Starwood Property Trust Reports Results for the Quarter Ended September 30, 2019

-- Quarterly GAAP Earnings of $0.49 and Core Earnings of $0.52 per Diluted Common Share --

-- Deploys $2.5 Billion of Capital, Including $1.2 Billion in Commercial Lending --

-- Executes $1.1 Billion CRE CLO --

-- Enhances Capital Structure with $400 Million Term Loan B and $100 Million Revolver --

-- Declares Dividend of $0.48 per share for the Fourth Quarter of 2019 --

News provided by

Nov 08, 2019, 07:00 ET

GREENWICH, Conn., Nov. 8, 2019 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended September 30, 2019. The Company's third quarter 2019 GAAP net income was $140.4 million, or $0.49 per diluted share, and Core Earnings (a non-GAAP financial measure) was $152.6 million, or $0.52 per diluted share.

"We had another strong quarter, with over $2.5 billion of capital deployed across all our segments, including $1.2 billion in Commercial Lending. Notably, our non-agency residential lending business continued to expand with purchases of over $600 million of loans and the completion of our fourth and largest securitization for $546 million. We also continue to experience growing, double-digit yields in our Property segment. We expect that these yields will increase over 200 basis points as a result of the $180 million partial cash out refinance of our medical office portfolio and first multifamily portfolio, which have appreciated meaningfully since acquisition. Our pipeline remains robust, and we expect to invest this capital accretively as we continue to utilize our global organization to find the best opportunities across our cylinders," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

Added Jeffrey DiModica, President of Starwood Property Trust, "During the quarter, we continued to reduce our reliance on warehouse financing, completing our first $1.1 billion CRE CLO. The transaction was structurally superior, reducing balance sheet exposure, and with a higher advance rate and lower cost of funds than the repurchase facilities it replaced. We also executed on a $400 million term loan, which allowed us to increase our unencumbered asset base, providing us with additional capacity to issue attractive corporate debt in the future. We ended the quarter with a record high of over $8.0 billion of available capacity across our financing facilities, giving us tremendous flexibility as investment opportunities arise."

Dividend

On November 8, 2019, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending December 31, 2019. The dividend is payable on January 15, 2020 to common stockholders of record as of December 31, 2019.

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 live webcast and conference call on Friday, November 8, 2019, at 10:00 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 and download and install any necessary audio software. The webcast is available at www.starwoodpropertytrust.com in the investor relations section of the website.

To Participate via Telephone:

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: 13695217
The playback can be accessed through November 15, 2019.

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 $57 billion of capital since inception and manages a portfolio of $16 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, completion of pending investments and financings, continued ability to acquire additional investments, competition within the finance and real estate industries, economic conditions, 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, 2018, 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 September 30, 2019 (Amounts in thousands)


