Starwood Property Trust Reports Results for the Quarter Ended June 30, 2020

- Received 7th Consecutive NAREIT Gold Award for Investor Communications and Reporting Excellence -

- Paid Dividend of $0.48 per share for the Second Quarter of 2020 -

News provided by

Aug 05, 2020, 07:00 ET

GREENWICH, Conn., Aug. 5, 2020 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2020. The Company's second quarter 2020 GAAP net income was $139.7 million, or $0.49 per diluted share, and Core Earnings (a non-GAAP financial measure) was $126.1 million, or $0.43 per diluted share.

"It is a difficult time to figure out the right balance between playing offense and defense as this Category 5 hurricane that we call the Coronavirus sweeps through the U.S. and the global economies. Since March, we have erred on the side of caution and are only making occasional investments that we find decidedly compelling. From the outset of this pandemic, our strategy has been to solidify our fortress balance sheet. We now sit with over $800 million of cash and approved, undrawn debt capacity, after paying our full dividend the past two quarters, deleveraging our balance sheet by more than $350 million and dramatically lowering our future funding obligations by over $700 million.

All this caution has and will probably continue to reduce our earnings until our capital deployment returns to more normalized levels. Nonetheless, the breadth of our enterprise provides numerous opportunities for us to realize the significant embedded gains in our portfolio if and when we choose to do so. Our complex, but diversified, business lines have performed in line with our expectations. We are very well-positioned to carefully comb through investments in each of our business segments, work with our borrowers, and return to investing globally where the opportunity set is clearly better today than in years past," 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 Wednesday, August 5, 2020, 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, 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: 13706902
The playback can be accessed through August 12, 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 $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 June 30, 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 June 30, 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	$	150,136	$	19,126	$	—	$	1,841	$	—	$	171,103	$	—	$	171,103
Interest income from investment securities		17,345		683		—		24,924		—		42,952		(28,308)		14,644
Servicing fees		142		—		—		8,591		—		8,733		(2,075)		6,658
Rental income		690		—		63,566		8,454		—		72,710		—		72,710
Other revenues		54		100		58		280		—		492		(1)		491
Total revenues		168,367		19,909		63,624		44,090		—		295,990		(30,384)		265,606
Costs and expenses:
Management fees		339		—		—		220		22,554		23,113		2		23,115
Interest expense		41,871		9,678		15,942		6,177		27,825		101,493		—		101,493
General and administrative		8,615		4,337		1,281		14,993		3,368		32,594		83		32,677
Acquisition and investment pursuit costs		578		1,100		—		(88)		—		1,590		—		1,590
Costs of rental operations		988		—		24,703		3,941		—		29,632		—		29,632
Depreciation and amortization		430		89		19,153		3,749		—		23,421		—		23,421
Credit loss provision, net		11,294		(1,092)		—		—		—		10,202		—		10,202
Other expense		76		—		26		—		—		102		—		102
Total costs and expenses		64,191		14,112		61,105		28,992		53,747		222,147		85		222,232
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		51,261		51,261
Change in fair value of servicing rights		—		—		—		5,328		—		5,328		(7,897)		(2,569)
Change in fair value of investment securities, net		5,454		—		—		7,941		—		13,395		(12,568)		827
Change in fair value of mortgage loans, net		33,010		—		—		1,440		—		34,450		—		34,450
Earnings (loss) from unconsolidated entities		671		(1,118)		—		29,526		—		29,079		(303)		28,776
(Loss) gain on sale of investments and other assets, net		(961)		—		—		7,433		—		6,472		—		6,472
(Loss) gain on derivative financial instruments, net		(11,736)		(437)		(4,614)		(3,828)		4,517		(16,098)		—		(16,098)
Foreign currency gain (loss), net		6,942		310		(48)		(31)		—		7,173		—		7,173
Loss on extinguishment of debt		(22)		—		(2,185)		—		—		(2,207)		—		(2,207)
Other income, net		—		—		191		13		—		204		—		204
Total other income (loss)		33,358		(1,245)		(6,656)		47,822		4,517		77,796		30,493		108,289
Income (loss) before income taxes		137,534		4,552		(4,137)		62,920		(49,230)		151,639		24		151,663
Income tax (provision) benefit		(3,257)		(56)		—		4,611		—		1,298		—		1,298
Net income (loss)		134,277		4,496		(4,137)		67,531		(49,230)		152,937		24		152,961
Net income attributable to non-controlling interests		(4)		—		(5,111)		(8,166)		—		(13,281)		(24)		(13,305)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	134,273	$	4,496	$	(9,248)	$	59,365	$	(49,230)	$	139,656	$	—	$	139,656

