Starwood Property Trust Reports Results for the Quarter Ended September 30, 2018

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SOURCE Starwood Property Trust, Inc.

– Quarterly GAAP Earnings of $0.31 and Core Earnings of $0.53 per Diluted Common Share –

– Year-to-Date Capital Deployed of $8.9 Billion, Up 77% Versus 2017 –

– Deploys $2.5 Billion for the Acquisition of Infrastructure Finance Platform and Portfolio and $1.3 Billion in the Commercial and Residential Lending Segment –

– Moody’s Revises Rating Outlook to Positive from Stable –

– Declares Dividend of $0.48 per share for the Fourth Quarter of 2018 –

GREENWICH, Conn., Nov. 9, 2018 /PRNewswire/ — Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended September 30, 2018.  The Company’s third quarter 2018 GAAP net income was $84.5 million, or $0.31 per diluted share, and Core Earnings (a non-GAAP financial measure) was $148.4 million, or $0.53 per diluted share.  This includes $6.9 million, or $0.03 per diluted share, and $3.0 million, or $0.01 per diluted share, of acquisition costs associated with the infrastructure finance platform and portfolio for GAAP and Core Earnings, respectively.

“We are excited to have completed another successful quarter which was highlighted by record levels of capital deployment including the acquisition of our new infrastructure finance platform,” commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust. “We continue to see the benefits of a multi-cylinder approach as we execute on attractive investments across our existing businesses. During the quarter, our asset base and commercial loan portfolio both reached record levels, with assets of $16.0 billion and commercial loans of $7.5 billion.”

“We intend to capitalize on attractive opportunities to expand our infrastructure finance platform as we continue to execute on the prudent allocation of capital across our cylinders allowing us to achieve the best risk-adjusted returns for our shareholders.”

Dividend

On November 9, 2018, the Company’s Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending December 31, 2018. The dividend is payable on January 15, 2019 to common stockholders of record as of December 31, 2018.

Supplemental Schedules

The Company has published supplemental earnings schedules on its website in order to provide additional disclosure and financial information for the benefit of the Company’s stakeholders.  Specifically, these materials can be found on the Company’s website in the Investor Relations section under “Quarterly Results” at www.starwoodpropertytrust.com.

Conference Call and Webcast Information 

The Company will host a webcast and conference call on Friday, November 9, 2018, at 10:00 a.m. Eastern Time to discuss the quarter’s financial results and recent events.  A webcast will be available on the Company’s website at www.starwoodpropertytrust.com.  To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register and download and install any necessary audio software.

To Participate in the Telephone Conference Call:

Dial in at least five minutes prior to start time.

Domestic:  1-877-407-9039 
International:  1-201-689-8470

Conference Call Playback:
Domestic:  1-844-512-2921
International:  1-412-317-6671
Passcode:  13684083

The playback can be accessed through November 23, 2018.

About Starwood Property Trust, Inc.

Starwood Property Trust (NYSE: STWD), is a leading diversified finance company with a core focus on the real estate and infrastructure sectors. An affiliate of global private investment firm Starwood Capital Group, the Company has successfully deployed over $48 billion of capital since inception and manages a portfolio in excess of $15 billion across debt and equity investments. Starwood Property Trust’s investment objective is to generate attractive and stable returns for shareholders, primarily through dividends, by leveraging a premiere global organization to identify and execute on the best risk adjusted returning investments across its target assets. Additional information can be found at www.starwoodpropertytrust.com.

Forward-Looking Statements

Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Although Starwood Property Trust, Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.  Factors that could cause actual results to differ materially from the Company’s expectations include completion of pending investments, continued ability to acquire additional investments, competition within the finance and real estate industries, economic conditions, availability of financing and other risks detailed from time to time in the Company’s reports filed with the SEC.

Additional information can be found on the Company’s website at www.starwoodpropertytrust.com.

Contact:
Zachary Tanenbaum
Starwood Property Trust
Phone: 203-422-7788
Email: [email protected]

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the three months ended September 30, 2018

(Amounts in thousands)

 Commercial and

Residential

Infrastructure

Investing

Lending

Lending

Property

and Servicing

Securitization

Segment

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

147,913

$

3,053

$

$

3,535

$

$

154,501

$

$

154,501

Interest income from investment securities

10,320

107

34,477

44,904

(33,396)

11,508

Servicing fees

98

34,100

34,198

(6,374)

27,824

Rental income

76,067

15,065

91,132

91,132

Other revenues

265

44

169

229

89

796

(42)

