Starwood Property Trust Reports Results for the Quarter Ended June 30, 2017

-- Quarterly GAAP Earnings of $0.44 and Core Earnings of $0.52 per Diluted Common Share --

-- Deploys $1.5 Billion of Capital --

-- Expands Borrowing Capacity with Membership in Federal Home Loan Bank of Chicago --

-- Expects Gains from Investment in Ten-X (formerly Auction.com) --

-- Declares Dividend of $0.48 per share for the Third Quarter of 2017 --

News provided by

Aug 09, 2017, 06:45 ET

GREENWICH, Conn., Aug. 9, 2017 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2017. The Company's second quarter 2017 GAAP net income was $117.4 million, or $0.44 per diluted share, and Core Earnings (a non-GAAP financial measure) was $136.8 million, or $0.52 per diluted share.

"Our performance this quarter was driven by contributions from across our business segments," stated Barry Sternlicht, Chairman and CEO of Starwood Property Trust. "Our $1.5 billion of capital deployment included $871 million of floating-rate large loan originations that should benefit our results in a rising rate environment. Despite the current competitive landscape, we have maintained our disciplined underwriting, with our portfolio LTV remaining modest at just under 63%, consistent with the composition of our portfolio over the last three years. In addition, our multi-cylinder investment platform and access to diversified funding sources provides us with a competitive advantage, allowing us to continue to deliver attractive returns to our shareholders.

Shortly after quarter end, we expanded our access to attractive capital through membership in the Federal Home Loan Bank of Chicago. In addition, Ten-X entered into a strategic transaction which will allow us to harvest some of the significant embedded value on our balance sheet next quarter.

With a diverse and growing global pipeline, we will continue to patiently deploy capital across our target assets into the best risk-adjusted opportunities."

Dividend

On August 9, 2017, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending September 30, 2017. The dividend is payable on October 13, 2017 to common stockholders of record as of September 29, 2017.

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 at the Company's website in the Investor Relations section under "Quarterly Earnings" at www.starwoodpropertytrust.com.

Conference Call and Webcast Information

The Company will host a webcast and conference call on Wednesday, August 9, 2017, at 10:00 a.m. Eastern Time to discuss second quarter 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: 1-888-397-5350
International: 1-719-457-2620

Conference Call Playback:
Domestic: 1-844-512-2921
International: 1-412-317-6671
Passcode: 7326243

The playback can be accessed through August 23, 2017.

About Starwood Property Trust, Inc.

Starwood Property Trust (NYSE: STWD), an affiliate of global private investment firm Starwood Capital Group, is the largest commercial mortgage real estate investment trust in the United States. The Company's core business focuses on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt and equity investments. Through its subsidiary LNR Property, LLC, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States. With total capital deployed since inception of over $35 billion, Starwood Property Trust continues to solidify its position as one of the premier real estate finance companies in the country.

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.

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the three months ended June 30, 2017
(Amounts in thousands)

			Investing								Investing
	Lending		and Servicing		Property						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	116,993	$	3,619	$	—	$	—	$	120,612	$	—	$	120,612
Interest income from investment securities		11,611		38,192		—		—		49,803		(37,433)		12,370
Servicing fees		216		33,663		—		—		33,879		(15,251)		18,628
Rental income		—		12,687		46,279		—		58,966		—		58,966
Other revenues		293		545		221		—		1,059		(66)		993
Total revenues		129,113		88,706		46,500		—		264,319		(52,750)		211,569
Costs and expenses:
Management fees		469		18		—		24,096		24,583		50		24,633
Interest expense		24,486		4,856		10,899		31,351		71,592		(275)		71,317
General and administrative		5,359		22,789		1,000		3,298		32,446		74		32,520
Acquisition and investment pursuit costs		385		53		99		—		537		—		537
Costs of rental operations		—		5,232		17,792		—		23,024		—		23,024
Depreciation and amortization		16		4,737		17,279		—		22,032		—		22,032
Loan loss allowance, net		(2,694)		—		—		—		(2,694)		—		(2,694)
Other expense		—		176		(34)		—		142		—		142
Total costs and expenses		28,021		37,861		47,035		58,745		171,662		(151)		171,511
Income (loss) before other income (loss), income taxes and non- controlling interests		101,092		50,845		(535)		(58,745)		92,657		(52,599)		40,058
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		77,761		77,761
Change in fair value of servicing rights		—		(13,667)		—		—		(13,667)		5,666		(8,001)
Change in fair value of investment securities, net		(149)		12,256		—		—		12,107		(14,600)		(2,493)
Change in fair value of mortgage loans held-for-sale, net		(152)		15,558		—		—		15,406		—		15,406
Earnings from unconsolidated entities		1,230		35,892		2,488		—		39,610		(10,145)		29,465
(Loss) gain on sale of investments and other assets, net		(3)		5,109		77		—		5,183		—		5,183
Loss on derivative financial instruments, net		(14,926)		(2,179)		(20,481)		—		(37,586)		—		(37,586)
Foreign currency gain, net		12,882		11		17		—		12,910		—		12,910
OTTI		(109)		—		—		—		(109)		—		(109)
Other income, net		—		704		—		—		704		(613)		91
Total other income (loss)		(1,227)		53,684		(17,899)		—		34,558		58,069		92,627
Income (loss) before income taxes		99,865		104,529		(18,434)		(58,745)		127,215		5,470		132,685
Income tax provision		(127)		(9,325)		—		—		(9,452)		—		(9,452)
Net income (loss)		99,738		95,204		(18,434)		(58,745)		117,763		5,470		123,233
Net income attributable to non- controlling interests		(353)		(30)		—		—		(383)		(5,470)		(5,853)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	99,385	$	95,174	$	(18,434)	$	(58,745)	$	117,380	$	—	$	117,380

