STARWOOD PROPERTY TRUST INC

Previous wording

During 2023, inflation began to moderate as a result of the monetary policy tightening actions taken by the Federal Reserve, including repeatedly raising interest rates. While it is anticipated that the Federal Reserve may begin to lower interest rates in 2024, interest rates may remain at or near recent highs, which creates further uncertainty for the economy and for our borrowers. Although our business model is such that rising interest rates will, all else equal, correlate to increases in our net income, elevated interest rates over time may adversely affect our existing borrowers and lead to nonperformance as higher costs may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. Additionally, higher interest rates could adversely affect commercial real estate property values. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

Current wording

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

Previous wording

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 5 to the Consolidated Financial Statements.

Current wording

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

Previous wording

•Originated or acquired $706.9 million of commercial loans during the quarter, including the following:

Current wording

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

Previous wording

◦$156.0 million first mortgage and mezzanine loan to refinance a mixed-use development located in Florida, of which the Company funded $152.9 million.

Current wording

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

Previous wording

•Funded $169.8 million of previously originated commercial loan commitments.

Current wording

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

Previous wording

•Received gross proceeds of $814.5 million ($345.5 million, net of debt repayments) from maturities and principal repayments on our commercial loans and equity interests.

Current wording

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

Previous wording

•Acquired $425.4 million of infrastructure loans and funded $20.0 million of pre-existing infrastructure loan commitments.

Current wording

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

Previous wording

•Received proceeds of $182.0 million from principal repayments on our infrastructure loans and bonds.

Current wording

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

Previous wording

•Received proceeds of $475.8 million from sales of previously originated commercial conduit loans.

Current wording

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

Previous wording

•Acquired CMBS for a purchase price of $48.0 million, of which $2.7 million related to non-controlling interests.

Current wording

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

Previous wording

•Obtained 3 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $1.8 billion, while $4.2 billion matured, bringing our total named special servicing portfolio to $98.7 billion.

Current wording

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

Previous wording

•Originated or acquired $1.1 billion of commercial loans during the year, including the following:

Current wording

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

Previous wording

◦$156.0 million first mortgage and mezzanine loan to refinance a mixed-use development located in Florida, of which the Company funded $152.9 million.

Current wording

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

Previous wording

•Funded $802.3 million of previously originated commercial loan commitments.

Current wording

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

Previous wording

•Received gross proceeds of $2.8 billion ($1.2 billion, net of debt repayments) from maturities and principal repayments on our commercial loans and equity interests.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

•Acquired $1.1 billion of infrastructure loans and funded $53.8 million of pre-existing infrastructure loan commitments.

Current wording

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

Previous wording

•Received proceeds of $904.5 million from principal repayments on our infrastructure loans and bonds.

Current wording

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

Previous wording

•Received proceeds of $770.7 million from sales of previously originated commercial conduit loans.

Current wording

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

Previous wording

•Obtained 11 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $6.7 billion, while $13.8 billion matured and $3.1 billion transferred, bringing our total named special servicing portfolio to $98.7 billion.

Current wording

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

Previous wording

For the year ended December 31, 2022, net interest income of our Commercial and Residential Lending Segment increased $92.6 million to $659.3 million, compared to $566.7 million for the year ended December 31, 2021. This increase reflects the increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

Current wording

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

Previous wording

The weighted average unlevered yield on our commercial loans increased primarily due to higher index rates partially offset by the repayment of loans with higher LIBOR floors being replaced by newer loans with lower floating rate floors. The weighted average unlevered yield on our residential loans was unchanged, reflecting lower weighted average coupons which resulted from market spread tightening as well as a change in composition of our residential loan portfolio to include agency loans which generally carry a lower coupon than non-agency loans, the effect of which was offset by a decline in fair value of residential loans during the year ended December 31, 2022.

Current wording

The weighted average unlevered yield on our commercial loans increased primarily due to higher prepayment related income. The unlevered yield on our residential loans was relatively unchanged.

Previous wording

For the year ended December 31, 2022, other income of our Commercial and Residential Lending Segment decreased $174.4 million to a loss of $115.8 million, compared to income of $58.6 million for the year ended December 31, 2021. This decrease primarily reflects (i) a $366.2 million unfavorable change in fair value of residential loans, (ii) an $88.4 million loss contingency provision related to residential loans sold in February 2022 and later repurchased (refer to Note 5 to the Consolidated Financial Statements) and (iii) a $60.6 million increase in foreign currency loss, all partially offset by (iv) a $265.8 million increase in net gains on derivatives and (v) a $68.9 million increased gain on sale of foreclosed properties. The unfavorable change in fair value of residential loans was principally related to a rapid rise in interest rates and widening of credit spreads in 2022, which resulted in mark-to-market losses on our fixed coupon residential loans. The increased gains on derivatives during the year ended December 31, 2022 reflect a $190.2 million increased gain on interest rate swaps principally related to residential loans, which partially offsets the unfavorable change in fair value of those loans, and a $75.6 million increased gain on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increased gain on foreign currency hedges and the increase in foreign currency loss reflect the strengthening of the U.S. dollar against the GBP, EUR and AUD during the year ended December 31, 2022 compared to a lesser overall strengthening of the U.S. dollar against those currencies during the year ended December 31, 2021.

