because of such moratoriums.

To the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operations, liquidity, the market price of our common stock and our ability to make distributions to our stockholders, it may also have the effect of heightening many of the other risks described in the FHLBC provides us with access to attractive long-term collateralized financing for residential mortgage loans. As of September 30, 2017, our subsidiary had $250.0 million of borrowings from the FHLBC to finance its portfolio of residential mortgage loans. In January 2016, the Federal Housing Finance Agency (“FHFA”) amended its regulations governing FHLB membership, providing that captive insurance companies will no longer be eligible for membership ~~in the FHLB system. Our subsidiary was admitted as a member of the FHLBC prior to September 2014 and, as a result, is eligible~~Form 10-K under the ~~amended regulations to remain a member through February 2021. There can be no assurance that, following the termination~~heading “Risk Factors.”

112

Table of our subsidiary’s membership in the FHLBC in February 2021, we will be able to replace the borrowing capacity provided by the FHLBC on terms as favorable as those received from such institution or at all, which could adversely affect us.Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of securities during the three months ended ~~September~~June 30, ~~2017.~~2020.

Issuer Purchases of Equity Securities

There were no purchases of common stock during the three months ended ~~September~~June 30, ~~2017.~~2020.

Item 3. Defaults Upon Senior ~~Securities.~~Securities.

None.

Item 4. Mine Safety ~~Disclosures.~~Disclosures.

Not applicable.

Item 5. Other ~~Information.~~Information.

None.

98113

Table of Contents

Item 6. Exhibits.

(a)

Index to 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)

99114

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	STARWOOD PROPERTY TRUST, INC.

Date: ~~November 8, 2017~~August 5, 2020	By:	/s/ BARRY S. STERNLICHT
		Barry S. Sternlicht Chief Executive Officer Principal Executive Officer

Date: ~~November 8, 2017~~August 5, 2020	By:	/s/ RINA PANIRY
		Rina Paniry Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

~~100~~115


		Page
Part I	Financial Information
Item 1.	Financial Statements	4 5
	Condensed Consolidated Balance Sheets	4 5
	Condensed Consolidated Statements of Operations	5 6
	Condensed Consolidated Statements of Comprehensive Income	6 7
	Condensed Consolidated Statements of Equity	7 8
	Condensed Consolidated Statements of Cash Flows	8 10
	Notes to Condensed Consolidated Financial Statements	10 12
	Note 1 Business and Organization	10 12
	Note 2 Summary of Significant Accounting Policies	11 13
	Note 3 Acquisitions and ~~Dispositions~~Divestitures	17 19
	Note 4 Loans	21 20
	Note 5 Investment Securities	26 25
	Note 6 Properties	30 28
	Note 7 Investment in Unconsolidated Entities	31 30
	Note 8 Goodwill and Intangibles	32 31
	Note 9 Secured ~~Financing Agreements~~Borrowings	34 33
	Note 10 Unsecured Senior Notes	37 36
	Note 11 Loan Securitization/Sale Activities	39 37
	Note 12 Derivatives and Hedging Activity	40 38
	Note 13 Offsetting Assets and Liabilities	42 40
	Note 14 Variable Interest Entities	42 40
	Note 15 Related-Party Transactions	43 42
	Note 16 Stockholders’ Equity and Non-Controlling Interests	45 44
	Note 17 Earnings per Share	47 46
	Note 18 Accumulated Other Comprehensive Income	48 47
	Note 19 Fair Value	49 48
	Note 20 Income Taxes	54 55
	Note 21 Commitments and Contingencies	54 57
	Note 22 Segment Data	55 58
	Note 23 Subsequent Events	62 64
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	63 65
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94
~~Item 4.~~	~~Controls and Procedures~~	97
~~Part II~~	~~Other Information~~	105
Item 1.4.	~~Legal Proceedings~~Controls and Procedures	98 109
~~Item 1A.~~Part II	~~Risk Factors~~Other Information	98
Item 2.1.	Legal Proceedings	110
Item 1A.	Risk Factors	110
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98 113
Item 3.	Defaults Upon Senior Securities	98 113
Item 4.	Mine Safety Disclosures	98 113
Item 5.	Other Information	98 113
Item 6.	Exhibits	99 114