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 June 30, 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.	$	134,273	$	4,496	$	(9,248)	$	59,365	$	(49,230)	$	139,656
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,111		—		—		5,111
Non-cash equity compensation expense		1,436		481		58		1,247		4,130		7,352
Acquisition and investment pursuit costs		206		—		(88)		(72)		—		46
Depreciation and amortization		370		79		19,236		3,337		—		23,022
Credit loss provision, net		11,294		(1,092)		—		—		—		10,202
Interest income adjustment for securities		1,149		—		—		1,627		—		2,776
Extinguishment of debt, net		—		—		—		—		(247)		(247)
Income tax provision (benefit) associated with fair value adjustments		1,914		—		—		(392)		—		1,522
Other non-cash items		4		—		(485)		230		156		(95)
Reversal of GAAP unrealized (gains) / losses on:
Loans		(33,010)		—		—		(1,440)		—		(34,450)
Securities		(5,454)		—		—		(7,941)		—		(13,395)
Derivatives		11,043		420		3,401		3,524		(240)		18,148
Foreign currency		(6,942)		(310)		48		31		—		(7,173)
(Earnings) loss from unconsolidated entities		(671)		1,118		—		(29,526)		—		(29,079)
Recognition of Core realized gains / (losses) on:
Loans		(5,663)		—		—		(1)		—		(5,664)
Securities		—		—		—		(181)		—		(181)
Derivatives		4,522		—		(369)		(10)		—		4,143
Foreign currency		(1,969)		52		(50)		(31)		—		(1,998)
(Loss) earnings from unconsolidated entities		(24)		(733)		—		12,992		—		12,235
Sales of properties		—		—		—		(5,789)		—		(5,789)
Core Earnings (Loss)	$	112,478	$	4,511	$	17,614	$	36,970	$	(45,431)	$	126,142
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.38	$	0.02	$	0.06	$	0.12	$	(0.15)	$	0.43

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the six months ended June 30, 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	$	342,517	$	41,539	$	—	$	4,474	$	—	$	388,530	$	—	$	388,530
Interest income from investment securities		35,973		1,384		—		49,724		—		87,081		(57,197)		29,884
Servicing fees		314		—		—		15,033		—		15,347		(3,896)		11,451
Rental income		768		—		127,527		18,561		—		146,856		—		146,856
Other revenues		232		243		180		793		—		1,448		(3)		1,445
Total revenues		379,804		43,166		127,707		88,585		—		639,262		(61,096)		578,166
Costs and expenses:
Management fees		690		—		—		459		62,661		63,810		33		63,843
Interest expense		95,821		22,795		33,063		13,371		56,630		221,680		(162)		221,518
General and administrative		16,747		8,760		2,359		35,677		7,669		71,212		167		71,379
Acquisition and investment pursuit costs		1,438		1,117		12		(68)		—		2,499		—		2,499
Costs of rental operations		1,766		—		47,555		8,525		—		57,846		—		57,846
Depreciation and amortization		845		159		38,441		7,956		—		47,401		—		47,401
Credit loss provision, net		51,511		7,360		—		—		—		58,871		—		58,871
Other expense		153		—		337		—		—		490		—		490
Total costs and expenses		168,971		40,191		121,767		65,920		126,960		523,809		38		523,847
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		5,768		5,768
Change in fair value of servicing rights		—		—		—		5,646		—		5,646		(8,608)		(2,962)
Change in fair value of investment securities, net		(22,425)		—		—		(39,275)		—		(61,700)		65,031		3,331
Change in fair value of mortgage loans, net		(2,507)		—		—		20,823		—		18,316		—		18,316
Earnings (loss) from unconsolidated entities		722		(1,118)		—		30,146		—		29,750		(877)		28,873
(Loss) gain on sale of investments and other assets, net		(961)		296		—		7,433		—		6,768		—		6,768
Gain (loss) on derivative financial instruments, net		19,069		(1,438)		(34,837)		(22,934)		33,752		(6,388)		—		(6,388)
Foreign currency loss, net		(27,059)		(163)		(67)		(24)		—		(27,313)		—		(27,313)
Loss on extinguishment of debt		(22)		(170)		(2,185)		—		—		(2,377)		—		(2,377)
Other income, net		—		—		241		89		—		330		—		330
Total other (loss) income		(33,183)		(2,593)		(36,848)		1,904		33,752		(36,968)		61,314		24,346
Income (loss) before income taxes		177,650		382		(30,908)		24,569		(93,208)		78,485		180		78,665
Income tax benefit		1,165		89		—		6,773		—		8,027		—		8,027
Net income (loss)		178,815		471		(30,908)		31,342		(93,208)		86,512		180		86,692
Net income attributable to non-controlling interests		(7)		—		(10,222)		(3,396)		—		(13,625)		(180)		(13,805)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	178,808	$	471	$	(41,130)	$	27,946	$	(93,208)	$	72,887	$	—	$	72,887

