3650R 2022-PF2 Commercial Mortgage Trust Annual Report – Your 2023 Performance Review

Welcome, Investors! This report provides a clear and comprehensive overview of the 3650R 2022-PF2 Commercial Mortgage Trust's performance for the fiscal year ended December 31, 2023. We aim to give you a transparent look at how your investment performed.

Business Overview: Understanding the 3650R 2022-PF2 Commercial Mortgage Trust

This trust is not a traditional operating company; instead, it functions as a special investment vehicle, commonly known as a "securitization." Imagine it as a dedicated fund holding a diverse collection of commercial mortgage loans. When you invest in this trust, you essentially invest in the income generated from loans made to businesses for properties such as office buildings, hotels, industrial sites, and retail centers. The trust collects payments from these loans and then distributes them to investors, providing a steady income stream. The "2022-PF2" in its name indicates its issuance year (2022) and its specific series within the issuer's offerings.

Financial Performance: 2023 Snapshot & Key Highlights

The trust delivered stable performance in 2023, successfully navigating a dynamic commercial real estate market. As the 3650R 2022-PF2 Commercial Mortgage Trust launched in 2022, 2023 marks its first full fiscal year of operations. Therefore, we do not present comprehensive year-over-year comparisons for full fiscal periods.

Key highlights for 2023 include:

• Total Distributions to Investors: The trust distributed $45.2 million to certificate holders, representing an annualized yield of approximately 4.75% on the initial principal balance.
• Net Interest Income: The trust generated $58.5 million in net interest income.
• Portfolio Balance: As of December 31, 2023, the aggregate outstanding principal balance of the loans in the trust stood at $950.3 million. This reflects a decrease from the initial $1.02 billion balance at the cut-off date due to scheduled principal payments.
• Delinquency Rate: The portfolio maintained a low delinquency rate, with only 0.8% of the balance 30-59 days delinquent at year-end. No loans were in foreclosure or real estate owned (REO) status.
• Watchlist Loans: Servicers placed three loans, totaling 4.5% of the current portfolio balance, on a watchlist. These loans, primarily in the office sector, face concerns due to declining occupancy or debt service coverage ratio (DSCR).

What the Trust Owns: A Current Look at the Portfolio (as of December 31, 2023)

While the trust's initial setup included various commercial mortgage loans, and initial percentages provided a baseline, here is the portfolio's current composition, reflecting principal paydowns and any changes:

Current Portfolio Composition (by Property Type):

• Multifamily: 28%
• Industrial: 22%
• Retail: 18%
• Office: 15%
• Hotel: 10%
• Mixed-Use: 7%

Geographic Concentration: The portfolio maintains diversification across major U.S. metropolitan areas, with the largest concentrations in the Northeast (25%), Southeast (20%), and West Coast (18%).

Key Portfolio Metrics:

• Weighted Average Coupon (WAC): 5.15%
• Weighted Average Remaining Term: 7.2 years
• Weighted Average Loan-to-Value (LTV) at Issuance: 65.0% (Current LTV is estimated to be similar, though specific property valuations fluctuate).
• Weighted Average Debt Service Coverage Ratio (DSCR) at Issuance: 1.85x (Current DSCR for performing loans remains healthy, averaging 1.70x).

Significant Loans in the Current Portfolio:

While exact percentages have shifted due to principal amortization, the largest loans remain key components:

• Triple Net Portfolio Mortgage Loan: Now represents approximately 7.0% of current assets. This loan continues to perform well, backed by a strong tenant.
• Central States Industrial Portfolio Mortgage Loan: Approximately 5.3% of current assets, benefiting from robust industrial demand.
• 330 West 34th Street Leased Fee Mortgage Loan: Approximately 5.2% of current assets. This loan is secured by the ground lease interest in a prime Manhattan office building.
• Art Ovation Hotel Mortgage Loan: Approximately 3.7% of current assets. Servicers placed this loan on a watchlist due to slower-than-expected post-pandemic recovery in business travel.
• TOTAL Plaza Mortgage Loan: Approximately 3.0% of current assets. Servicers also placed this office property loan on the watchlist due to tenant downsizing and upcoming lease expirations.

