Edgar Filing: STARWOOD PROPERTY TRUST, INC.

stwd_Current folio_10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K


☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001‑34436

Starwood Property Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland (State or other jurisdiction of incorporation or organization)	27‑0247747 (I.R.S. Employer Identification Number)
591 West Putnam Avenue Greenwich, Connecticut (Address of Principal Executive Offices)	06830 (Zip Code)

Registrant’s telephone number, including area code (203) 422‑7700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b‑2 of the Exchange Act.



Large accelerated filer ☒				Accelerated filer ☐
Non-accelerated filer ☐				Smaller reporting company ☐
				Emerging growth company ☐

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

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

As of June 30, 2018, the aggregate market value of the voting stock held by non‑affiliates was $5,521,212,127 based on the reported last sale price of our common stock on June 29, 2018. Shares of our common stock held by affiliates, which includes officers and directors of the registrant, have been excluded from this calculation. This calculation does not reflect a determination that persons are affiliates for any other purposes.

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of February 21, 2019 was 279,277,283.

DOCUMENTS INCORPORATED BY REFERENCE

Documents Incorporated By Reference: The information required by Part III of this Form 10‑K, to the extent not set forth herein or by amendment, is incorporated by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or prior to April 30, 2019.

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TABLE OF CONTENTS


		Page
Part I		4
Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	64
Item 2.	Properties	64
Item 3.	Legal Proceedings	64
Item 4.	Mine Safety Disclosures	64
Part II		65
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	65
Item 6.	Selected Financial Data	67
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	101
Item 8.	Financial Statements and Supplementary Data	106
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	194
Item 9A.	Controls and Procedures	194
Item 9B.	Other Information	195
Part III		195
Item 10.	Directors, Executive Officers and Corporate Governance	195
Item 11.	Executive Compensation	195
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	195
Item 13.	Certain Relationships and Related Transactions, and Director Independence	196
Item 14.	Principal Accountant Fees and Services	196
Part IV		197
Item 15.	Exhibits and Financial Statement Schedules	197
Item 16.	Form 10-K Summary	201
Signatures		202

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Special Note Regarding Forward‑Looking Statements

This Annual Report on Form 10-K (this “Form 10-K”) 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 are set forth under the caption “Risk Factors” in this report and include, but are not limited to:

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 recently completed 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;

general and local commercial and residential real estate property conditions;

changes in federal government policies;

changes in federal, state and local governmental laws and regulations;

increased competition from entities engaged in mortgage lending and securities investing activities;

changes in interest rates; and

the availability of, and costs associated with, sources of liquidity.

In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained in this Form 10-K 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.

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PART I

Item 1. Business.

The following description of our business should be read in conjunction with the information included elsewhere in this Form 10‑K for the year ended December 31, 2018. 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 due to the factors set forth in “Risk Factors” and elsewhere in this Form 10‑K. References in this Form 10‑K to “we,” “our,” “us,” or the “Company” refer to Starwood Property Trust, Inc. and its subsidiaries.

General

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 (“IPO”). We are focused primarily on originating, acquiring, financing and managing mortgage loans and other real estate investments in both the United States (“U.S.”) and Europe. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.

We have four reportable business segments as of December 31, 2018 and we refer to the investments within these segments as our target assets:

Real estate commercial and residential lending (the “Commercial and Residential Lending Segment,” formerly known as “Real estate lending”)—engages primarily in originating, acquiring, financing and managing commercial and residential first mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”) and other real estate and real estate-related debt investments in both the U.S. and Europe (including distressed or non-performing loans).

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

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

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

Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).

On September 19, 2018 and October 15, 2018, we acquired the equity of GE Capital Global Holdings, LLC (“GE Capital”) for approximately $2.2 billion (the “Infrastructure Lending Segment”).

On January 31, 2014, we completed the spin‑off of our former single family residential (“SFR”) segment to our stockholders.