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. 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 June 30, 2017
(Amounts in thousands except per share data)

			Investing
	Lending		and Servicing		Property
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.		99,385		95,174		(18,434)		(58,745)		117,380
Add / (Deduct):
Non-cash equity compensation expense		821		847		28		3,209		4,905
Management incentive fee		—		—		—		4,335		4,335
Acquisition and investment pursuit costs		—		37		(49)		—		(12)
Depreciation and amortization		16		4,367		17,509		—		21,892
Loan loss allowance, net		(2,694)		—		—		—		(2,694)
Interest income adjustment for securities		(224)		2,296		—		—		2,072
Deferred income tax provision for discrete transactions		—		9,911		—		—		9,911
Other non-cash items		—		45		(589)		—		(544)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		152		(15,558)		—		—		(15,406)
Securities		258		(12,256)		—		—		(11,998)
Derivatives		14,482		1,612		20,229		—		36,323
Foreign currency		(12,882)		(11)		(17)		—		(12,910)
Earnings from unconsolidated entities		(1,230)		(35,892)		(2,488)		—		(39,610)
Purchases and sales of properties		—		(613)		—		—		(613)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(152)		18,888		—		—		18,736
Securities		—		396		—		—		396
Derivatives		(66)		(3,069)		(36)		(246)		(3,417)
Foreign currency		377		(68)		16		—		325
Earnings from unconsolidated entities		1,230		2,387		1,791		—		5,408
Purchases and sales of properties		—		2,449		(153)				2,296
Core Earnings (Loss)	$	99,473	$	70,942	$	17,807	$	(51,447)	$	136,775
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.38	$	0.27	$	0.07	$	(0.20)	$	0.52

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the six months ended June 30, 2017
(Amounts in thousands)

			Investing								Investing
	Lending		and Servicing		Property						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	226,039	$	6,456	$	—	$	—	$	232,495	$	—	$	232,495
Interest income from investment securities		24,330		73,028		—		—		97,358		(69,764)		27,594
Servicing fees		426		63,744		—		—		64,170		(31,440)		32,730
Rental income		—		24,876		91,132		—		116,008		—		116,008
Other revenues		372		1,009		266		—		1,647		(185)		1,462
Total revenues		251,167		169,113		91,398		—		511,678		(101,389)		410,289
Costs and expenses:
Management fees		923		36		—		47,958		48,917		100		49,017
Interest expense		44,443		9,214		21,106		62,958		137,721		(544)		137,177
General and administrative		9,570		45,369		2,381		5,468		62,788		161		62,949
Acquisition and investment pursuit costs		900		37		271		—		1,208		—		1,208
Costs of rental operations		—		10,719		33,183		—		43,902		—		43,902
Depreciation and amortization		33		9,791		34,436		—		44,260		—		44,260
Loan loss allowance, net		(2,999)		—		—		—		(2,999)		—		(2,999)
Other expense		—		934		(34)		—		900		—		900
Total costs and expenses		52,870		76,100		91,343		116,384		336,697		(283)		336,414
Income (loss) before other income (loss), income taxes and non- controlling interests		198,297		93,013		55		(116,384)		174,981		(101,106)		73,875
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		146,931		146,931
Change in fair value of servicing rights		—		(23,304)		—		—		(23,304)		6,870		(16,434)
Change in fair value of investment securities, net		23		31,301		—		—		31,324		(34,988)		(3,664)
Change in fair value of mortgage loans held-for-sale, net		(152)		26,151		—		—		25,999		—		25,999
Earnings from unconsolidated entities		1,700		36,909		4,949		—		43,558		(11,106)		32,452
(Loss) gain on sale of investments and other assets, net		(59)		5,109		77		—		5,127		—		5,127
Loss on derivative financial instruments, net		(19,461)		(1,482)		(20,992)		—		(41,935)		—		(41,935)
Foreign currency gain, net		17,745		12		17		—		17,774		—		17,774
OTTI		(109)		—		—		—		(109)		—		(109)
Loss on extinguishment of debt		—		—		—		(5,916)		(5,916)		—		(5,916)
Other income, net		—		1,069		—		—		1,069		(613)		456
Total other income (loss)		(313)		75,765		(15,949)		(5,916)		53,587		107,094		160,681
Income (loss) before income taxes		197,984		168,778		(15,894)		(122,300)		228,568		5,988		234,556
Income tax provision		(342)		(8,127)		—		—		(8,469)		—		(8,469)
Net income (loss)		197,642		160,651		(15,894)		(122,300)		220,099		5,988		226,087
Net (income) loss attributable to non-controlling interests		(707)		346		—		—		(361)		(5,988)		(6,349)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	196,935	$	160,997	$	(15,894)	$	(122,300)	$	219,738	$	—	$	219,738