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total



Revenues:
Interest income from loans	$	145,290	$	22,763	$	—	$	3,977	$	—	$	172,030	$	—	$	172,030
Interest income from investment securities		18,163		810		—		32,556		—		51,529		(34,853)		16,676
Servicing fees		97		—		—		18,243		—		18,340		(4,007)		14,333
Rental income		—		—		72,251		12,403		—		84,654		—		84,654
Other revenues		258		39		125		218		—		640		(3)		637
Total revenues		163,808		23,612		72,376		67,397		—		327,193		(38,863)		288,330
Costs and expenses:
Management fees		363		—		—		18		29,829		30,210		28		30,238
Interest expense		51,844		14,422		19,020		8,891		29,142		123,319		(163)		123,156
General and administrative		7,104		4,315		2,170		22,915		3,184		39,688		78		39,766
Acquisition and investment pursuit costs		506		21		—		(364)		—		163		—		163
Costs of rental operations		765		—		24,784		6,019		—		31,568		—		31,568
Depreciation and amortization		339		15		23,106		4,809		—		28,269		—		28,269
Loan loss provision, net		(39)		—		—		—		—		(39)		—		(39)
Other expense		77		—		46		—		—		123		—		123
Total costs and expenses		60,959		18,773		69,126		42,288		62,155		253,301		(57)		253,244
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		61,767		61,767
Change in fair value of servicing rights		—		—		—		57		—		57		(682)		(625)
Change in fair value of investment securities, net		(303)		—		—		22,476		—		22,173		(21,907)		266
Change in fair value of mortgage loans held-for-sale, net		10,088		—		—		22,433		—		32,521		—		32,521
Earnings from unconsolidated entities		2,507		—		223		253		—		2,983		(236)		2,747
Gain (loss) on sale of investments and other assets, net		482		(25)		—		20,700		—		21,157		—		21,157
Gain (loss) on derivative financial instruments, net		15,729		(109)		5,900		(6,376)		6,789		21,933		—		21,933
Foreign currency loss, net		(15,337)		(319)		(8)		—		—		(15,664)		—		(15,664)
Loss on extinguishment of debt		(857)		(2,101)		—		(194)		(1,472)		(4,624)		—		(4,624)
Other loss, net		—		(50)		—		—		—		(50)		—		(50)
Total other income (loss)		12,309		(2,604)		6,115		59,349		5,317		80,486		38,942		119,428
Income (loss) before income taxes		115,158		2,235		9,365		84,458		(56,838)		154,378		136		154,514
Income tax (provision) benefit		(3,194)		475		—		(1,794)		—		(4,513)		—		(4,513)
Net income (loss)		111,964		2,710		9,365		82,664		(56,838)		149,865		136		150,001
Net income attributable to non-controlling interests		—		—		(5,250)		(4,219)		—		(9,469)		(136)		(9,605)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	111,964	$	2,710	$	4,115	$	78,445	$	(56,838)	$	140,396	$	—	$	140,396

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, 2019 (Amounts in thousands except per share data)

	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total



Net income (loss) attributable to Starwood Property Trust, Inc.	$	111,964	$	2,710	$	4,115	$	78,445	$	(56,838)	$	140,396
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,250		—		—		5,250
Non-cash equity compensation expense		1,140		577		83		1,765		9,411		12,976
Management incentive fee		—		—		—		—		1,875		1,875
Acquisition and investment pursuit costs		6		—		(89)		(146)		—		(229)
Depreciation and amortization		339		15		23,440		4,444		—		28,238
Loan loss provision, net		(39)		—		—		—		—		(39)
Interest income adjustment for securities		(194)		—		—		5,345		—		5,151
Extinguishment of debt, net		—		—		—		—		(247)		(247)
Other non-cash items		—		—		321		191		152		664
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		(10,088)		—		—		(22,433)		—		(32,521)
Securities		303		—		—		(22,476)		—		(22,173)
Derivatives		(15,749)		109		(4,576)		6,590		(6,913)		(20,539)
Foreign currency		15,337		319		8		—		—		15,664
Earnings from unconsolidated entities		(2,507)		—		(223)		(253)		—		(2,983)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		8,383		(230)		—		22,134		—		30,287
Securities		373		—		—		4,593		—		4,966
Derivatives		977		64		406		(7,875)		—		(6,428)
Foreign currency		(3,911)		(171)		(8)		—		—		(4,090)
Earnings from unconsolidated entities		2,298		—		—		1,324		—		3,622
Sales of properties		—		—		—		(7,221)		—		(7,221)
Core Earnings (Loss)	$	108,632	$	3,393	$	28,727	$	64,427	$	(52,560)	$	152,619
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.37	$	0.01	$	0.10	$	0.22	$	(0.18)	$	0.52

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the nine months ended September 30, 2019 (Amounts in thousands)