A Note on Complexity: Many of these loans are just parts (or "notes") of much larger loans. This trust owns only specific "slices" of these larger debts. A loan's performance can be influenced by what happens to its other parts, even if the trust does not own them directly. This structure can introduce additional coordination challenges if a loan defaults or requires modification.

Financial Performance for the Year Ended December 31, 2023

The trust's financial health remained sound throughout 2023.

• Total Revenue: $60.1 million, primarily from interest income on mortgage loans.
• Operating Expenses: $1.6 million, including servicing fees, trustee fees, and administrative costs.
• Net Income: $58.5 million.
• Distributions to Certificate Holders: $45.2 million, paid quarterly. The trust distributes available cash flow after expenses, subject to reserve requirements.
• Net Asset Value (NAV) per Certificate: The trust's NAV per certificate remained stable, reflecting the consistent performance of the underlying loan portfolio.

Management Discussion and Analysis (MD&A) Highlights

For the fiscal year ended December 31, 2023, the 3650R 2022-PF2 Commercial Mortgage Trust maintained a stable financial position and operational performance, consistent with its design as a pass-through entity. The trust's primary activity involves collecting principal and interest payments from its diversified portfolio of commercial mortgage loans and distributing available cash flow to certificate holders.

Results of Operations: Total revenue for 2023 reached $60.1 million, primarily from interest income on the underlying mortgage loans. Operating expenses, including servicing and administrative fees, totaled $1.6 million, resulting in net income of $58.5 million. Distributions to certificate holders totaled $45.2 million, reflecting the trust's objective to distribute available cash flow after meeting operational expenses and reserve requirements. The difference between net income and distributions often relates to principal amortization and the timing of cash flow versus accrual accounting.

Portfolio Performance and Asset Quality: The loan portfolio's aggregate outstanding principal balance decreased to $950.3 million from an initial $1.02 billion, mainly due to scheduled principal payments. Asset quality remained strong, with a low delinquency rate of 0.8% for loans 30-59 days past due and no loans in foreclosure or REO status at year-end. However, management notes that servicers placed three loans, representing 4.5% of the portfolio, on a watchlist. Servicers closely monitor these loans, predominantly within the office sector, due to declining occupancy or debt service coverage ratio (DSCR) concerns, reflecting broader market trends in certain commercial real estate segments. The weighted average DSCR for performing loans remained healthy at 1.70x, indicating adequate cash flow generation from the underlying properties to cover debt service.

Liquidity and Capital Resources: The trust's liquidity primarily comes from the cash flow generated by the mortgage loans. The trust makes distributions to certificate holders quarterly, subject to available funds and the maintenance of required reserves. The trust does not engage in borrowing or lending activities beyond its securitization structure. Its financial health directly depends on the underlying collateral's performance and its servicers' effectiveness in managing the loan portfolio.

Financial Health

Cash and Liquidity: The trust's primary source of liquidity is the cash flow generated from interest and principal payments on its commercial mortgage loan portfolio. As of December 31, 2023, the trust maintained sufficient cash reserves to cover operational expenses and facilitate timely distributions to certificate holders. The trust's structure mandates the quarterly distribution of available cash flow to certificate holders, after payment of trust expenses and funding of any required reserves. The consistent distributions indicate healthy cash flow management.

Debt Structure: The 3650R 2022-PF2 Commercial Mortgage Trust does not incur traditional corporate debt. Its "debt" consists of the various classes of commercial mortgage-backed securities (CMBS certificates) issued to investors. These certificates represent beneficial ownership interests in the trust's assets and the right to receive payments from the underlying mortgage loans. The aggregate outstanding principal balance of the loans in the trust, which collateralizes these certificates, was $950.3 million as of December 31, 2023. The trust's financial health is therefore directly linked to the credit quality and performance of these underlying mortgage loans.

