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

- Quarterly GAAP Earnings of $0.33 and Core Earnings of $0.65 per Diluted Common Share -

- Deploys $2.1 Billion, including $1.1 Billion in Lending Segment and $553 Million on a Single-Tenant Triple Net Lease Acquisition -

- Completes Sale of Majority of Investment in Ten-X for Proceeds of $66 Million -

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

News provided by

Starwood Property Trust, Inc.

Nov 08, 2017, 05:45 ET

GREENWICH, Conn., Nov. 8, 2017 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended September 30, 2017. The Company's third quarter 2017 GAAP net income was $88.4 million, or $0.33 per diluted share, and Core Earnings (a non-GAAP financial measure) was $170.9 million, or $0.65 per diluted share. Third quarter GAAP net income and Core Earnings included $0.05 and $0.13 per diluted share, respectively, from the sale of the Company's investment in Ten-X.

"Our third quarter results were strong and were highlighted by over $2 billion of capital deployment across all of our business segments and the continued expansion of our borrowing capacity. We also completed the sale of our investment in Ten-X which resulted in proceeds of $66 million," stated Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

"With our pipeline, the tremendous credit profile of our book and excellent liquidity position, we remain well positioned for the future."

Dividend

On November 8, 2017, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending December 31, 2017. The dividend is payable on January 15, 2018 to common stockholders of record as of December 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, November 8, 2017, at 10:00 a.m. Eastern Time to discuss third 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: 1-888-430-8709
International: 1-719-325-4874

Conference Call Playback:
Domestic: 1-844-512-2921
International: 1-412-317-6671
Passcode: 3775308

The playback can be accessed through November 22, 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 $37 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 September 30, 2017 (Amounts in thousands)

					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	134,149	$	—	$	4,450	$	—	$	138,599	$	—	$	138,599
Interest income from investment securities		11,540		—		31,740		—		43,280		(30,829)		12,451
Servicing fees		142		—		23,093		—		23,235		(8,393)		14,842
Rental income		—		47,663		12,490		—		60,153		—		60,153
Other revenues		181		164		441		—		786		(64)		722
Total revenues		146,012		47,827		72,214		—		266,053		(39,286)		226,767
Costs and expenses:
Management fees		482		—		18		30,370		30,870		110		30,980
Interest expense		27,929		11,360		5,710		31,709		76,708		(277)		76,431
General and administrative		5,302		1,090		24,167		2,251		32,810		82		32,892
Acquisition and investment pursuit costs		807		245		(28)		—		1,024		—		1,024
Costs of rental operations		—		18,660		5,139		—		23,799		—		23,799
Depreciation and amortization		17		17,852		5,002		—		22,871		—		22,871
Loan loss allowance, net		(171)		—		—		—		(171)		—		(171)
Other expense		72		97		207		—		376		—		376
Total costs and expenses		34,438		49,304		40,215		64,330		188,287		(85)		188,202
Income (loss) before other income (loss), income taxes and non- controlling interests		111,574		(1,477)		31,999		(64,330)		77,766		(39,201)		38,565
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		56,177		56,177
Change in fair value of servicing rights		—		—		(5,652)		—		(5,652)		785		(4,867)
Change in fair value of investment securities, net		276		—		13,962		—		14,238		(14,635)		(397)
Change in fair value of mortgage loans held-for-sale, net		(397)		—		19,882		—		19,485		—		19,485
Earnings (loss) from unconsolidated entities		848		(33,731)		30,225		—		(2,658)		(2,031)		(4,689)
Gain on sale of investments and other assets, net		—		—		11,877		—		11,877		—		11,877
Loss on derivative financial instruments, net		(10,813)		(11,276)		(2,135)		—		(24,224)		—		(24,224)
Foreign currency gain (loss), net		10,657		(1)		4		—		10,660		—		10,660
Other income, net		—		—		28		—		28		—		28
Total other income (loss)		571		(45,008)		68,191		—		23,754		40,296		64,050
Income (loss) before income taxes		112,145		(46,485)		100,190		(64,330)		101,520		1,095		102,615
Income tax benefit (provision)		11		—		(9,827)		—		(9,816)		—		(9,816)
Net income (loss)		112,156		(46,485)		90,363		(64,330)		91,704		1,095		92,799
Net income attributable to non- controlling interests		(357)		—		(2,919)		—		(3,276)		(1,095)		(4,371)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	111,799	$	(46,485)	$	87,444	$	(64,330)	$	88,428	$	—	$	88,428