Reconciliation of Net Income to Core Earnings For the six months ended June 30, 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.	$	178,808	$	471	$	(41,130)	$	27,946	$	(93,208)	$	72,887
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		10,222		—		—		10,222
Non-cash equity compensation expense		2,548		947		131		2,510		10,016		16,152
Management incentive fee		—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs		564		—		(177)		(72)		—		315
Depreciation and amortization		725		130		38,617		7,144		—		46,616
Credit loss provision, net		51,511		7,360		—		—		—		58,871
Interest income adjustment for securities		1,273		—		—		7,942		—		9,215
Extinguishment of debt, net		—		—		—		—		(493)		(493)
Income tax benefit associated with fair value adjustment		(3,907)		—		—		(1,834)		—		(5,741)
Other non-cash items		7		—		(976)		478		312		(179)
Reversal of GAAP unrealized (gains) / losses on:
Loans		2,507		—		—		(20,823)		—		(18,316)
Securities		22,425		—		—		39,275		—		61,700
Derivatives		(19,520)		1,433		33,970		22,537		(27,889)		10,531
Foreign currency		27,059		163		67		24		—		27,313
(Earnings) loss from unconsolidated entities		(722)		1,118		—		(30,146)		—		(29,750)
Recognition of Core realized gains / (losses) on:
Loans		(3,499)		(62)		—		16,558		—		12,997
Securities		—		—		—		(4,393)		—		(4,393)
Derivatives		7,772		118		(404)		(6,097)		—		1,389
Foreign currency		(6,240)		(142)		(69)		(24)		—		(6,475)
(Loss) earnings from unconsolidated entities		(580)		(733)		—		16,730		—		15,417
Sales of properties		—		—		—		(5,789)		—		(5,789)
Core Earnings (Loss)	$	260,731	$	10,803	$	40,251	$	71,966	$	(95,463)	$	288,288
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.88	$	0.04	$	0.14	$	0.24	$	(0.32)	$	0.98

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of June 30, 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	$	13,959	$	299	$	30,237	$	35,855	$	266,333	$	346,683	$	1,051	$	347,734
Restricted cash		114,656		34,160		7,537		20,044		—		176,397		—		176,397
Loans held-for-investment, net		8,960,410		1,459,239		—		1,153		—		10,420,802		—		10,420,802
Loans held-for-sale		432,786		44,876		—		194,097		—		671,759		—		671,759
Investment securities		1,120,624		40,312		—		1,094,613		—		2,255,549		(1,503,524)		752,025
Properties, net		27,283		—		1,998,759		198,281		—		2,224,323		—		2,224,323
Intangible assets		—		—		43,580		67,567		—		111,147		(34,854)		76,293
Investment in unconsolidated entities		49,853		24,744		—		47,114		—		121,711		(16,798)		104,913
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		47,875		—		348		586		42,096		90,905		—		90,905
Accrued interest receivable		55,877		3,163		—		520		13,589		73,149		(1,401)		71,748
Other assets		29,864		5,616		81,859		57,321		9,512		184,172		(25)		184,147
VIE assets, at fair value		—		—		—		—		—		—		64,175,387		64,175,387
Total Assets	$	10,853,187	$	1,731,818	$	2,162,320	$	1,857,588	$	331,530	$	16,936,443	$	62,619,836	$	79,556,279
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	27,941	$	10,285	$	45,277	$	36,400	$	91,765	$	211,668	$	54	$	211,722
Related-party payable		—		—		—		5		20,936		20,941		—		20,941
Dividends payable		—		—		—		—		138,778		138,778		—		138,778
Derivative liabilities		2,260		1,620		—		—		—		3,880		—		3,880
Secured financing agreements, net		4,749,321		1,221,001		1,792,818		683,466		389,714		8,836,320		—		8,836,320
Collateralized loan obligations, net		929,307		—		—		—		—		929,307		—		929,307
Unsecured senior notes, net		—		—		—		—		1,932,560		1,932,560		—		1,932,560
VIE liabilities, at fair value		—		—		—		—		—		—		62,617,975		62,617,975
Total Liabilities		5,708,829		1,232,906		1,838,095		719,871		2,573,753		12,073,454		62,618,029		74,691,483
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,916		2,916		—		2,916
Additional paid-in capital		1,473,921		504,262		137,777		(228,654)		3,306,266		5,193,572		—		5,193,572
Treasury stock		—		—		—		—		(133,024)		(133,024)		—		(133,024)
Accumulated other comprehensive income (loss)		42,930		—		—		(64)		—		42,866		—		42,866
Retained earnings (accumulated deficit)		3,627,392		(5,350)		(40,699)		1,222,945		(5,418,381)		(614,093)		—		(614,093)
Total Starwood Property Trust, Inc. Stockholders' Equity		5,144,243		498,912		97,078		994,227		(2,242,223)		4,492,237		—		4,492,237
Non-controlling interests in consolidated subsidiaries		115		—		227,147		143,490		—		370,752		1,807		372,559
Total Equity		5,144,358		498,912		324,225		1,137,717		(2,242,223)		4,862,989		1,807		4,864,796
Total Liabilities and Equity	$	10,853,187	$	1,731,818	$	2,162,320	$	1,857,588	$	331,530	$	16,936,443	$	62,619,836	$	79,556,279