	As of		As of
	September 30, 2017		December 31, 2016
Assets:
Cash and cash equivalents	$	413,845	$	615,522
Restricted cash		54,591		35,233
Loans held-for-investment, net		6,382,371		5,847,995
Loans held-for-sale, at fair value		608,624		63,279
Loans transferred as secured borrowings		74,339		35,000
Investment securities ($290,622 and $297,638 held at fair value)		701,818		807,618
Properties, net		2,521,342		1,944,720
Intangible assets ($33,781 and $55,082 held at fair value)		181,865		219,248
Investment in unconsolidated entities		243,450		204,605
Goodwill		140,437		140,437
Derivative assets		38,293		89,361
Accrued interest receivable		35,047		28,224
Other assets		112,265		101,763
Variable interest entity (“VIE”) assets, at fair value		51,197,981		67,123,261
Total Assets	$	62,706,268	$	77,256,266
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	203,782	$	198,134
Related-party payable		29,989		37,818
Dividends payable		125,674		125,075
Derivative liabilities		22,890		3,904
Secured financing agreements, net		5,514,695		4,154,126
Unsecured senior notes, net		2,044,523		2,011,544
Secured borrowings on transferred loans, net		74,200		35,000
VIE liabilities, at fair value		50,150,781		66,130,592
Total Liabilities		58,166,534		72,696,193
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, 265,406,623 issued and 260,799,738 outstanding as of September 30, 2017 and 263,893,806 issued and 259,286,921 outstanding as of December 31, 2016		2,654		2,639
Additional paid-in capital		4,705,044		4,691,180
Treasury stock (4,606,885 shares)		(92,104)		(92,104)
Accumulated other comprehensive income		65,271		36,138
Accumulated deficit		(184,073)		(115,579)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,496,792		4,522,274
Non-controlling interests in consolidated subsidiaries		42,942		37,799
Total Equity		4,539,734		4,560,073
Total Liabilities and Equity	$	62,706,268	$	77,256,266


													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, January 1, 2017	263,893,806	$	2,639	$	4,691,180	4,606,885	$	(92,104)	$	(115,579)	$	36,138	$	4,522,274	$	37,799	$	4,560,073
Proceeds from DRIP Plan	24,217		—		541	—		—		—		—		541		—		541
Equity offering costs	—		—		(12)	—		—		—		—		(12)		—		(12)
Equity component of 2023 Convertible Senior Notes issuance	—		—		3,755	—		—		—		—		3,755		—		3,755
Equity component of 2018 Convertible Senior Notes repurchase	—		—		(18,105)	—		—		—		—		(18,105)		—		(18,105)
Share-based compensation	849,045		9		13,281	—		—		—		—		13,290		—		13,290
Manager incentive fee paid in stock	639,555		6		14,404	—		—		—		—		14,410		—		14,410
Net income	—		—		—	—		—		308,166		—		308,166		10,720		318,886
Dividends declared, $1.44 per share	—		—		—	—		—		(376,660)		—		(376,660)		—		(376,660)
Other comprehensive income, net	—		—		—	—		—		—		29,133		29,133		—		29,133
VIE non-controlling interests	—		—		—	—		—		—		—		—		1,837		1,837
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		105		105
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(7,519)		(7,519)
Balance, September 30, 2017	265,406,623	$	2,654	$	4,705,044	4,606,885	$	(92,104)	$	(184,073)	$	65,271	$	4,496,792	$	42,942	$	4,539,734

Balance, January 1, 2016	241,044,775	$	2,410	$	4,192,844	3,553,996	$	(72,381)	$	(12,286)	$	29,729	$	4,140,316	$	30,627	$	4,170,943
Proceeds from DRIP Plan	14,707		—		299	—		—		—		—		299		—		299
Common stock repurchased	—		—		—	1,052,889		(19,723)		—		—		(19,723)		—		(19,723)
Share-based compensation	1,147,975		12		22,785	—		—		—		—		22,797		—		22,797
Manager incentive fee paid in stock	788,460		8		14,649	—		—		—		—		14,657		—		14,657
Net income	—		—		—	—		—		243,896		—		243,896		1,034		244,930
Dividends declared, $1.44 per share	—		—		—	—		—		(343,913)		—		(343,913)		—		(343,913)
Other comprehensive income, net	—		—		—	—		—		—		10,519		10,519		—		10,519
VIE non-controlling interests	—		—		—	—		—		—		—		—		(144)		(144)
Contributions from non-controlling interests	—		—		—	—		—		—		—		—		10,417		10,417
Distributions to non-controlling interests	—		—		—	—		—		—		—		—		(5,400)		(5,400)
Balance, September 30, 2016	242,995,917	$	2,430	$	4,230,577	4,606,885	$	(92,104)	$	(112,303)	$	40,248	$	4,068,848	$	36,534	$	4,105,382


