Starwood Property Trust Reports Results for the Quarter Ended March 31, 2020

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May 04, 2020, 06:00 ET

GREENWICH, Conn., May 4, 2020 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended March 31, 2020. The Company had a first quarter 2020 GAAP net loss of $66.8 million, or $(0.24) per diluted share, and Core Earnings of $162.1 million, or $0.55 per diluted share. GAAP net loss includes the unrealized, non-cash impacts of mark-to-market adjustments and the recently implemented CECL accounting standard, totaling $148.6 million ($0.53 per diluted share) and $48.7 million ($0.17 per diluted share), respectively, both of which reflect the market volatility and dislocation caused by the COVID-19 pandemic.

"Starwood Property Trust has one of the strongest balance sheets in the commercial mortgage REIT industry, with over $870 million in cash and approved undrawn capacity, and well over $1.0 billion of additional liquidity available to us if ever needed. Our powerful balance sheet is bolstered by our diversified platform, anchored by our real estate equity book and multiple business lines that create considerable stability in an uncertain time. We continue to benefit from our scale, relatively low leverage and $3.3 billion unencumbered asset base. STWD is well positioned to take advantage of dislocations in the market and to weather this economic storm with immense human and financial resources," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

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.

Webcast and Conference Call Information

The Company will host a live webcast and conference call on Monday, May 4, 2020, at 8:30 a.m. Eastern Time. To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. The webcast is available at www.starwoodpropertytrust.com in the Investor Relations section of the website. The Company encourages use of the webcast due to potential extended wait times to access the conference call via dial-in.

To Participate via Telephone Conference Call:

Dial in at least 15 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: 13702227
The playback can be accessed through May 11, 2020.

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 $63 billion of capital since inception and manages a portfolio of over $17 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. 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. 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, but are not limited to, the severity and duration of economic disruption caused by the COVID-19 global pandemic, completion of pending investments and financings, continued ability to acquire additional investments, competition within the finance and real estate industries, availability of financing and other risks detailed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our quarterly report on Form 10-Q for the quarter ended March 31, 2020, as well as other risks and uncertainties set forth from time to time in the Company's reports filed with the SEC.

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

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 March 31, 2020 (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	$	192,381	$	22,413	$	—	$	2,633	$	—	$	217,427	$	—	$	217,427
Interest income from investment securities		18,628		701		—		24,800		—		44,129		(28,889)		15,240
Servicing fees		172		—		—		6,442		—		6,614		(1,821)		4,793
Rental income		78		—		63,961		10,107		—		74,146		—		74,146
Other revenues		178		143		122		513		—		956		(2)		954
Total revenues		211,437		23,257		64,083		44,495		—		343,272		(30,712)		312,560
Costs and expenses:
Management fees		351		—		—		239		40,107		40,697		31		40,728
Interest expense		53,950		13,117		17,121		7,194		28,805		120,187		(162)		120,025
General and administrative		8,132		4,423		1,078		20,684		4,301		38,618		84		38,702
Acquisition and investment pursuit costs		860		17		12		20		—		909		—		909
Costs of rental operations		778		—		22,852		4,584		—		28,214		—		28,214
Depreciation and amortization		415		70		19,288		4,207		—		23,980		—		23,980
Credit loss provision, net		40,217		8,452		—		—		—		48,669		—		48,669
Other expense		77		—		311		—		—		388		—		388
Total costs and expenses		104,780		26,079		60,662		36,928		73,213		301,662		(47)		301,615
Other (loss) income:
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		(45,493)		(45,493)
Change in fair value of servicing rights		—		—		—		318		—		318		(711)		(393)
Change in fair value of investment securities, net		(27,879)		—		—		(47,216)		—		(75,095)		77,599		2,504
Change in fair value of mortgage loans, net		(35,517)		—		—		19,383		—		(16,134)		—		(16,134)
Earnings (loss) from unconsolidated entities		51		—		—		620		—		671		(574)		97
Gain on sale of investments and other assets, net		—		296		—		—		—		296		—		296
Gain (loss) on derivative financial instruments, net		30,805		(1,001)		(30,223)		(19,106)		29,235		9,710		—		9,710
Foreign currency (loss) gain, net		(34,001)		(473)		(19)		7		—		(34,486)		—		(34,486)
Loss on extinguishment of debt		—		(170)		—		—		—		(170)		—		(170)
Other income, net		—		—		50		76		—		126		—		126
Total other (loss) income		(66,541)		(1,348)		(30,192)		(45,918)		29,235		(114,764)		30,821		(83,943)
Income (loss) before income taxes		40,116		(4,170)		(26,771)		(38,351)		(43,978)		(73,154)		156		(72,998)
Income tax benefit		4,422		145		—		2,162		—		6,729		—		6,729
Net income (loss)		44,538		(4,025)		(26,771)		(36,189)		(43,978)		(66,425)		156		(66,269)
Net (income) loss attributable to non-controlling interests		(3)		—		(5,111)		4,770		—		(344)		(156)		(500)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	44,535	$	(4,025)	$	(31,882)	$	(31,419)	$	(43,978)	$	(66,769)	$	—	$	(66,769)