754

Total revenues

158,596

3,204

76,236

87,406

89

325,531

(39,812)

285,719

Costs and expenses:

Management fees

453

18

25,937

26,408

111

26,519

Interest expense

43,322

2,258

19,483

7,396

30,475

102,934

(276)

102,658

General and administrative

7,016

537

1,680

19,131

2,753

31,117

86

31,203

Acquisition and investment pursuit costs

341

6,725

(539)

6,527

6,527

Costs of rental operations

23,052

7,139

30,191

30,191

Depreciation and amortization

17

28,448

5,828

34,293

34,293

Loan loss allowance, net

929

929

929

Other expense

76

76

76

Total costs and expenses

52,154

9,520

72,663

38,973

59,165

232,475

(79)

232,396

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

106,442

(6,316)

3,573

48,433

(59,076)

93,056

(39,733)

53,323

Other income (loss):

Change in net assets related to consolidated VIEs

33,289

33,289

Change in fair value of servicing rights

(1,994)

(1,994)

1,020

(974)

Change in fair value of investment securities, net

238

(4,966)

(4,728)

5,029

301

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

1,343

2,597

3,940

3,940

Earnings (loss) from unconsolidated entities

514

1,988

(134)

2,368

257

2,625

Gain on sale of investments and other assets, net

47

1,415

1,462

1,462

Gain (loss) on derivative financial instruments, net

7,278

455

5,895

3,076

(4,969)

11,735

11,735

Foreign currency loss, net

(3,546)

(531)

(1)

(4,078)

(4,078)

Loss on extinguishment of debt

(730)

(1,810)

(2,540)

(2,540)

Other income (loss), net

(1)

2

(1,422)

(1,421)

(1,421)

Total other income (loss)

5,143

(76)

7,884

(1,428)

(6,779)

4,744

39,595

44,339

Income (loss) before income taxes

111,585

(6,392)

11,457

47,005

(65,855)

97,800

(138)

97,662

Income tax provision

(314)

(125)

(7,842)

(8,281)

(8,281)

Net income (loss)

111,271

(6,392)

11,332

39,163

(65,855)

89,519

(138)

89,381

Net (income) loss attributable to non-controlling interests

(365)

(4,769)

151

(4,983)

138

(4,845)

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

$

110,906

$

(6,392)

$

6,563

$

39,314

$

(65,855)

$

84,536

$

$

84,536

Definition of Core Earnings

Core Earnings, a non-GAAP financial measure, is used to compute the Company’s incentive fees to its external manager and is an appropriate supplemental disclosure for a mortgage REIT.  For the Company’s purposes, Core Earnings is defined as GAAP net income (loss) excluding non-cash equity compensation expense, the incentive fee due to the Company’s external manager, acquisition costs from successful acquisitions, depreciation and amortization of real estate and associated intangibles and any unrealized gains, losses or other non-cash items recorded in net income for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income and, 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. The amount is adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash adjustments as determined by the Company’s external manager and approved by a majority of the Company’s independent directors. 

Reconciliation of Net Income to Core Earnings

For the three months ended September 30, 2018

(Amounts in thousands except per share data)

Commercial and

Residential

Infrastructure

Investing

Lending

Lending

Property

and Servicing

Segment

Segment

Segment

Segment

Corporate

Total

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

$

110,906

$

(6,392)

$

6,563

$

39,314

$

(65,855)

$

84,536

Add / (Deduct):

Non-controlling interests attributable to Woodstar II Class A Units

4,769

4,769

Non-cash equity compensation expense

750

13

98

1,321

3,769

5,951

Management incentive fee

4,299

4,299

Acquisition and investment pursuit costs

45

3,770

(89)

(129)

3,597

Depreciation and amortization

17

28,780

5,456

34,253

Loan loss allowance, net

929

929

Interest income adjustment for securities

(137)

6,573

6,436

Extinguishment of debt, net

(922)

(922)

Other non-cash items

(632)

1,622

986

1,976

Reversal of GAAP unrealized (gains) / losses on:

Loans held-for-sale

(1,343)

(2,597)

(3,940)

Securities

(338)

4,966

4,628

Derivatives

(7,497)

(455)

(4,779)

(3,424)

5,248

(10,907)

Foreign currency

3,546

531

1

4,078

Earnings from unconsolidated entities

(514)

(1,988)

134

(2,368)

Recognition of Core realized gains / (losses) on:

Loans held-for-sale

3,558

4,415

7,973

Securities

100

1,673

1,773

Derivatives

6

(230)

1,048

824

Foreign currency

225

(8)