	2016 Acquisition Adjustment
			Measurement
	Initial		Period		Adjusted
Assets acquired:	Amounts		Adjustment		Amounts
Properties	$	12,087	$	660	$	12,747
Intangible assets		4,270		(802)		3,468
Other assets		97		—		97
Total assets acquired		16,454		(142)		16,312
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities		1,539		(142)		1,397
Total liabilities assumed		1,539		(142)		1,397
Non-controlling interests		3,084		—		3,084
Net assets acquired	$	11,831	$	—	$	11,831


	2017
	REIS Equity
Assets acquired:	Portfolio
Properties	$	34,902
Intangible assets		4,272
Other assets		1
Total assets acquired		39,175
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities		1,329
Total liabilities assumed		1,329
Net assets acquired	$	37,846


							Weighted
					Weighted		Average Life
	Carrying		Face		Average		(“WAL”)
September 30, 2017	Value		Amount		Coupon		(years)(1)
First mortgages (2)	$	5,527,219	$	5,549,909	6.1	%	2.4
Subordinated mortgages (3)		222,990		224,088	10.3	%	2.1
Mezzanine loans (2)		615,562		615,724	10.6	%	1.2
Other		23,218		27,073	8.4	%	4.3
Total loans held-for-investment		6,388,989		6,416,794
Loans held-for-sale, fair value option		608,624		601,051	5.6	%	7.6
Loans transferred as secured borrowings		74,339		75,000	5.8	%	2.5
Total gross loans		7,071,952		7,092,845
Loan loss allowance (loans held-for-investment)		(6,618)		—
Total net loans	$	7,065,334	$	7,092,845

December 31, 2016
First mortgages (2)	$	4,865,994	$	4,881,656	5.7	%	2.2
Subordinated mortgages (3)		278,032		293,925	8.9	%	3.3
Mezzanine loans (2)		713,757		714,608	9.6	%	1.8
Total loans held-for-investment		5,857,783		5,890,189
Loans held-for-sale, fair value option		63,279		63,065	5.3	%	10.0
Loans transferred as secured borrowings		35,000		35,000	6.2	%	0.4
Total gross loans		5,956,062		5,988,254
Loan loss allowance (loans held-for-investment)		(9,788)		—
Total net loans	$	5,946,274	$	5,988,254


	Balance Sheet Classification
	Loans Held-For-Investment										Loans				% of
Risk Rating	First		Subordinated		Mezzanine				Loans Held-		As Secured				Total
Category	Mortgages		Mortgages		Loans		Other		For-Sale		Borrowings		Total		Loans
1	$	2,205	$	—	$	—	$	20,446	$	—	$	—	$	22,651	0.3	%
2		2,109,411		4,424		132,843		—		—		—		2,246,678	31.8	%
3		3,164,497		218,566		423,779		2,772		—		74,339		3,883,953	54.9	%
4		194,916		—		58,940		—		—		—		253,856	3.6	%
5		56,190		—		—		—		—		—		56,190	0.8	%
N/A		—		—		—		—		608,624		—		608,624	8.6	%
	$	5,527,219	$	222,990	$	615,562	$	23,218	$	608,624	$	74,339	$	7,071,952	100.0	%


	Carrying Value as of
	September 30, 2017		December 31, 2016
RMBS, available-for-sale	$	253,252	$	253,915
CMBS, fair value option (1)		1,026,634		990,570
Held-to-maturity (“HTM”) securities		411,196		509,980
Equity security, fair value option		13,529		12,177
Subtotal—Investment securities		1,704,611		1,766,642
VIE eliminations (1)		(1,002,793)		(959,024)
Total investment securities	$	701,818	$	807,618


	RMBS,		CMBS, fair			HTM		Equity
	available-for-sale		value option			Securities		Security		Total
Three Months Ended September 30, 2017
Purchases (1)	$	—	$	11,798		$	50,000	$	—	$	61,798
Sales (2)		—		—			—		—		—
Principal collections		10,307		1,666			111,671		—		123,644
Three Months Ended September 30, 2016
Purchases (1)	$	8,868	$	—		$	—	$	—	$	8,868
Sales (2)		—		17,456	(5)		—		—		17,456
Principal collections		9,917		12,289			566		—		22,772