On April 19, 2013, we acquired the equity of LNR Property LLC (“LNR”) and certain of its subsidiaries for $730.5 million. LNR represents our Investing and Servicing Segment.

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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 also operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940 as amended (the “Investment Company Act” or “1940 Act”).

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.

Our corporate headquarters office is located at 591 West Putnam Avenue, Greenwich, Connecticut 06830, and our telephone number is (203) 422‑7700.

Investment Strategy

We seek to attain attractive risk‑adjusted returns for our investors over the long term by sourcing and managing a diversified portfolio of target assets, financed in a manner that is designed to deliver attractive returns across a variety of market conditions and economic cycles. Our investment strategy focuses on a few fundamental themes:

origination and acquisition of real estate debt assets with an implied basis sufficiently low to weather declines in asset values;

acquisition of equity interests in commercial real estate properties that generate stable current returns, increase the duration of our investment portfolio and provide potential for capital appreciation;

focus on real estate markets and asset classes with strong supply and demand fundamentals and/or barriers to entry;

structuring and financing each transaction in a manner that reflects the risk of the underlying asset’s cash flow stream and credit risk profile, and efficiently managing and maintaining the transaction’s interest rate and currency exposures at levels consistent with management’s risk objectives;

seeking situations where our size, scale, speed and sophistication allow us to position ourselves as a “one‑stop” lending solution for real estate owner/operators;

utilizing the skills, expertise, and contacts developed by our Manager over the past 20 plus years as one of the premier global real estate investment managers to (i) correctly anticipate trends and identify attractive risk‑adjusted investment opportunities in U.S. and European real estate markets; and (ii) expand and diversify our presence in various asset classes, including:

origination and acquisition of residential mortgage loans, including residential mortgage loans sometimes referred to as “non-qualified mortgages” or “non-QMs”; and

origination and acquisition of corporate and asset-backed loans;

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utilizing the skills, expertise and infrastructure we acquired through our acquisition of LNR, a market leading diversified real estate investment management and loan servicing company, to expand and diversify our presence in various segments of real estate, including:

origination of small and medium sized loan transactions ($10 million to $50 million) for both investment and securitization/gain‑on‑sale;

investment in CMBS;

investment in commercial real estate;

special servicing of commercial real estate loans in commercial real estate securitization transactions; and

utilizing the skills and expertise we acquired through our acquisition of the Infrastructure Lending Segment to expand our originations and acquisitions of infrastructure debt investments.

In order to capitalize on the changing sets of investment opportunities that may be present in the various points of an economic cycle, we may expand or refocus our investment strategy by emphasizing investments in different parts of the capital structure and different sectors of real estate. Our investment strategy may be amended from time to time, if recommended by our Manager and approved by our board of directors, without the approval of our stockholders. In addition to our Manager making direct investments on our behalf, we may enter into joint venture, management or other agreements with persons that have special expertise or sourcing capabilities.

Investment Guidelines

Our board of directors has adopted the following investment guidelines:

our investments will be in our target assets unless otherwise approved by our board of directors;

no investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes;

no investment shall be made that would cause us or any of our subsidiaries to be required to be registered as an investment company under the 1940 Act;

not more than 25% of our equity will be invested in any individual asset without the consent of a majority of our independent directors; and

(a) any investment that is less than $150 million will require approval of our Chief Executive Officer; (b) any investment that is equal to or in excess of $150 million but less than $250 million will require approval of our Manager’s investment committee; (c) any investment that is equal to or in excess of $250 million but less than $400 million will require approval of each of the investment committee of our board of directors and our Manager’s investment committee; and (d) any investment that is equal to or in excess of $400 million will require approval of each of our board of directors and our Manager’s investment committee.

These investment guidelines may be changed from time to time by our board of directors without the approval of our stockholders. In addition, both our Manager and our board of directors must approve any change in our investment guidelines that would modify or expand the types of assets in which we invest.