Current wording

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

Previous wording

For the year ended December 31, 2022, revenues of our Infrastructure Lending Segment increased $66.9 million to $154.4 million, compared to $87.5 million for the year ended December 31, 2021. This increase was primarily due to an increase in interest income from loans of $65.2 million, principally due to higher average loan balances and index rates.

Current wording

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

Previous wording

For the year ended December 31, 2022, costs and expenses of our Infrastructure Lending Segment increased $35.8 million to $100.6 million, compared to $64.8 million for the year ended December 31, 2021. The increase was primarily due to a $41.5 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio, partially offset by a $5.0 million decrease in credit loss provision. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates. The decrease in the credit loss provision was primarily due to a lesser increase in the specific reserve for a credit-deteriorated loan.

Current wording

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

Previous wording

For the year ended December 31, 2022, net interest income of our Infrastructure Lending Segment increased $25.2 million to $74.8 million, compared to $49.6 million for the year ended December 31, 2021. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

Current wording

For the year ended December 31, 2024, net interest income of our Infrastructure Lending Segment increased $7.3 million to $105.0 million, compared to $97.7 million for the year ended December 31, 2023. The increase reflects the net increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

Previous wording

For the year ended December 31, 2022, revenues of our Property Segment decreased $143.2 million to $91.8 million, compared to $235.0 million for the year ended December 31, 2021. The decrease is primarily due to the conversion of the Woodstar Portfolios to the Woodstar Fund on November 5, 2021.

Current wording

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

Previous wording

For the year ended December 31, 2022, corporate other loss increased $72.0 million to $83.0 million, compared to $11.0 million for the year ended December 31, 2021. This increase was primarily due to a greater loss on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Current wording

For the year ended December 31, 2024, corporate other loss increased $32.5 million to $43.8 million, compared to $11.3 million for the year ended December 31, 2023. This was primarily due to a $32.2 million increased loss on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Previous wording

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the year ended December 31, 2022, our income taxes decreased $70.2 million to a benefit of $61.5 million, compared to a provision of $8.7 million for the year ended December 31, 2021 due to tax losses of our TRSs during the year ended December 31, 2022 compared to taxable income of our TRSs during the year ended December 31, 2021. The tax losses during the year ended December 31, 2022 were primarily attributable to net unrealized losses on our residential loans resulting from elevated market volatility. This market dislocation resulted in us choosing to hold more residential loans rather than securitize them, which resulted in higher net unrealized losses on those loans during the year ended December 31, 2022.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

As noted above, the definition of Distributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors. This is done in situations where such adjustments are considered appropriate in order for Distributable Earnings to be calculated in a manner consistent with its definition and objective.

Current wording

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

Previous wording

(2)Represents the realized portion of GAAP gains (losses) on residential and commercial conduit loans carried under the fair value option that were sold during the period. The amount is calculated as the difference between (i) the net proceeds received in connection with a securitization or sale of loans and (ii) such loans’ historical cost basis.

Current wording

(2)Represents the realized portion of GAAP gains (losses) on residential and commercial conduit loans carried under the fair value option that were sold during the period or expected to be sold in the near term subject to a binding agreement. The amount is calculated as the difference between (i) the net proceeds received or expected to be received in connection with a securitization or sale of loans and (ii) such loans’ historical cost basis.

Previous wording

(7)Represents the realized portion of GAAP gains or losses on the termination or settlement of derivatives that are accounted for at fair value. Derivatives are only treated as realized for Distributable Earnings when they are terminated or settled, and cash is exchanged. The amount of cash received or paid to terminate or settle the derivative is the amount treated as realized for Distributable Earnings purposes at the time of such termination or settlement.

Current wording

(6)Represents the realized portion of GAAP gains or losses on the termination or settlement of derivatives that are accounted for at fair value. Derivatives are only treated as realized for Distributable Earnings when they are terminated or settled, and cash is exchanged. The amount of cash received or paid to terminate or settle the derivative is the amount treated as realized for Distributable Earnings purposes at the time of such termination or settlement.

Previous wording

(8)Represents the realized portion of foreign currency gains (losses) related to assets and liabilities denominated in a foreign currency. Realization occurs when the foreign currency is converted back to USD. The amount is calculated as the difference between the foreign exchange rate at the time the asset was placed on the balance sheet and the foreign exchange rate at the time cash is received and is offset by any gains or losses on the related foreign currency derivative at settlement.

Current wording

(7)Represents the realized portion of foreign currency gains (losses) related to assets and liabilities denominated in a foreign currency. Realization occurs when the foreign currency is converted back to USD. The amount is calculated as the difference between the foreign exchange rate at the time the asset was placed on the balance sheet and the foreign exchange rate at the time cash is received and is offset by any gains or losses on the related foreign currency derivative at settlement.

Previous wording

(9)Represents GAAP earnings (loss) from unconsolidated entities excluding non-cash items and unrealized changes in fair value recorded on the books and records of the unconsolidated entities. The difference between GAAP and Distributable Earnings for these entities principally relates to depreciation and unrealized changes in the fair value of mortgage loans and securities.

Current wording

(8)Represents GAAP earnings (loss) from unconsolidated entities excluding non-cash items and unrealized changes in fair value recorded on the books and records of the unconsolidated entities. The difference between GAAP and Distributable Earnings for these entities principally relates to depreciation and unrealized changes in the fair value of mortgage loans and securities.

Previous wording

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

Current wording

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

Previous wording

Costs and expenses decreased by $4.4 million during the year ended December 31, 2022.

Current wording

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