217

Earnings from unconsolidated entities

581

613

1,194

Sales of properties

(928)

(928)

Core Earnings (Loss)

$

110,834

$

(2,541)

$

32,493

$

60,057

$

(52,475)

$

148,368

Core Earnings (Loss) per Weighted Average Diluted Share

$

0.40

$

(0.01)

$

0.12

$

0.21

$

(0.19)

$

0.53

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the nine months ended September 30, 2018

(Amounts in thousands)

 Commercial and

Residential

Infrastructure

Investing

Lending

Lending

Property

and Servicing

Securitization

Segment

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

431,153

$

3,053

$

$

9,619

$

$

443,825

$

$

443,825

Interest income from investment securities

33,689

107

99,348

133,144

(95,577)

37,567

Servicing fees

313

92,221

92,534

(21,328)

71,206

Rental income

217,178

43,955

261,133

261,133

Other revenues

683

44

351

973

227

2,278

(147)

2,131

Total revenues

465,838

3,204

217,529

246,116

227

932,914

(117,052)

815,862

Costs and expenses:

Management fees

1,396

54

82,895

84,345

310

84,655

Interest expense

110,169

2,258

55,397

18,298

96,132

282,254

(821)

281,433

General and administrative

19,962

537

5,510

64,006

8,602

98,617

256

98,873

Acquisition and investment pursuit costs

2,253

6,725

(46)

(467)

8,465

8,465

Costs of rental operations

72,531

20,250

92,781

92,781

Depreciation and amortization

50

86,655

16,482

103,187

103,187

Loan loss allowance, net

27,726

27,726

27,726

Other expense

230

447

677

677

Total costs and expenses

161,786

9,520

220,047

119,070

187,629

698,052

(255)

697,797

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

304,052

(6,316)

(2,518)

127,046

(187,402)

234,862

(116,797)

118,065

Other income (loss):

Change in net assets related to consolidated VIEs

129,888

129,888

Change in fair value of servicing rights

(14,417)

(14,417)

5,426

(8,991)

Change in fair value of investment securities, net

16

24,123

24,139

(16,285)

7,854

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

(165)

26,738

26,573

26,573

Earnings from unconsolidated entities

3,761

1,406

2,916

8,083

(1,450)

6,633

Gain on sale of investments and other assets, net

461

6,883

18,215

25,559

25,559

Gain (loss) on derivative financial instruments, net

15,927

455

27,734

7,720

(24,338)

27,498

27,498

Foreign currency loss, net

(3,260)

(531)

(2)

(3,793)

(3,793)

Loss on extinguishment of debt

(730)

(186)

(1,810)

(2,726)

(2,726)

Other income (loss), net

42

508

(1,365)

(815)

(815)

Total other income (loss)

16,052

(76)

36,531

63,742

(26,148)

90,101

117,579

207,680

Income (loss) before income taxes

320,104

(6,392)

34,013

190,788

(213,550)

324,963

782

325,745

Income tax provision

(2,981)

(1,997)

(9,502)

(14,480)

(14,480)

Net income (loss)

317,123

(6,392)

32,016

181,286

(213,550)

310,483

782

311,265

Net income attributable to non-controlling interests

(1,087)

(11,906)

(3,792)

(16,785)

(782)

(17,567)

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

$

316,036

$

(6,392)

$

20,110

$

177,494

$

(213,550)

$

293,698

$

$

293,698

Reconciliation of Net Income to Core Earnings

For the nine months ended September 30, 2018

(Amounts in thousands except per share data)

Commercial and

Residential

Infrastructure

Investing

Lending

Lending

Property

and Servicing

Segment

Segment

Segment

Segment

Corporate

Total

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

$

316,036

$

(6,392)

$

20,110

$

177,494

$

(213,550)

$

293,698

Add / (Deduct):

Non-controlling interests attributable to Woodstar II Class A Units

11,906

11,906

Non-cash equity compensation expense

2,079

13

228

3,613

10,635

16,568

Management incentive fee

19,620

19,620

Acquisition and investment pursuit costs

1,430

3,770

(249)

(215)

4,736

Depreciation and amortization

50

87,648

15,253

102,951

Loan loss allowance, net

27,726

27,726

Interest income adjustment for securities

(531)

8,206

7,675

Extinguishment of debt, net

8,586

8,586

Other non-cash items

(2,406)

2,194

2,762

2,550

Reversal of GAAP unrealized (gains) / losses on:

Loans held-for-sale

165

(26,738)

(26,573)

Securities

(259)

(24,123)

(24,382)