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Investment Process

Our investment process includes sourcing and screening of investment opportunities, assessing investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, and reviewing legal structure and servicer and originator information and investment structuring, as appropriate, to seek an attractive return commensurate with the risk we are bearing. Upon identification of an investment opportunity, the investment will be screened and monitored by us to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act. We will seek to make investments in sectors where we have strong core competencies and believe market risk and expected performance can be reasonably quantified.

We evaluate each one of our investment opportunities based on its expected risk‑adjusted return relative to the returns available from other, comparable investments. In addition, we evaluate new opportunities based on their relative expected returns compared to comparable positions held in our portfolio. The terms of any leverage available to us for use in funding an investment purchase are also taken into consideration, as are any risks posed by illiquidity or correlations with other securities in the portfolio. We also develop a macro outlook with respect to each target asset class by examining factors in the broader economy such as gross domestic product, interest rates, unemployment rates and availability of credit, among other things. We also analyze fundamental trends in the relevant target asset class sector to adjust/maintain our outlook for that particular target asset class.

Financing Strategy

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registering under the 1940 Act, we may finance the acquisition of our target assets, to the extent available to us, through the following methods:

sources of private and government sponsored financing, including long and short‑term repurchase agreements, warehouse and bank credit facilities, and mortgage loans on equity interests in commercial real estate properties;

loan sales, syndications and/or securitizations; and

public or private offerings of our equity and/or debt securities.

We may also utilize other sources of financing to the extent available to us.

Our Target Assets

We invest in target assets secured primarily by U.S. or European collateral. We focus primarily on originating or opportunistically acquiring commercial mortgage whole loans, B‑Notes, mezzanine loans, preferred equity and mortgage‑backed securities (“MBS”). We may invest in performing and non‑performing mortgage loans and other real estate‑related loans and debt investments. We may acquire target assets through portfolio acquisitions or other types of acquisitions. Our Manager targets desirable markets where it has expertise in the real estate collateral underlying the assets being acquired. Our target assets include the following types of loans and other investments:

Whole mortgage loans: loans secured by a first mortgage lien on a commercial property that provide mortgage financing to commercial property developers or owners generally having maturity dates ranging from three to ten years;

B‑Notes: typically a privately negotiated loan that is secured by a first mortgage on a single large commercial property or group of related properties and subordinated to an A Note secured by the same first mortgage on the same property or group;

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Mezzanine loans: loans made to commercial property owners that are secured by pledges of the borrower’s ownership interests in the property and/or the property owner, subordinate to whole mortgage loans secured by first or second mortgage liens on the property and senior to the borrower’s equity in the property;

Construction or rehabilitation loans: mortgage loans and mezzanine loans to finance the cost of construction or rehabilitation of a commercial property;

CMBS: securities that are collateralized by commercial mortgage loans, including:

senior and subordinated investment grade CMBS,

below investment grade CMBS, and

unrated CMBS;

Corporate bank debt: term loans and revolving credit facilities of commercial real estate operating or finance companies, each of which are generally secured by such companies’ assets;

Equity: equity interests in commercial real estate properties, including commercial properties purchased from CMBS trusts;

Corporate bonds: debt securities issued by commercial real estate operating or finance companies that may or may not be secured by such companies’ assets, including:

investment grade corporate bonds,

below investment grade corporate bonds, and

unrated corporate bonds;

Non‑Agency RMBS: securities collateralized by residential mortgage loans that are not guaranteed by any U.S. Government agency or federally chartered corporation;

Residential mortgage loans: loans secured by a first mortgage lien on residential property;

Infrastructure loans: senior secured project finance loans and senior secured project finance investment securities secured by power generation facilities and midstream and downstream oil and gas assets; and

Net leases: commercial properties subject to net leases, which leases typically have longer terms than gross leases, require tenants to pay substantially all of the operating costs associated with the properties and often have contractually specified rent increases throughout their terms.

In addition, we may invest in the following real estate-related investments:

Agency RMBS: RMBS for which a U.S. government agency or a federally chartered corporation guarantees payments of principal and interest on the securities.