							Unrealized Gains or (Losses)
							Recognized in AOCI
	Purchase				Recorded				Gross		Gross		Net
	Amortized		Credit		Amortized		Non-Credit		Unrealized		Unrealized		Fair Value
	Cost		OTTI		Cost		OTTI		Gains		Losses		Adjustment		Fair Value
September 30, 2017
RMBS	$	207,492	$	(9,897)	$	197,595	$	(95)	$	55,766	$	(14)	$	55,657	$	253,252
December 31, 2016
RMBS	$	219,171	$	(10,185)	$	208,986	$	(94)	$	45,113	$	(90)	$	44,929	$	253,915


	Weighted Average Coupon (1)		Weighted Average Rating	WAL (Years) (2)
September 30, 2017
RMBS	2.5	%	B-	6.4
December 31, 2016
RMBS	2.1	%	B	6.1


	September 30, 2017		December 31, 2016
Principal balance	$	379,432	$	399,883
Accretable yield		(58,763)		(64,290)
Non-accretable difference		(123,074)		(126,607)
Total discount		(181,837)		(190,897)
Amortized cost	$	197,595	$	208,986


			Non-Accretable
Three Months Ended September 30, 2017	Accretable Yield		Difference
Balance as of July 1, 2017	$	59,777	$	126,708
Accretion of discount		(3,187)		—
Principal write-downs, net		—		(1,461)
Purchases		—		—
Sales		—		—
OTTI		—		—
Transfer to/from non-accretable difference		2,173		(2,173)
Balance as of September 30, 2017	$	58,763	$	123,074

Nine Months Ended September 30, 2017
Balance as of January 1, 2017	$	64,290	$	126,607
Accretion of discount		(10,375)		—
Principal write-downs, net		—		(3,828)
Purchases		311		4,723
Sales		—		—
OTTI		109		—
Transfer to/from non-accretable difference		4,428		(4,428)
Balance as of September 30, 2017	$	58,763	$	123,074


	Depreciable Life	September 30, 2017		December 31, 2016
Property Segment
Land and land improvements	0 – 15 years	$	526,591	$	385,860
Buildings and building improvements	5 – 45 years		1,755,511		1,291,531
Furniture & fixtures	3 – 7 years		26,038		23,035
Investing and Servicing Segment
Land and land improvements	0 – 15 years		90,263		89,425
Buildings and building improvements	3 – 40 years		210,183		195,178
Furniture & fixtures	2 – 5 years		992		1,256
Properties, cost			2,609,578		1,986,285
Less: accumulated depreciation			(88,236)		(41,565)
Properties, net		$	2,521,342	$	1,944,720


	Participation /	Carrying value as of
	Ownership % (1)	September 30, 2017			December 31, 2016
Equity method:
Retail Fund (see Note 15)	33%	$	109,607	(2)	$	124,977
Investor entity which owns equity in an online real estate company	50%		75,249			21,677
Equity interests in commercial real estate	16% - 50%		23,310			23,297
Various	25% - 50%		7,015			6,640
			215,181			176,591
Cost method:
Equity interest in a servicing and advisory business	6%		12,234			12,234
Investment funds which own equity in a loan servicer and other real estate assets	4% - 6%		9,225			9,225
Various	0% - 3%		6,810			6,555
			28,269			28,014
		$	243,450		$	204,605


	Domestic		In-place Lease		Favorable Lease
	Servicing		Intangible		Intangible
	Rights		Assets		Assets		Total
Balance as of January 1, 2017	$	55,082	$	136,877	$	27,289	$	219,248
Acquisition of additional REIS Equity Portfolio properties		—		3,810		462		4,272
Amortization		—		(20,098)		(2,940)		(23,038)
Sales		—		(367)		(109)		(476)
Foreign exchange gain		—		3,908		1,044		4,952
Impairment (1)		—		(981)		(9)		(990)
Changes in fair value due to changes in inputs and assumptions		(21,301)		—		—		(21,301)
Measurement period adjustments		—		(821)		19		(802)
Balance as of September 30, 2017	$	33,781	$	122,328	$	25,756	$	181,865


2017 (remainder of)	$	7,556
2018		27,711
2019		21,288
2020		15,908
2021		13,623
Thereafter		61,998
Total	$	148,084