	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total



Revenues:
Interest income from loans	$	462,956	$	74,969	$	—	$	8,987	$	—	$	546,912	$	—	$	546,912
Interest income from investment securities		62,438		2,563		—		88,012		—		153,013		(96,160)		56,853
Servicing fees		310		—		—		61,366		—		61,676		(13,902)		47,774
Rental income		—		—		215,098		40,686		—		255,784		—		255,784
Other revenues		714		732		291		929		26		2,692		(24)		2,668
Total revenues		526,418		78,264		215,389		199,980		26		1,020,077		(110,086)		909,991
Costs and expenses:
Management fees		1,127		—		—		54		74,924		76,105		122		76,227
Interest expense		172,012		49,257		57,142		25,152		84,878		388,441		(487)		387,954
General and administrative		20,626		13,624		5,394		61,943		10,429		112,016		258		112,274
Acquisition and investment pursuit costs		915		51		—		(387)		—		579		—		579
Costs of rental operations		1,525		—		70,846		19,503		—		91,874		—		91,874
Depreciation and amortization		695		15		70,078		15,287		—		86,075		—		86,075
Loan loss provision, net		2,046		1,196		—		—		—		3,242		—		3,242
Other expense		230		—		1,353		194		—		1,777		—		1,777
Total costs and expenses		199,176		64,143		204,813		121,746		170,231		760,109		(107)		760,002
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		164,761		164,761
Change in fair value of servicing rights		—		—		—		(1,617)		—		(1,617)		(691)		(2,308)
Change in fair value of investment securities, net		(2,945)		—		—		56,431		—		53,486		(52,491)		995
Change in fair value of mortgage loans held-for-sale, net		16,837		—		—		48,841		—		65,678		—		65,678
Earnings (loss) from unconsolidated entities		8,576		—		(42,538)		3,601		—		(30,361)		(1,275)		(31,636)
Gain on sale of investments and other assets, net		3,476		3,041		—		21,640		—		28,157		—		28,157
Gain (loss) on derivative financial instruments, net		12,024		(3,337)		(3,957)		(16,761)		31,725		19,694		—		19,694
Foreign currency loss, net		(17,025)		(102)		(7)		—		—		(17,134)		—		(17,134)
Loss on extinguishment of debt		(857)		(8,221)		—		(194)		(1,466)		(10,738)		—		(10,738)
Other loss, net		—		(50)		—		—		(73)		(123)		—		(123)
Total other income (loss)		20,086		(8,669)		(46,502)		111,941		30,186		107,042		110,304		217,346
Income (loss) before income taxes		347,328		5,452		(35,926)		190,175		(140,019)		367,010		325		367,335
Income tax (provision) benefit		(4,778)		746		(258)		(4,090)		—		(8,380)		—		(8,380)
Net income (loss)		342,550		6,198		(36,184)		186,085		(140,019)		358,630		325		358,955
Net income attributable to non-controlling interests		(392)		—		(16,322)		(4,121)		—		(20,835)		(325)		(21,160)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	342,158	$	6,198	$	(52,506)	$	181,964	$	(140,019)	$	337,795	$	—	$	337,795

Reconciliation of Net Income to Core Earnings For the nine months ended September 30, 2019 (Amounts in thousands except per share data)

	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total



Net income (loss) attributable to Starwood Property Trust, Inc.	$	342,158	$	6,198	$	(52,506)	$	181,964	$	(140,019)	$	337,795
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		16,322		—		—		16,322
Non-cash equity compensation expense		2,757		1,691		229		4,817		16,909		26,403
Management incentive fee		—		—		—		—		2,048		2,048
Acquisition and investment pursuit costs		(56)		2		(266)		(451)		(356)		(1,127)
Depreciation and amortization		695		15		71,067		14,181		—		85,958
Loan loss provision, net		2,046		1,196		—		—		—		3,242
Interest income adjustment for securities		(585)		—		—		14,698		—		14,113
Extinguishment of debt, net		—		—		—		—		(1,704)		(1,704)
Other non-cash items		—		—		(565)		699		470		604
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		(16,837)		—		—		(48,841)		—		(65,678)
Securities		2,945		—		—		(56,431)		—		(53,486)
Derivatives		(11,763)		3,337		8,457		16,841		(32,915)		(16,043)
Foreign currency		17,025		102		7		—		—		17,134
(Earnings) loss from unconsolidated entities		(8,576)		—		42,538		(3,601)		—		30,361
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		7,180		(985)		—		49,719		—		55,914
Securities		970		—		—		11,702		—		12,672
Derivatives		1,800		(1,396)		2,257		(17,114)		—		(14,453)
Foreign currency		(4,725)		(998)		(7)		9		—		(5,721)
Earnings (loss) from unconsolidated entities		7,078		—		(68,905)		14,194		—		(47,633)
Sales of properties		—		—		—		(7,297)		—		(7,297)
Core Earnings (Loss)	$	342,112	$	9,162	$	18,628	$	175,089	$	(155,567)	$	389,424
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.17	$	0.03	$	0.06	$	0.60	$	(0.53)	$	1.33