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Business Segments

We currently operate our business in four reportable segments: the Commercial and Residential Lending Segment, the Infrastructure Lending Segment, the Property Segment and the Investing and Servicing Segment. Refer to Note 23 to the consolidated financial statements included herein (the “Consolidated Financial Statements”) for our results of operations and financial position by business segment.

Commercial and Residential Lending Segment

The following table sets forth the amount of each category of investments we owned across various property types within our Commercial and Residential Lending Segment as of December 31, 2018 and 2017 (dollars in thousands):


											Unlevered
	Face		Carrying			Asset Specific		Net			Return on
	Amount		Value			Financing		Investment		Vintage	Asset
December 31, 2018
First mortgages (1)	$	6,627,879	$	6,603,760		$	3,542,214	$	3,061,546	1997-2018	7.0	%
Subordinated mortgages		53,996		52,778			—		52,778	1998-2018	9.4	%
Mezzanine loans (1)		394,739		393,832			—		393,832	2005-2018	11.6	%
Other loans		64,658		61,001			—		61,001	1999-2018	9.1	%
Loans held-for-sale, fair value option, residential		609,571		623,660			499,756		123,904	2013-2018	6.1	%
Loans held-for-sale, commercial		48,667		46,495			30,525		15,970	2018	6.3	%
Loans transferred as secured borrowings		74,692		74,346			74,239		107	N/A
Loan loss allowance		—		(39,151)			—		(39,151)	N/A
RMBS, available-for-sale		309,497		209,079			44,070		165,009	2003-2007	11.7	%
RMBS, fair value option		62,397		87,879	(2)		13,179		74,700	2018	8.0	%
CMBS, fair value option		160,198		158,688	(2)		83,864		74,824	2018	6.7	%
HTM debt securities (3)		585,017		583,381			191,991		391,390	2014-2018	7.5	%
Equity security		11,660		11,893			—		11,893	N/A
Investment in unconsolidated entities		N/A		35,274			—		35,274	N/A
	$	9,002,971	$	8,902,915		$	4,479,838	$	4,423,077

December 31, 2017
First mortgages (1)	$	5,839,827	$	5,815,008		$	2,636,881	$	3,178,127	1989-2017	6.7	%
Subordinated mortgages		177,386		177,115			—		177,115	1998-2014	11.8	%
Mezzanine loans (1)		545,355		545,299			—		545,299	2005-2017	11.5	%
Other loans		29,320		25,607			—		25,607	1999-2017	12.5	%
Loans held-for-sale, fair value option, residential		594,105		613,287			444,539		168,748	2013-2017	6.0	%
Loans transferred as secured borrowings		75,000		74,403			74,185		218	N/A
Loan loss allowance		—		(4,330)			—		(4,330)	N/A
RMBS, available-for-sale		366,711		247,021			117,534		129,487	2003-2007	10.0	%
HTM debt securities (3)		437,531		433,468			267,533		165,935	2013-2017	5.8	%
Equity security		12,350		13,523			—		13,523	N/A
Investment in unconsolidated entities		N/A		45,028			—		45,028	N/A
	$	8,077,585	$	7,985,429		$	3,540,672	$	4,444,757

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(1)

First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of $1.0 billion and $851.1 million being classified as first mortgages as of December 31, 2018 and 2017, respectively.

(2)

Includes $87.9 million of RMBS and $158.7 million of CMBS reflected in “VIE liabilities” in our consolidated balance sheet as of December 31, 2018, in accordance with Accounting Standards Codification (“ASC”) 810 as it relates to the consolidation of securitization VIEs.