												Outstanding Balance at
	Current		Extended		Weighted Average	Pledged Asset			Maximum			June 30,			December 31,
	Maturity		Maturity (a)		Pricing	Carrying Value			Facility Size			2020			2019
Repurchase Agreements:
Commercial Loans	Aug 2020 to Jan 2024	(b)	May 2023 to Mar 2029	(b)	(c)	$	6,293,458		$	9,181,700	(d)	$	4,024,642		$	3,640,620
Residential Loans	Jun 2022		N/A		LIBOR + 2.58%		10,172			400,000			7,669			11,835
Infrastructure Loans	Feb 2021		N/A		LIBOR + 2.00%		194,283			500,000			160,483			188,198
Conduit Loans	Feb 2021 to Jun 2023		Feb 2022 to Jun 2024		LIBOR + 1.86%		182,001			350,000			134,874			86,575
CMBS/RMBS	Sep 2020 to Dec 2029	(e)	Dec 2020 to Jun 2030	(e)	(f)		1,097,024			783,641			563,031	(g)		682,229
Total Repurchase Agreements							7,776,938			11,215,341			4,890,699			4,609,457
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25%		33,445			650,000	(h)		29,333			198,955
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75%		91,214			73,650			73,650			—
Infrastructure Acquisition Facility	Sep 2021		Sep 2022		(i)		723,690			737,137			583,005			603,642
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.11%		567,315			1,250,000			462,568			428,206
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(j)	N/A		3.81%		1,302,670			1,078,072			1,077,979			1,196,492
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		LIBOR + 2.53%		951,634			945,400			926,262			696,503
Term Loan and Revolver	(k)		N/A		(k)		N/A	(k)		517,000			397,000			399,000
FHLB	Feb 2021		N/A		1.99%		690,341			2,000,000			481,500			867,870
Total Other Secured Financing							4,360,309			7,251,259			4,031,297			4,390,668
						$	12,137,247		$	18,466,600			8,921,996			9,000,125
Unamortized net discount													(10,189)			(8,347)
Unamortized deferred financing costs													(75,487)			(85,730)
												$	8,836,320		$	8,906,048


										Carrying Value at
	Current	Extended			Pledged Asset		Maximum			September 30,		December 31,
	Maturity	Maturity (a)	Pricing		Carrying Value		Facility Size			2017		2016
Lender 1 Repo 1	(b)	(b)	LIBOR + 1.75% to 5.75%		$	1,534,069	$	2,000,000		$	1,170,141	$	944,712
Lender 2 Repo 1	Oct 2017	Oct 2020	LIBOR + 1.75% to 2.75%			350,508		500,000			236,055		132,941
Lender 3 Repo 1	May 2018	May 2019	LIBOR + 2.75% to 3.10%			110,086		76,820			76,820		78,288
Lender 4 Repo 2	Dec 2018	Dec 2020	LIBOR + 2.00% to 3.25%			571,746		1,000,000	(c)		221,544		166,394
Lender 6 Repo 1	Aug 2020	N/A	LIBOR + 2.50% to 2.75%			724,164		600,000			475,555		182,586
Lender 6 Repo 2	Nov 2019	Nov 2020	GBP LIBOR + 2.75%			173,516		121,280			121,280		121,509
Lender 9 Repo 1	Dec 2017	Dec 2018	LIBOR + 1.65%			340,620		254,447			254,447		283,575
Lender 10 Repo 1	Mar 2020	Mar 2022	LIBOR + 2.00% to 2.75%			169,733		140,000			136,800		—
Lender 11 Repo 1	Jun 2019	Jun 2020	LIBOR + 2.75%			—		200,000			—		—
Lender 11 Repo 2	Sep 2018	Sep 2022	LIBOR + 2.25% to 2.75%			—		250,000			—		—
Lender 7 Secured Financing	Jul 2018	Jul 2019	LIBOR + 2.75%	(d)		46,800		650,000	(e)		—		—
Lender 8 Secured Financing	Aug 2019	N/A	LIBOR + 4.00%			30,147		75,000			18,226		43,555
Conduit Repo 2	Nov 2017	N/A	LIBOR + 2.25%			53,751		150,000			40,842		14,944
Conduit Repo 3	Feb 2018	N/A	LIBOR + 2.10%			136,254		150,000			103,678		—
Conduit Repo 4	Oct 2017	Oct 2020	LIBOR + 2.25%			—		100,000			—		—
MBS Repo 1	(f)	(f)	LIBOR + 1.90%			10,000		6,510			6,510		21,052
MBS Repo 2	Jun 2020	N/A	LIBOR/EURIBOR + 2.00% to 2.95%			261,066		191,184			191,184		239,434
MBS Repo 3	(g)	(g)	LIBOR + 1.32% to 1.95%			384,546		254,668			254,668		285,209
MBS Repo 4	(h)	N/A	LIBOR + 1.20% to 1.90%			179,384		225,000			2,000		5,633
Investing and Servicing Segment Property Mortgages	Feb 2018 to Jun 2026	N/A	Various			245,094		201,238			177,217		164,611
Ireland Portfolio Mortgage	May 2020	N/A	EURIBOR + 1.69%			491,298		344,525			344,525		309,246
Woodstar Portfolio Mortgages	Nov 2025 to Oct 2026	N/A	3.72% to 3.97%			369,519		276,748			276,748		276,748
Woodstar Portfolio Government Financing	Mar 2026 to Jun 2049	N/A	1.00% to 5.00%			308,805		133,967			133,967		135,584
Medical Office Portfolio Mortgages	Dec 2021 to Feb 2022	Dec 2023 to Feb 2024	LIBOR + 2.50%	(i)		741,304		527,124			497,613		491,197
Master Lease Portfolio Mortgages	Oct 2027	N/A	4.36% to 4.38%			471,762		265,900			265,900		—
Term Loan A	Dec 2020	Dec 2021	LIBOR + 2.25%	(d)		992,366		300,000			300,000		300,000
Revolving Secured Financing	Dec 2020	Dec 2021	LIBOR + 2.25%	(d)		—		100,000			—		—
FHLB	Feb 2021	N/A	LIBOR + 0.15% to 0.34%			338,956		250,000			250,000		—
					$	9,035,494	$	9,344,411			5,555,720		4,197,218
Unamortized net premium											2,579		2,640
Unamortized deferred financing costs											(43,604)		(45,732)
										$	5,514,695	$	4,154,126