Derivatives

(16,665)

(455)

(25,228)

(8,788)

26,797

(24,339)

Foreign currency

3,260

531

2

3,793

Earnings from unconsolidated entities

(3,761)

(1,406)

(2,916)

(8,083)

Recognition of Core realized gains / (losses) on:

Loans held-for-sale

1,487

28,285

29,772

Securities

242

(4,419)

(4,177)

Derivatives

(5,848)

(938)

7,197

411

Foreign currency

8,136

(8)

(42)

8,086

Earnings from unconsolidated entities

3,986

2,875

6,861

Sales of properties

(365)

(4,374)

(4,739)

Core Earnings (Loss)

$

337,533

$

(2,541)

$

89,300

$

173,504

$

(145,150)

$

452,646

Core Earnings (Loss) per Weighted Average Diluted Share

$

1.24

$

(0.01)

$

0.33

$

0.63

$

(0.53)

$

1.66

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of September 30, 2018

(Amounts in thousands)

Commercial and

Residential

Infrastructure

Investing

Lending

Lending

Property

and Servicing

Securitization

Segment

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Assets:

Cash and cash equivalents

$

15,217

$

8

$

23,496

$

44,771

$

180,946

$

264,438

$

1,319

$

265,757

Restricted cash

34,325

28,222

18,239

14,508

28,970

124,264

124,264

Loans held-for-investment, net

7,004,938

1,492,276

3,460

8,500,674

8,500,674

Loans held-for-sale

719,781

320,270

286,786

1,326,837

1,326,837

Loans transferred as secured borrowings

74,281

74,281

74,281

Investment securities

718,262

65,060

1,027,554

1,810,876

(1,047,426)

763,450

Properties, net

2,620,220

268,517

2,888,737

2,888,737

Properties held-for-sale

31,928

20,374

52,302

52,302

Intangible assets

96,348

80,420

176,768

(22,820)

153,948

Investment in unconsolidated entities

34,334

112,110

43,804

190,248

(21,460)

168,788

Goodwill

115,988

140,437

256,425

256,425

Derivative assets

15,232

481

41,461

2,633

59,807

59,807

Accrued interest receivable

42,080

6,356

269

1,090

3,243

53,038

(127)

52,911

Other assets

38,604

8,398

99,412

49,882

2,399

198,695

(7)

198,688

VIE assets, at fair value

48,034,610

48,034,610

Total Assets

$

8,697,054

$

2,037,059

$

3,043,483

$

1,984,236

$

215,558

$

15,977,390

$

46,944,089

$

62,921,479

Liabilities and Equity

Liabilities:

Accounts payable, accrued expenses and other liabilities

$

23,681

$

10,889

$

71,253

$

80,353

$

28,600

$

214,776

$

126

$

214,902

Related-party payable

74

25,212

25,286

25,286

Dividends payable

132,549

132,549

132,549

Derivative liabilities

3,015

381

2,276

251

29,463

35,386

35,386

Secured financing agreements, net

4,117,051

1,507,073

1,929,596

759,012

297,655

8,610,387

(23,700)

8,586,687

Unsecured senior notes, net

2,024,570

2,024,570

2,024,570

Secured borrowings on transferred loans, net

74,148

74,148

74,148

VIE liabilities, at fair value

46,945,674

46,945,674

Total Liabilities

4,217,895

1,518,343

2,003,125

839,690

2,538,049

11,117,102

46,922,100

58,039,202

Equity:

Starwood Property Trust, Inc. Stockholders’ Equity:

Common stock

2,793

2,793

2,793

Additional paid-in capital

1,481,943

525,108

809,734

270,045

1,876,231

4,963,061

4,963,061

Treasury stock

(104,194)

(104,194)

(104,194)

Accumulated other comprehensive income (loss)

60,811

7,171

(62)

67,920

67,920

Retained earnings (accumulated deficit)

2,926,015

(6,392)

5,775

863,580

(4,097,321)

(308,343)

(308,343)

Total Starwood Property Trust, Inc. Stockholders’ Equity

4,468,769

518,716

822,680

1,133,563

(2,322,491)

4,621,237

4,621,237

Non-controlling interests in consolidated subsidiaries

10,390

217,678

10,983

239,051

21,989

261,040

Total Equity

4,479,159

518,716

1,040,358

1,144,546

(2,322,491)

4,860,288

21,989

4,882,277

Total Liabilities and Equity

$

8,697,054

$

2,037,059

$

3,043,483

$

1,984,236

$

215,558

$

15,977,390

$

46,944,089

$

62,921,479

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