(3)

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

As of December 31, 2018 and 2017, our Commercial and Residential Lending Segment’s investment portfolio, excluding loans held-for-sale, RMBS and other investments, had the following characteristics based on carrying values:


	As of December 31,
Collateral Property Type	2018		2017
Office	35.0	%	33.7	%
Hotel	23.5	%	16.8	%
Multifamily	15.4	%	9.4	%
Mixed Use	11.9	%	18.4	%
Residential	4.9	%	7.1	%
Retail	2.4	%	7.8	%
Industrial	1.7	%	2.3	%
Parking	—	%	2.2	%
Other	5.2	%	2.3	%
	100.0	%	100.0	%


	As of December 31,
Geographic Location	2018		2017
North East	28.7	%	31.5	%
West	22.7	%	21.6	%
South West	14.0	%	12.1	%
International	11.0	%	12.4	%
South East	9.9	%	12.6	%
Midwest	6.9	%	5.1	%
Mid Atlantic	6.8	%	4.7	%
	100.0	%	100.0	%

Our primary focus has been to build a portfolio of commercial mortgage and mezzanine loans with attractive risk‑adjusted returns by focusing on the underlying real estate fundamentals and credit analysis of the borrowers. We continually monitor borrower performance and complete a detailed, loan‑by‑loan formal credit review on a quarterly basis. The results of this review are incorporated into our quarterly assessment of the adequacy of the allowance for loan losses.

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The weighted average coupon for first mortgages, mezzanine loans and other loans held-for-investment originated and acquired by the Commercial and Residential Lending Segment during the year ended December 31, 2018 was 7.0%, 7.7% and 7.1%, respectively. The following table summarizes the activity in the Commercial and Residential Lending Segment’s loan portfolio and the associated changes in future funding commitments associated with these loans during the year ended December 31, 2018 (amounts in thousands):


	Carrying		Future Funding
	Value		Commitments
Balance at January 1, 2018	$	7,246,389	$	1,578,688
Acquisitions/originations		4,588,526		1,637,627
Additional funding and expired commitments		556,638		(595,093)
Capitalized interest (1)		63,047		—
Basis of loans sold		(1,518,914)		(106,170)
Loan maturities/principal repayments		(3,088,683)		(303,551)
Discount accretion/premium amortization		37,999		—
Change in fair value		(6,851)		—
Unrealized foreign currency translation loss		(26,645)		(7,162)
Change in loan loss allowance, net		(34,821)		—
Transfer to/from other asset classifications		36		—
Balance at December 31, 2018	$	7,816,721	$	2,204,339

(1)

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

As of December 31, 2018, the Commercial and Residential Lending Segment’s loans held‑for‑investment and HTM securities had a weighted‑average maturity of 2.1 years, inclusive of extension options that management believes are probable of exercise. The table below shows the carrying value expected to mature annually for our loans held‑for‑investment and HTM securities (amounts in thousands, except number of investments maturing).


	Number of
	Investments	Carrying
Year of Maturity	Maturing (1)	Value (1)		% of Total
2019	68	$	1,693,360	22.0	%
2020	71		2,068,732	26.9	%
2021	95		2,577,338	33.5	%
2022	19		491,217	6.4	%
2023	12		492,683	6.4	%
2024	18		330,447	4.3	%
2025	1		40,975	0.5	%
Total	284	$	7,694,752	100.0	%

(1)

Excludes loans held-for-sale, loans transferred as secured borrowings, RMBS, equity security and investments in unconsolidated entities. Carrying value also excludes loan loss allowance.

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Infrastructure Lending Segment

The following table sets forth the amount of each category of investments we owned within our Infrastructure Lending Segment as of December 31, 2018 (dollars in thousands):


									Unlevered
	Face		Carrying		Asset Specific		Net		Return on
	Amount		Value		Financing		Investment		Asset
December 31, 2018
First priority infrastructure loans and HTM securities	$	1,537,412	$	1,517,547	$	1,130,567	$	386,980	5.9	%
Loans held-for-sale, infrastructure		486,909		469,775		393,984		75,791	3.6	%
	$	2,024,321	$	1,987,322	$	1,524,551	$	462,771

As of December 31, 2018, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:


Collateral Type	December 31, 2018
Natural gas power	54.3	%
Renewable power	30.8	%
Midstream/downstream oil & gas	9.3	%
Other thermal power	5.1	%
Upstream oil & gas	0.5	%
	100.0	%


Geographic Location	December 31, 2018
U.S. Regions:
North East	32.8	%
Midwest	15.9	%
South West	12.9	%
West	4.7	%
Mid-Atlantic	4.6	%
South East	3.4	%
International:
Mexico	12.5	%
United Kingdom	4.7	%
Ireland	2.4	%
Other	6.1	%
	100.0	%

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The weighted average coupon for first priority infrastructure loans and HTM securities during the year ended December 31, 2018 was 5.7%. The following table summarizes the activity in the Infrastructure Lending Segment’s portfolio and the associated changes in future funding commitments associated with the portfolio during the year ended December 31, 2018 (amounts in thousands):


	Carrying		Future Funding
	Value		Commitments
Balance at January 1, 2018	$	—	$	—
Acquisition of Infrastructure Lending Portfolio		2,034,400		466,340
Acquisitions/originations		81,842		12,915
Additional funding and expired commitments		63,963		(64,506)
Loan maturities/principal repayments (revolvers)		(14,697)		(4,694)
Loan maturities/principal repayments (all other)		(172,359)		—
Discount accretion/premium amortization		(131)		—
Unrealized foreign currency translation loss		(5,696)		(395)
Balance at December 31, 2018	$	1,987,322	$	409,660

As of December 31, 2018, the Infrastructure Lending Segment’s first priority infrastructure loans and HTM securities had a weighted‑average maturity of 4.9 years, inclusive of extension options that management believes are probable of exercise. The table below shows the carrying value expected to mature annually for our first priority infrastructure loans and HTM securities (amounts in thousands, except number of investments maturing).


	Number of
	Investments	Carrying
Year of Maturity	Maturing (1)	Value (1)		% of Total
2019	—	$	70,584	4.7	%
2020	5		399,131	26.3	%
2021	5		138,541	9.1	%
2022	8		220,151	14.5	%
2023	3		273,489	18.0	%
2024	6		197,494	13.0	%
2025	4		122,287	8.1	%
2026	3		27,603	1.8	%
2027	—		7,147	0.5	%
2028 and thereafter	5		61,120	4.0	%
Total	39	$	1,517,547	100.0	%

(1)

Excludes loans held-for-sale.

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Property Segment

The following table sets forth the amount of each category of investments, which are comprised of properties, intangible lease assets and liabilities and our equity investment in four regional shopping malls (the “Retail Fund”) held within our Property Segment as of December 31, 2018 and 2017 (amounts in thousands):


	As of December 31,
	2018		2017
Properties, net	$	2,512,847	$	2,364,806
Lease intangibles, net		87,729		111,631
Investment in unconsolidated entities		114,362		110,704
	$	2,714,938	$	2,587,141

The following table sets forth our net investment and other information regarding the Property Segment’s properties and intangible lease assets and liabilities as of December 31, 2018 (dollars in thousands):


			Asset						Weighted Average
	Carrying		Specific		Net		Occupancy		Remaining
	Value		Financing		Investment		Rate		Lease Term
Office—Medical Office Portfolio	$	760,532	$	486,284	$	274,248	92.9	%	6.4 years
Office—Ireland Portfolio		503,210		349,238		153,972	98.7	%	9.8 years
Multifamily residential—Ireland Portfolio		18,284		11,887		6,397	100.0	%	0.3 years
Multifamily residential—Woodstar I Portfolio		623,506		407,264		216,242	98.3	%	0.5 years
Multifamily residential—Woodstar II Portfolio		598,617		437,441		161,176	99.9	%	0.5 years
Retail—Master Lease Portfolio		343,790		192,073		151,717	100.0	%	23.4 years
Subtotal—undepreciated carrying value		2,847,939		1,884,187		963,752
Accumulated depreciation and amortization		(247,363)		—		(247,363)
Net carrying value	$	2,600,576	$	1,884,187	$	716,389

See Note 7 to the Consolidated Financial Statements for a description of the above-referenced Property Segment Portfolios.

