GREENWICH, Conn., March 10, 2014 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today provided the tax basis for its previously completed spin-off of Starwood Waypoint Residential Trust (NYSE: SWAY). Starwood Property Trust, Inc. completed the spin-off of SWAY on January 31, 2014 (the "Spin-off") by distributing one share of SWAY common stock for every five shares of STWD common stock held by the holders of STWD common stock as of 5:00 p.m., Eastern Time, on January 24, 2014, the spin-off record date. If you were not a holder of STWD common stock as of the record date for the Spin-off, the following information will not be applicable to you. If you purchased STWD shares after the record date or purchased SWAY shares in the open market, the following information will not be applicable to you.
Tax Basis of Distributed SWAY Stock
For U.S. federal income tax purposes, STWD intends to report the fair market value of the distribution at $28.84 per share of SWAY common stock distributed. Accordingly, every STWD stockholder who received a share of SWAY in the distribution will have a tax cost basis of $28.84 per share of SWAY.
Estimated Tax Impact of Distribution on STWD Stockholders
For U.S. federal income tax purposes, STWD's distributions of cash and property, including the distributed SWAY shares, are treated as taxable dividends to the extent of STWD's earnings and profits ("E&P"). Because the distribution of the SWAY shares was a taxable event to STWD in which STWD recognized gain, the distribution created E&P for STWD in 2014 equal to what is preliminarily estimated to be approximately $0.48 per share of STWD common stock. This amount is equal to the fair market value of the SWAY shares distributed less STWD's estimated tax basis in the assets of SWAY. No assurance can be given that this estimate of the amount of E&P created by the distribution will prove accurate, and an investor should not place undue reliance on this estimate.
While STWD can currently report that the tax basis of the SWAY shares distributed in the Spin-off to holders of STWD shares is $28.84 per share, the taxability of the distribution of SWAY common stock and the effect of this distribution on the tax basis of your STWD common stock will not be known until early 2015. STWD's E&P for 2014 depends upon all of STWD's activities for the year. As a result, the actual amounts of STWD's E&P, the taxable portion of its cash and property distributions including the distribution of SWAY shares, and the non-taxable return of capital will not be available until January 2015 when STWD announces the tax treatment of its 2014 distributions.
If STWD's E&P in 2014 is less than STWD's distributions to shareholders during 2014, such E&P will be allocated to each distribution during the year, pro rata based on the amount of each distribution. Each distribution will be treated as a dividend to the extent of the E&P allocated to it. To the extent that a distribution exceeds the amount of E&P allocated to it, the excess will first be applied to reduce your tax basis in your STWD stock and, to the extent it exceeds your tax basis in your STWD stock, will be treated as if it were gain on the sale of that stock.
The determination of the taxable dividend portion of the distribution of SWAY common stock depends on the totality of STWD's activities for the year and is therefore not determined on a standalone basis. Solely for illustration purposes, if the taxability of the distribution were determined on a standalone basis the following examples illustrate what the treatment would be:
- The SWAY distribution is a special distribution of $5.77 per STWD share.
- $0.48 per share would be taxable dividend income per each share of STWD common stock held.
- A total of $5.29 per STWD share would be a non-taxable return of capital and would reduce the tax basis of each of your STWD shares.
- If your tax basis was $20.00 per share pre spin, your new adjusted tax basis in your STWD shares would be $20.00 minus $5.29 equals $14.71 per share.
Nonetheless, the determination of the taxable and non-taxable portions of the distribution will not be known until early 2015 when you receive your 1099 or equivalent tax reporting information.
The above summary does not constitute tax advice. It does not purport to be complete or to describe the tax consequences that may apply to particular categories of stockholders. Each STWD stockholder should consult a personal tax advisor regarding the calculation of their tax basis and the tax consequences of any distribution. For more information, please refer to SWAY's registration statement on Form 10, as filed with the Securities and Exchange Commission on January 13, 2014.
About Starwood Property Trust, Inc.
Starwood Property Trust, Inc. is focused on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities ("CMBS"), and other commercial real estate-related debt investments. The Company through its 2013 acquisition of LNR now also operates as a special servicer in the United States and as a primary and special servicer in Europe and has expanded its product offering to include fixed rate conduit loans. Starwood Property Trust, Inc. also invests in residential mortgage-backed securities ("RMBS"), residential real estate owned and non-performing residential loans, and may invest in non-performing commercial loans, commercial properties subject to net leases and performing residential mortgage loans. The Company is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.
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
SOURCE Starwood Property Trust, Inc.