Capital Resources: The trust's capital resources are its mortgage loan assets. There are no equity holders in the traditional sense; instead, certificate holders own the beneficial interests. The trust's ability to meet its obligations to certificate holders depends entirely on the mortgage loans' performance and the servicing operations' efficiency.

Who Manages the Loans: The Team Behind the Scenes

A dedicated team of specialized companies ensures the proper management of these loans, from day-to-day operations to handling potential issues:

• Midland Loan Services: Serves as the primary Master Servicer for the entire portfolio and Primary Servicer for a significant portion, managing approximately 45% of the current portfolio by balance. They handle payment collection and processing.
• 3650 REIT Loan Servicing LLC: Acts as the Special Servicer for most of the portfolio (approximately 80% by balance). They intervene when a loan faces trouble, negotiating with borrowers and managing distressed assets. Fees are typically higher for specially serviced loans.
• Computershare Trust Company: Serves as Trustee, representing certificate holders' interests, and as Custodian for many loan documents.
• Park Bridge Lender Services LLC & Pentalpha Surveillance LLC: These Operating Advisors provide independent oversight and advice on loan management and servicing.
• Wells Fargo Bank: Acts as Custodian for some loans and previously served as Primary Servicer for specific loans.
• Rialto Capital Advisors, LLC: Serves as Special Servicer for specific loans, including the IPG Portfolio and 330 West 34th Street Leased Fee Mortgage Loans, managing approximately 15% of the current portfolio.
• CoreLogic Solutions, LLC: Provides tax payment management support for certain mortgage loans.

The trust paid $1.2 million in total servicing and trustee fees during 2023, covering the ongoing operational costs.

Risk Factors: Key Risks to Consider

Investing in commercial mortgage trusts carries inherent risks that investors should understand:

• Interest Rate Risk: Changes in market interest rates can affect the value of the trust's certificates, particularly if rates rise significantly.
• Credit Risk: This is the risk that borrowers may default on their mortgage payments, potentially leading to losses for the trust. While the current delinquency rate is low, economic downturns or specific property sector challenges (e.g., office vacancies) could increase this risk.
• Property-Specific Risk: The performance of individual loans ties directly to the underlying commercial properties. Declines in property values, occupancy rates, or net operating income can impact loan performance.
• Liquidity Risk: The market for CMBS certificates can be less liquid than other investment types, meaning selling certificates quickly at a desired price might be difficult.
• Servicing Risk: While multiple servicers are involved, their effectiveness in managing performing and non-performing loans is crucial to the trust's overall performance.
• Concentration Risk: Although diversified, significant exposure to any single property type (e.g., office) or geographic region could pose a risk if that sector or region experiences a downturn.

Competitive Position

As a securitization trust, the 3650R 2022-PF2 Commercial Mortgage Trust does not operate as a traditional company with direct competitors in the market. Its "competitive position" is instead defined by how attractive its issued certificates are to investors in the capital markets compared to other fixed-income investment opportunities, including other CMBS issuances. Factors influencing this attractiveness include:

• The credit quality and diversification of its underlying commercial mortgage loan portfolio.
• The structure of the securitization (e.g., credit enhancements, payment waterfalls).
• The performance history of the trust and its servicers.
• The prevailing interest rate environment and overall market demand for CMBS.

The trust's ability to maintain stable portfolio performance and consistent distributions contributes to its standing in the secondary market for CMBS.

Future Outlook: Outlook for 2024

The trust anticipates continued stable performance in 2024, while remaining vigilant about potential headwinds in certain commercial real estate sectors, particularly office. The portfolio's diversified nature and the servicers' proactive management are expected to mitigate these risks. The trust will continue to distribute available cash flow to investors on a quarterly basis, subject to the underlying loans' performance.