As of December 31, 2018 and 2017, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:


	As of December 31,
Geographic Location	2018		2017
Ireland	17.7	%	20.1	%
U.S. Regions:
South East	50.8	%	38.4	%
South West	8.6	%	9.4	%
Midwest	8.3	%	12.2	%
North East	8.1	%	8.8	%
West	6.5	%	9.2	%
Mid-Atlantic	—	%	1.9	%
	100.0	%	100.0	%

Refer to Schedule III included in Item 8 of this Form 10‑K for a detailed listing of the properties held by the Company, including their respective geographic locations.

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Investing and Servicing Segment

The following table sets forth the amount of each category of investments we owned within our Investing and Servicing Segment as of December 31, 2018 and 2017 (amounts in thousands):


						Asset
	Face		Carrying			Specific		Net
	Amount		Value			Financing		Investment
December 31, 2018
CMBS, fair value option	$	2,872,381	$	998,820	(1)	$	320,158	$	678,662
Intangible assets - servicing rights		N/A		44,632	(2)		—		44,632
Lease intangibles, net		N/A		29,327			—		29,327
Loans held-for-sale, fair value option, commercial		46,249		47,622			34,105		13,517
Loans held-for-investment		3,357		3,357			—		3,357
Investment in unconsolidated entities		N/A		44,129			—		44,129
Properties, net		N/A		272,043			230,995		41,048
	$	2,921,987	$	1,439,930		$	585,258	$	854,672
December 31, 2017
CMBS, fair value option	$	3,098,574	$	1,024,143	(1)	$	145,456	$	878,687
Intangible assets - servicing rights		N/A		59,005	(2)		—		59,005
Lease intangibles, net		N/A		31,000			—		31,000
Loans held-for-sale, fair value option, commercial		132,393		132,456			66,377		66,079
Loans held-for-investment		3,796		3,796			—		3,796
Investment in unconsolidated entities		N/A		50,759			—		50,759
Properties, net		N/A		282,675			199,693		82,982
	$	3,234,763	$	1,583,834		$	411,526	$	1,172,308

(1)

Includes $957.5 billion and $1.0 billion of CMBS reflected in “VIE liabilities” in accordance with ASC 810 as of December 31, 2018 and 2017, respectively.

(2)

Includes $24.1 million and $28.2 million of servicing rights intangibles reflected in “VIE assets” in accordance with ASC 810 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, the Investing and Servicing Segment’s CMBS had a weighted‑average expected maturity of 7.7 years. The table below shows the CMBS carrying value expected to mature annually (amounts in thousands, except number of investments maturing).


	Number of
	Investments	Carrying
Year of Maturity	Maturing	Value		% of Total
2019	49	$	18,609	1.9	%
2020	9		21,263	2.1	%
2021	5		10,774	1.1	%
2022	4		6,101	0.6	%
2023	25		115,360	11.5	%
2024	27		115,508	11.6	%
2025	52		106,488	10.7	%
2026	61		188,393	18.9	%
2027	44		105,033	10.5	%
2028 and thereafter	83		311,291	31.1	%
Total	359	$	998,820	100.0	%

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Our REIS Equity Portfolio, as defined in Note 3 to the Consolidated Financial Statements, had the following characteristics based on carrying values of $284.7 million and $292.8 million as of December 31, 2018 and 2017, respectively:


	As of December 31,
Property Type	2018		2017
Office	56.5	%	38.5	%
Retail	24.1	%	37.5	%
Multifamily	7.8	%	12.5	%
Mixed Use	5.1	%	7.0	%
Self-storage	4.5	%	4.5	%
Hotel	2.0	%	—	%
	100.0	%	100.0	%