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of September 30, 2019 (Amounts in thousands)

	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total



Assets:
Cash and cash equivalents	$	64,343	$	6,404	$	35,940	$	46,872	$	129,369	$	282,928	$	1,189	$	284,117
Restricted cash		36,771		33,366		21,186		19,218		—		110,541		—		110,541
Loans held-for-investment, net		7,636,475		1,281,815		—		1,363		—		8,919,653		—		8,919,653
Loans held-for-sale		809,604		163,932		—		468,583		—		1,442,119		—		1,442,119
Investment securities		938,300		54,048		—		1,009,249		—		2,001,597		(1,192,460)		809,137
Properties, net		26,902		—		2,441,480		261,156		—		2,729,538		—		2,729,538
Intangible assets		—		—		75,965		68,748		—		144,713		(24,766)		119,947
Investment in unconsolidated entities		42,518		—		71,824		33,246		—		147,588		(21,473)		126,115
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		37,507		652		21,994		603		20,727		81,483		—		81,483
Accrued interest receivable		43,747		4,015		245		1,321		3,125		52,453		(676)		51,777
Other assets		98,664		5,978		72,932		64,068		9,129		250,771		2		250,773
VIE assets, at fair value		—		—		—		—		—		—		59,249,054		59,249,054
Total Assets	$	9,734,831	$	1,669,619	$	2,741,566	$	2,114,864	$	162,350	$	16,423,230	$	58,010,870	$	74,434,100
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	25,836	$	15,719	$	69,550	$	72,055	$	50,868	$	234,028	$	92	$	234,120
Related-party payable		—		—		—		44		24,442		24,486		—		24,486
Dividends payable		—		—		—		—		137,273		137,273		—		137,273
Derivative liabilities		2,336		904		—		1,541		—		4,781		—		4,781
Secured financing agreements, net		4,061,849		1,168,166		1,868,416		771,618		391,989		8,262,038		(13,950)		8,248,088
Collateralized loan obligations, net		927,436		—		—		—		—		927,436		—		927,436
Unsecured senior notes, net		—		—		—		—		1,926,693		1,926,693		—		1,926,693
VIE liabilities, at fair value		—		—		—		—		—		—		58,018,209		58,018,209
Total Liabilities		5,017,457		1,184,789		1,937,966		845,258		2,531,265		11,516,735		58,004,351		69,521,086
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,871		2,871		—		2,871
Additional paid-in capital		1,307,064		481,206		609,241		156,094		2,568,066		5,121,671		—		5,121,671
Treasury stock		—		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		52,471		—		(30)		(64)		—		52,377		—		52,377
Retained earnings (accumulated deficit)		3,357,839		3,624		(38,936)		1,095,602		(4,835,658)		(417,529)		—		(417,529)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,717,374		484,830		570,275		1,251,632		(2,368,915)		4,655,196		—		4,655,196
Non-controlling interests in consolidated subsidiaries		—		—		233,325		17,974		—		251,299		6,519		257,818
Total Equity		4,717,374		484,830		803,600		1,269,606		(2,368,915)		4,906,495		6,519		4,913,014
Total Liabilities and Equity	$	9,734,831	$	1,669,619	$	2,741,566	$	2,114,864	$	162,350	$	16,423,230	$	58,010,870	$	74,434,100