	Repurchase		Other Secured
	Agreements		Financing		Total
2017 (remainder of)	$	781,261	$	14,461	$	795,722
2018		988,168		76,952		1,065,120
2019		395,715		1,355		397,070
2020		1,041,480		358,102		1,399,582
2021		2,289		565,815		568,104
Thereafter		82,611		1,247,511		1,330,122
Total	$	3,291,524	$	2,264,196	$	5,555,720


Class of Collateral	September 30, 2017		December 31, 2016
Loans held-for-investment	$	2,692,642	$	1,890,925
Loans held-for-sale		144,520		34,024
Investment securities		454,362		551,328
	$	3,291,524	$	2,476,277


						Remaining
	Coupon		Effective		Maturity	Period of		Carrying Value at
	Rate		Rate (1)		Date	Amortization		September 30, 2017		December 31, 2016
2017 Convertible Notes	3.75	%	5.87	%	10/15/2017	0.0	years	$	411,885	$	411,885
2018 Convertible Notes	4.55	%	6.10	%	3/1/2018	0.4	years		369,981		599,981
2019 Convertible Notes	4.00	%	5.35	%	1/15/2019	1.3	years		341,363		341,363
2021 Senior Notes	5.00	%	5.32	%	12/15/2021	4.2	years		700,000		700,000
2023 Convertible Notes	4.38	%	4.86	%	4/1/2023	5.5	years		250,000		—
Total principal amount									2,073,229		2,053,229
Unamortized discount—Convertible Notes									(14,268)		(26,135)
Unamortized discount—Senior Notes									(8,420)		(9,728)
Unamortized deferred financing costs									(6,018)		(5,822)
Carrying amount of debt components								$	2,044,523	$	2,011,544
Carrying amount of conversion option equity components recorded in additional paid-in capital								$	31,638	$	45,988


	September 30, 2017			Conversion Spread Value - Shares (3)
	Conversion	Conversion		For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	Rate (1)	Price (2)		2017	2016	2017	2016
2017 Notes	41.7397	$	23.96	—	—	—	—
2018 Notes	48.0666	$	20.80	742	1,595	733	1,743
2019 Notes	50.7031	$	19.72	1,571	1,850	1,551	2,023
2023 Notes	38.5959	$	25.91	—	—	—	—
				2,313	3,445	2,284	3,766