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 March 31, 2020 (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.	$	44,535	$	(4,025)	$	(31,882)	$	(31,419)	$	(43,978)	$	(66,769)
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,111		—		—		5,111
Non-cash equity compensation expense		1,112		466		73		1,263		5,886		8,800
Management incentive fee		—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs		358		—		(89)		—		—		269
Depreciation and amortization		355		51		19,381		3,807		—		23,594
Credit loss provision, net		40,217		8,452		—		—		—		48,669
Interest income adjustment for securities		124		—		—		6,315		—		6,439
Extinguishment of debt, net		—		—		—		—		(246)		(246)
Income tax benefit associated with fair value adjustments		(5,821)		—		—		(1,442)		—		(7,263)
Other non-cash items		3		—		(491)		248		156		(84)
Reversal of GAAP unrealized (gains) / losses on:
Loans		35,517		—		—		(19,383)		—		16,134
Securities		27,879		—		—		47,216		—		75,095
Derivatives		(30,563)		1,013		30,569		19,013		(27,649)		(7,617)
Foreign currency		34,001		473		19		(7)		—		34,486
Earnings from unconsolidated entities		(51)		—		—		(620)		—		(671)
Recognition of Core realized gains / (losses) on:
Loans		2,164		(62)		—		16,559		—		18,661
Securities		—		—		—		(4,212)		—		(4,212)
Derivatives		3,250		118		(35)		(6,087)		—		(2,754)
Foreign currency		(4,271)		(194)		(19)		7		—		(4,477)
(Loss) earnings from unconsolidated entities		(556)		—		—		3,738		—		3,182
Core Earnings (Loss)	$	148,253	$	6,292	$	22,637	$	34,996	$	(50,032)	$	162,146
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.50	$	0.02	$	0.08	$	0.12	$	(0.17)	$	0.55

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of March 31, 2020 (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	$	22,910	$	40	$	28,137	$	36,913	$	719,222	$	807,222	$	4,434	$	811,656
Restricted cash		50,331		43,679		7,362		18,365		—		119,737		—		119,737
Loans held-for-investment, net		9,106,441		1,381,271		—		1,224		—		10,488,936		—		10,488,936
Loans held-for-sale		886,076		101,895		—		186,963		—		1,174,934		—		1,174,934
Investment securities		955,614		44,141		—		1,095,990		—		2,095,745		(1,317,773)		777,972
Properties, net		26,585		—		2,014,007		212,478		—		2,253,070		—		2,253,070
Intangible assets		—		—		45,331		63,632		—		108,963		(26,958)		82,005
Investment in unconsolidated entities		50,017		25,862		—		31,321		—		107,200		(19,866)		87,334
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		57,238		6		98		2,250		41,856		101,448		—		101,448
Accrued interest receivable		49,942		4,949		—		1,047		3,357		59,295		(758)		58,537
Other assets		61,109		5,108		76,776		52,119		8,812		203,924		(15)		203,909
VIE assets, at fair value		—		—		—		—		—		—		61,157,805		61,157,805
Total Assets	$	11,266,263	$	1,726,360	$	2,171,711	$	1,842,739	$	773,247	$	17,780,320	$	59,796,869	$	77,577,189
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	33,645	$	11,933	$	48,748	$	48,090	$	79,178	$	221,594	$	75	$	221,669
Related-party payable		—		—		—		5		39,261		39,266		—		39,266
Dividends payable		—		—		—		—		137,529		137,529		—		137,529
Derivative liabilities		3,740		1,292		—		86		—		5,118		—		5,118
Secured financing agreements, net		5,611,239		1,190,995		1,698,044		692,941		510,414		9,703,633		(13,950)		9,689,683
Collateralized loan obligations, net		928,683		—		—		—		—		928,683		—		928,683
Unsecured senior notes, net		—		—		—		—		1,930,584		1,930,584		—		1,930,584
VIE liabilities, at fair value		—		—		—		—		—		—		59,807,306		59,807,306
Total Liabilities		6,577,307		1,204,220		1,746,792		741,122		2,696,966		12,966,407		59,793,431		72,759,838
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,894		2,894		—		2,894
Additional paid-in capital		1,159,771		531,986		229,223		(200,489)		3,438,578		5,159,069		—		5,159,069
Treasury stock		—		—		—		—		(133,024)		(133,024)		—		(133,024)
Accumulated other comprehensive income (loss)		35,948		—		—		(64)		—		35,884		—		35,884
Retained earnings (accumulated deficit)		3,493,119		(9,846)		(31,451)		1,163,580		(5,232,167)		(616,765)		—		(616,765)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,688,838		522,140		197,772		963,027		(1,923,719)		4,448,058		—		4,448,058
Non-controlling interests in consolidated subsidiaries		118		—		227,147		138,590		—		365,855		3,438		369,293
Total Equity		4,688,956		522,140		424,919		1,101,617		(1,923,719)		4,813,913		3,438		4,817,351
Total Liabilities and Equity	$	11,266,263	$	1,726,360	$	2,171,711	$	1,842,739	$	773,247	$	17,780,320	$	59,796,869	$	77,577,189