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 September 30, 2017 (Amounts in thousands except per share data)
					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.	$	111,799	$	(46,485)	$	87,444	$	(64,330)	$	88,428
Add / (Deduct):
Non-cash equity compensation expense		783		33		1,015		3,379		5,210
Management incentive fee		—		—		—		10,378		10,378
Acquisition and investment pursuit costs		74		151		49		—		274
Depreciation and amortization		17		18,102		4,600		—		22,719
Loan loss allowance, net		(171)		—		—		—		(171)
Interest income adjustment for securities		(225)		—		5,071		—		4,846
Income tax adjustment for discrete transactions		—		—		(9,356)		—		(9,356)
Other non-cash items		—		(496)		187		—		(309)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		397		—		(19,882)		—		(19,485)
Securities		(276)		—		(13,962)		—		(14,238)
Derivatives		10,394		11,291		1,555		—		23,240
Foreign currency		(10,657)		1		(4)		—		(10,660)
Earnings from unconsolidated entities		(848)		33,731		(30,225)		—		2,658
Purchases and sales of properties		—		—		—		—		—
Recognition of realized gains / (losses) on:
Loans held-for-sale		(397)		—		19,330		—		18,933
Securities		—		—		(2,657)		—		(2,657)
Derivatives		(290)		(140)		(500)		(247)		(1,177)
Foreign currency		549		—		(240)		—		309
Earnings from unconsolidated entities		849		—		52,921		—		53,770
Purchases and sales of properties		—		—		(1,838)		—		(1,838)
Core Earnings (Loss)	$	111,998	$	16,188	$	93,508	$	(50,820)	$	170,874
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.43	$	0.06	$	0.36	$	(0.20)	$	0.65

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the nine months ended September 30, 2017 (Amounts in thousands)
					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	360,188	$	—	$	10,906	$	—	$	371,094	$	—	$	371,094
Interest income from investment securities		35,870		—		104,768		—		140,638		(100,593)		40,045
Servicing fees		568		—		86,837		—		87,405		(39,833)		47,572
Rental income		—		138,795		37,366		—		176,161		—		176,161
Other revenues		553		430		1,450		—		2,433		(249)		2,184
Total revenues		397,179		139,225		241,327		—		777,731		(140,675)		637,056
Costs and expenses:
Management fees		1,405		—		54		78,328		79,787		210		79,997
Interest expense		72,372		32,466		14,924		94,667		214,429		(821)		213,608
General and administrative		14,872		3,471		69,536		7,719		95,598		243		95,841
Acquisition and investment pursuit costs		1,707		516		9		—		2,232		—		2,232
Costs of rental operations		—		51,843		15,858		—		67,701		—		67,701
Depreciation and amortization		50		52,288		14,793		—		67,131		—		67,131
Loan loss allowance, net		(3,170)		—		—		—		(3,170)		—		(3,170)
Other expense		72		63		1,141		—		1,276		—		1,276
Total costs and expenses		87,308		140,647		116,315		180,714		524,984		(368)		524,616
Income (loss) before other income (loss), income taxes and non- controlling interests		309,871		(1,422)		125,012		(180,714)		252,747		(140,307)		112,440
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		203,108		203,108
Change in fair value of servicing rights		—		—		(28,956)		—		(28,956)		7,655		(21,301)
Change in fair value of investment securities, net		299		—		45,263		—		45,562		(49,623)		(4,061)
Change in fair value of mortgage loans held-for-sale, net		(549)		—		46,033		—		45,484		—		45,484
Earnings (loss) from unconsolidated entities		2,548		(28,782)		67,134		—		40,900		(13,137)		27,763
(Loss) gain on sale of investments and other assets, net		(59)		77		16,986		—		17,004		—		17,004
Loss on derivative financial instruments, net		(30,274)		(32,268)		(3,617)		—		(66,159)		—		(66,159)
Foreign currency gain, net		28,402		16		16		—		28,434		—		28,434
OTTI		(109)		—		—		—		(109)		—		(109)
Loss on extinguishment of debt		—		—		—		(5,916)		(5,916)		—		(5,916)
Other income, net		—		—		1,097		—		1,097		(613)		484
Total other income (loss)		258		(60,957)		143,956		(5,916)		77,341		147,390		224,731
Income (loss) before income taxes		310,129		(62,379)		268,968		(186,630)		330,088		7,083		337,171
Income tax provision		(331)		—		(17,954)		—		(18,285)		—		(18,285)
Net income (loss)		309,798		(62,379)		251,014		(186,630)		311,803		7,083		318,886
Net income attributable to non- controlling interests		(1,064)		—		(2,573)		—		(3,637)		(7,083)		(10,720)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	308,734	$	(62,379)	$	248,441	$	(186,630)	$	308,166	$	—	$	308,166