	As of December 31,
Geographic Location	2018		2017
South East	37.9	%	46.3	%
North East	22.4	%	14.0	%
South West	18.0	%	12.5	%
West	9.8	%	10.8	%
Midwest	6.8	%	7.5	%
Mid Atlantic	5.1	%	8.9	%
	100.0	%	100.0	%

Regulation

Our operations are subject, in certain instances, to supervision and regulation by state and federal governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things: (1) regulate credit granting activities; (2) establish maximum interest rates, finance charges and other charges; (3) require disclosures to customers; (4) govern secured transactions; (5) set collection, foreclosure, repossession and claims handling procedures and other trade practices; and (6) regulate affordable housing rental activities. Although most states do not regulate commercial finance, certain states impose limitations on interest rates and other charges and on certain collection practices and creditor remedies, and require licensing of lenders and financiers and adequate disclosure of certain contract terms. We are also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans and the Fair Housing Act. We intend to conduct our business so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.

Competition

We are engaged in a competitive business. In our investment activities, we compete for opportunities with numerous public and private investment vehicles, including financial institutions, specialty finance companies, mortgage banks, pension funds, opportunity funds, hedge funds, insurance companies, REITs and other institutional investors, as well as individuals. Many competitors are significantly larger than we are, have well established operating histories and may have greater access to capital, more resources and other advantages over us. These competitors may be willing to accept lower returns on their investments or to compromise underwriting standards and, as a result, our origination volume and profit margins could be adversely affected.

Our Manager

We are externally managed and advised by our Manager and benefit from the personnel, relationships and experience of our Manager’s executive team and other personnel of Starwood Capital Group. Pursuant to the terms of a management agreement between our Manager and us, our Manager provides us with our management team and appropriate support personnel. Pursuant to an investment advisory agreement between our Manager and Starwood

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Capital Group Management, LLC, our Manager has access to the personnel and resources of Starwood Capital Group necessary for the implementation and execution of our business strategy.

Our Manager is an affiliate of Starwood Capital Group, a privately‑held private equity firm founded and controlled by Mr. Sternlicht. Starwood Capital Group has invested in most major classes of real estate, directly and indirectly, through operating companies, portfolios of properties and single assets, including multifamily, office, retail, hotel, residential entitled land and communities, senior housing, mixed‑use and golf courses. Starwood Capital Group invests at different levels of the capital structure, including equity, preferred equity, mezzanine debt and senior debt, depending on the asset risk profile and return expectation.

Our Manager draws upon the experience and expertise of Starwood Capital Group’s team of professionals and support personnel operating in 13 cities across five countries. Our Manager also benefits from Starwood Capital Group’s dedicated asset management group operating in offices located in the U.S. and abroad. We also benefit from Starwood Capital Group’s portfolio management, finance and administration functions, which address legal, compliance, investor relations and operational matters, asset valuation, risk management and information technologies in connection with the performance of our Manager’s duties.

Employees

As of December 31, 2018, the Company had 290 full‑time employees, the majority of which are real estate professionals located throughout the U.S.

Taxation of the Company

We have elected to be taxed as a REIT under the Code for federal income tax purposes. We generally must distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any net capital gain, in order for federal corporate income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Code, which relate to organizational structure, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If we qualify for taxation as a REIT, we will generally not be subject to U.S. federal corporate income tax on our taxable income that is currently distributed to stockholders.

Even if we qualify as a REIT, we may be subject to certain federal excise taxes and state and local taxes on our income and property. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and will not be able to qualify as a REIT for four subsequent taxable years.

We utilize taxable REIT subsidiaries (“TRSs”) to conduct certain activities that would generate non-qualifying income or income subject to the prohibited transaction tax if earned directly by the REIT, and to hold certain assets that would represent non-qualifying assets if held directly by the REIT. In most cases, income associated with a TRS is fully taxable because a TRS is classified as a regular corporation for income tax purposes.

See Item 1A—“Risk Factors—Risks Related to Our Taxation as a REIT” for additional tax status information.

Leverage Policies