Reconciliation of Net Income to Core Earnings
For the six months ended June 30, 2017
(Amounts in thousands except per share data)

			Investing
	Lending		and Servicing		Property
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.		196,935		160,997		(15,894)		(122,300)		219,738
Add / (Deduct):
Non-cash equity compensation expense		1,570		1,476		49		4,961		8,056
Management incentive fee		—		—		—		9,805		9,805
Acquisition and investment pursuit costs		—		42		11		—		53
Depreciation and amortization		33		8,841		34,880		—		43,754
Loan loss allowance, net		(2,999)		—		—		—		(2,999)
Interest income adjustment for securities		(472)		4,365		—		—		3,893
Deferred income tax provision for discrete transactions		—		9,911		—		—		9,911
Other non-cash items		—		818		(1,169)		5,916		5,565
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		152		(26,151)		—		—		(25,999)
Securities		86		(31,301)		—		—		(31,215)
Derivatives		18,503		501		20,219		—		39,223
Foreign currency		(17,745)		(12)		(17)		—		(17,774)
Earnings from unconsolidated entities		(1,700)		(36,909)		(4,949)		—		(43,558)
Purchases and sales of properties		—		(613)		—		—		(613)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(152)		29,620		—		—		29,468
Securities		—		10,989		—		—		10,989
Derivatives		14,857		(751)		122		(246)		13,982
Foreign currency		(13,204)		(898)		16		—		(14,086)
Earnings from unconsolidated entities		1,680		2,853		3,563		—		8,096
Purchases and sales of properties		—		2,449		(153)		—		2,296
Core Earnings (Loss)	$	197,544	$	136,227	$	36,678	$	(101,864)	$	268,585
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.76	$	0.52	$	0.14	$	(0.39)	$	1.03

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet by Segment
As of June 30, 2017
(Amounts in thousands)

			Investing								Investing
	Lending		and Servicing		Property						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	664	$	36,185	$	12,744	$	207,719	$	257,312	$	4,582	$	261,894
Restricted cash		15,573		14,846		12,880		—		43,299		—		43,299
Loans held-for-investment, net		6,207,067		4,008		—		—		6,211,075		—		6,211,075
Loans held-for-sale		318,634		291,482		—		—		610,116		—		610,116
Investment securities		735,086		1,009,151		—		—		1,744,237		(995,303)		748,934
Properties, net		—		285,190		1,675,308		—		1,960,498		—		1,960,498
Intangible assets		—		97,727		121,007		—		218,734		(27,368)		191,366
Investment in unconsolidated entities		31,261		89,211		127,795		—		248,267		(18,728)		229,539
Goodwill		—		140,437		—		—		140,437		—		140,437
Derivative assets		16,538		3,372		26,168		—		46,078		—		46,078
Accrued interest receivable		32,866		480		—		—		33,346		—		33,346
Other assets		46,365		59,345		58,932		1,768		166,410		(2,762)		163,648
VIE assets, at fair value		—		—		—		—		—		53,902,715		53,902,715
Total Assets	$	7,404,054	$	2,031,434	$	2,034,834	$	209,487	$	11,679,809	$	52,863,136	$	64,542,945
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	23,813	$	56,451	$	67,088	$	23,126	$	170,478	$	971	$	171,449
Related-party payable		—		90		—		22,688		22,778		—		22,778
Dividends payable		—		—		—		126,171		126,171		—		126,171
Derivative liabilities		6,742		328		981		—		8,051		—		8,051
Secured financing agreements, net		2,700,190		550,704		1,227,402		296,327		4,774,623		(23,700)		4,750,923
Unsecured senior notes, net		—		—		—		2,039,086		2,039,086		—		2,039,086
VIE liabilities, at fair value		—		—		—		—		—		52,864,038		52,864,038
Total Liabilities		2,730,745		607,573		1,295,471		2,507,398		7,141,187		52,841,309		59,982,496
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		2,652		2,652		—		2,652
Additional paid-in capital		2,226,923		861,556		707,726		901,292		4,697,497		—		4,697,497
Treasury stock		—		—		—		(92,104)		(92,104)		—		(92,104)
Accumulated other comprehensive income (loss)		51,734		(155)		4,402		—		55,981		—		55,981
Retained earnings (accumulated deficit)		2,383,738		551,915		27,235		(3,109,751)		(146,863)		—		(146,863)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,662,395		1,413,316		739,363		(2,297,911)		4,517,163		—		4,517,163
Non-controlling interests in consolidated subsidiaries		10,914		10,545		—		—		21,459		21,827		43,286
Total Equity		4,673,309		1,423,861		739,363		(2,297,911)		4,538,622		21,827		4,560,449
Total Liabilities and Equity	$	7,404,054	$	2,031,434	$	2,034,834	$	209,487	$	11,679,809	$	52,863,136	$	64,542,945