Reconciliation of Net Income to Core Earnings For the nine months ended September 30, 2017 (Amounts in thousands except per share data)
					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.	$	308,734	$	(62,379)	$	248,441	$	(186,630)	$	308,166
Add / (Deduct):
Non-cash equity compensation expense		2,353		82		2,491		8,340		13,266
Management incentive fee		—		—		—		20,183		20,183
Acquisition and investment pursuit costs		74		162		91		—		327
Depreciation and amortization		50		52,982		13,441		—		66,473
Loan loss allowance, net		(3,170)		—		—		—		(3,170)
Interest income adjustment for securities		(697)		—		9,436		—		8,739
Income tax adjustment for discrete transactions		—		—		555		—		555
Other non-cash items		—		(1,665)		1,005		5,916		5,256
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		549		—		(46,033)		—		(45,484)
Securities		(189)		—		(45,263)		—		(45,452)
Derivatives		28,897		31,510		2,056		—		62,463
Foreign currency		(28,402)		(16)		(16)		—		(28,434)
Earnings from unconsolidated entities		(2,548)		28,782		(67,134)		—		(40,900)
Purchases and sales of properties		—		—		(613)		—		(613)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(549)		—		48,950		—		48,401
Securities		—		—		8,332		—		8,332
Derivatives		14,567		(18)		(1,251)		(493)		12,805
Foreign currency		(12,655)		16		(1,138)		—		(13,777)
Earnings from unconsolidated entities		2,529		3,563		55,774		—		61,866
Purchases and sales of properties		—		(153)		611		—		458
Core Earnings (Loss)	$	309,543	$	52,866	$	229,735	$	(152,684)	$	439,460
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.18	$	0.20	$	0.88	$	(0.58)	$	1.68

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of September 30, 2017 (Amounts in thousands)
					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	43,513	$	8,581	$	58,584	$	298,006	$	408,684	$	5,161	$	413,845
Restricted cash		22,527		20,189		11,875		—		54,591		—		54,591
Loans held-for-investment, net		6,378,468		—		3,903		—		6,382,371		—		6,382,371
Loans held-for-sale		418,618		—		190,006		—		608,624		—		608,624
Loans transferred as secured borrowings		74,339		—		—		—		74,339		—		74,339
Investment securities		677,977		—		1,026,634		—		1,704,611		(1,002,793)		701,818
Properties, net		—		2,234,646		286,696		—		2,521,342		—		2,521,342
Intangible assets		—		116,856		91,591		—		208,447		(26,582)		181,865
Investment in unconsolidated entities		36,831		109,607		117,772		—		264,210		(20,760)		243,450
Goodwill		—		—		140,437		—		140,437		—		140,437
Derivative assets		13,513		22,480		2,300		—		38,293		—		38,293
Accrued interest receivable		34,569		—		478		—		35,047		—		35,047
Other assets		10,286		40,705		61,787		2,293		115,071		(2,806)		112,265
VIE assets, at fair value		—		—		—		—		—		51,197,981		51,197,981
Total Assets	$	7,710,641	$	2,553,064	$	1,992,063	$	300,299	$	12,556,067	$	50,150,201	$	62,706,268
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	27,821	$	71,726	$	78,398	$	24,739	$	202,684	$	1,098	$	203,782
Related-party payable		—		—		43		29,946		29,989		—		29,989
Dividends payable		—		—		—		125,674		125,674		—		125,674
Derivative liabilities		14,105		8,784		1		—		22,890		—		22,890
Secured financing agreements, net		3,223,863		1,501,006		516,933		296,593		5,538,395		(23,700)		5,514,695
Unsecured senior notes, net		—		—		—		2,044,523		2,044,523		—		2,044,523
Secured borrowings on transferred loans, net		74,200		—		—		—		74,200		—		74,200
VIE liabilities, at fair value		—		—		—		—		—		50,150,781		50,150,781
Total Liabilities		3,339,989		1,581,516		595,375		2,521,475		8,038,355		50,128,179		58,166,534
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		2,654		2,654		—		2,654
Additional paid-in capital		1,808,624		981,129		747,298		1,167,993		4,705,044		—		4,705,044
Treasury stock		—		—		—		(92,104)		(92,104)		—		(92,104)
Accumulated other comprehensive income (loss)		55,687		9,668		(84)		—		65,271		—		65,271
Retained earnings (accumulated deficit)		2,495,536		(19,249)		639,359		(3,299,719)		(184,073)		—		(184,073)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,359,847		971,548		1,386,573		(2,221,176)		4,496,792		—		4,496,792
Non-controlling interests in consolidated subsidiaries		10,805		—		10,115		—		20,920		22,022		42,942
Total Equity		4,370,652		971,548		1,396,688		(2,221,176)		4,517,712		22,022		4,539,734
Total Liabilities and Equity	$	7,710,641	$	2,553,064	$	1,992,063	$	300,299	$	12,556,067	$	50,150,201	$	62,706,268