					Loan Transfers
	Loan Transfers Accounted				Accounted for as Secured
	for as Sales				Borrowings
	Face Amount		Proceeds		Face Amount		Proceeds
For the Three Months Ended September 30,
2017	$	—	$	—	$	75,000	$	74,200
2016		116,000		115,157		—		—
For the Nine Months Ended September 30,
2017	$	38,750	$	37,079	$	75,000	$	74,200
2016		238,514		236,433		—		—


Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Sell Euros ("EUR") (1)	44	283,394	EUR	November 2017 – June 2020
Fx contracts – Sell Pounds Sterling ("GBP")	129	263,925	GBP	October 2017 – July 2020
Interest rate swaps – Paying fixed rates	30	815,730	USD	April 2019 – September 2027
Interest rate caps	2	294,000	EUR	May 2020
Interest rate caps	8	68,194	USD	June 2018 – October 2021
Credit index instruments	10	59,000	USD	September 2058 – November 2059
Total	223


	Fair Value of Derivatives				Fair Value of Derivatives
	in an Asset Position (1) as of				in a Liability Position (2) as of
	September 30,		December 31,		September 30,		December 31,
	2017		2016		2017		2016
Derivatives designated as hedging instruments:
Interest rate swaps	$	33	$	30	$	2	$	56
Total derivatives designated as hedging instruments		33		30		2		56
Derivatives not designated as hedging instruments:
Interest rate contracts		23,961		26,591		—		3,484
Foreign exchange contracts		13,644		62,295		22,888		364
Credit index instruments		655		445		—		—
Total derivatives not designated as hedging instruments		38,260		89,331		22,888		3,848
Total derivatives	$	38,293	$	89,361	$	22,890	$	3,904


			Gain (Loss)
	Gain (Loss)		Reclassified		Gain (Loss)
	Recognized		from AOCI		Recognized
Derivatives Designated as Hedging Instruments	in OCI		into Income		in Income		Location of Gain (Loss)
For the Three Months Ended September 30,	(effective portion)		(effective portion)		(ineffective portion)		Recognized in Income
2017	$	(3)	$	19	$	—	Interest expense
2016	$	107	$	(78)	$	—	Interest expense

For the Nine Months Ended September 30,
2017	$	45	$	(11)	$	—	Interest expense
2016	$	(397)	$	(261)	$	—	Interest expense


		Amount of Gain (Loss)				Amount of Gain (Loss)
		Recognized in Income for the				Recognized in Income for the
Derivatives Not Designated	Location of Gain (Loss)	Three Months Ended September 30,				Nine Months Ended September 30,
as Hedging Instruments	Recognized in Income	2017		2016		2017		2016
Interest rate contracts	Loss on derivative financial instruments	$	(3,836)	$	(626)	$	(10,190)	$	(25,899)
Foreign exchange contracts	Loss on derivative financial instruments		(19,650)		(189)		(54,814)		21,160
Credit index instruments	Loss on derivative financial instruments		(738)		(1,513)		(1,155)		(2,054)
		$	(24,224)	$	(2,328)	$	(66,159)	$	(6,793)


Declaration Date	Record Date	Ex-Dividend Date	Payment Date	Amount		Frequency
8/9/17	9/29/17	9/28/17	10/13/17	$	0.48	Quarterly
5/9/17	6/30/17	6/28/17	7/14/17	$	0.48	Quarterly
2/23/17	3/31/17	3/29/17	4/14/17	$	0.48	Quarterly


Grant Date	Type	Amount Granted	Grant Date Fair Value		Vesting Period
March 2017	RSU	1,000,000	$	22,240	3 years
May 2015	RSU	675,000		16,511	3 years
January 2014	RSU	489,281		14,776	3 years
January 2014	RSU	2,000,000		55,420	3 years


	Amounts Reclassified from				Amounts Reclassified from
	AOCI during the Three Months				AOCI during the Nine Months				Affected Line Item
	Ended September 30,				Ended September 30,				in the Statements
Details about AOCI Components	2017		2016		2017		2016		of Operations
Gain (loss) on cash flow hedges:
Interest rate contracts	$	19	$	(78)	$	(11)	$	(261)	Interest expense
Unrealized gains on available-for-sale securities:
Interest realized upon collection		—		—		95		—	Interest income from investment securities
Total reclassifications for the period	$	19	$	(78)	$	84	$	(261)