Starwood Property Trust Reports Results for the Quarter and Year Ended December 31, 2018

- Quarterly GAAP Earnings of $0.33 and Core Earnings of $0.54 per Diluted Common Share -

- Record Capital Deployed of $11.6 Billion in 2018, Up 58% Versus 2017 -

- Record Capital Deployed in Commercial Lending of $6.0 Billion in 2018, Up 43% Versus 2017 -

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

News provided by

Feb 28, 2019, 07:00 ET

GREENWICH, Conn., Feb. 28, 2019 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter and year ended December 31, 2018. The Company's fourth quarter 2018 GAAP net income was $92.1 million, or $0.33 per diluted share, and $385.8 million, or $1.42 per diluted share, for the full year. Core Earnings (a non-GAAP financial measure) for the fourth quarter was $155.4 million, or $0.54 per diluted share and $608.1 million, or $2.19 per diluted share, for the full year.

"As we approach our ten year anniversary as a public company, we are proud to have created a generational enterprise, with multiple business lines, allowing us to achieve best in class returns. We could achieve higher returns through increased leverage but have instead chosen a more conservative strategy," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust. "Our platform delivered outstanding results in 2018, led by record origination volumes in our commercial lending segment and a property segment which produces double digit cash returns. We are well positioned to capitalize on our robust investment pipeline with ample liquidity and available credit capacity and the significant unrealized gains in our property book."

Dividend

On February 28, 2019, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending March 31, 2019. The dividend is payable on April 15, 2019 to common stockholders of record as of March 29, 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 webcast and conference call on Thursday, February 28, 2019, at 10:00 a.m. Eastern Time to discuss the quarter's 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: 1-877-407-9039
International: 1-201-689-8470

Conference Call Playback:
Domestic: 1-844-512-2921
International: 1-412-317-6671
Passcode: 13686953

The playback can be accessed through March 14, 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 $51 billion of capital since inception and manages a portfolio in excess 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. 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.

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 December 31, 2018
(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	$	145,411	$	25,942	$	—	$	5,365	$	—	$	176,718	$	—	$	176,718
Interest income from investment securities		16,374		988		—		27,752		—		45,114		(25,842)		19,272
Servicing fees		108		—		—		11,645		—		11,753		(4,193)		7,560
Rental income		—		—		75,275		13,276		—		88,551		—		88,551
Other revenues		219		575		93		326		133		1,346		(29)		1,317
Total revenues		162,112		27,505		75,368		58,364		133		323,482		(30,064)		293,418
Costs and expenses:
Management fees		442		—		—		18		44,238		44,698		102		44,800
Interest expense		50,600		18,691		19,795		9,161		28,673		126,920		(165)		126,755
General and administrative		6,362		5,094		1,603		20,972		3,145		37,176		83		37,259
Acquisition and investment pursuit costs		237		81		—		(196)		—		122		—		122
Costs of rental operations		—		—		27,101		7,186		—		34,287		—		34,287
Depreciation and amortization		26		—		24,029		5,407		—		29,462		—		29,462
Loan loss allowance, net		7,095		—		—		—		—		7,095		—		7,095
Other expense		77		—		(27)		5		—		55		—		55
Total costs and expenses		64,839		23,866		72,501		42,553		76,056		279,815		20		279,835
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		36,004		36,004
Change in fair value of servicing rights		—		—		—		44		—		44		(1,255)		(1,211)
Change in fair value of investment securities, net		(2,781)		—		—		9,106		—		6,325		(3,834)		2,491
Change in fair value of mortgage loans held-for-sale, net		(6,686)		—		—		20,635		—		13,949		—		13,949
Earnings from unconsolidated entities		1,302		—		2,252		893		—		4,447		(540)		3,907
Gain on sale of investments and other assets, net		3,558		—		21,585		8,342		—		33,485		—		33,485
Gain (loss) on derivative financial instruments, net		1,727		1,366		(4,978)		(8,018)		17,008		7,105		—		7,105
Foreign currency loss, net		(4,556)		(894)		(2)		—		—		(5,452)		—		(5,452)
Loss on extinguishment of debt		—		—		(2,661)		(132)		(289)		(3,082)		—		(3,082)
Other income, net		1		—		—		2		—		3		—		3
Total other income (loss)		(7,435)		472		16,196		30,872		16,719		56,824		30,375		87,199
Income (loss) before income taxes		89,838		4,111		19,063		46,683		(59,204)		100,491		291		100,782
Income tax benefit (provision)		180		(292)		(5,552)		4,814		—		(850)		—		(850)
Net income (loss)		90,018		3,819		13,511		51,497		(59,204)		99,641		291		99,932
Net income attributable to non-controlling interests		(364)		—		(5,717)		(1,428)		—		(7,509)		(291)		(7,800)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	89,654	$	3,819	$	7,794	$	50,069	$	(59,204)	$	92,132	$	—	$	92,132

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 December 31, 2018
(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.	$	89,654	$	3,819	$	7,794	$	50,069	$	(59,204)	$	92,132
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,717		—		—		5,717
Non-cash equity compensation expense		778		464		72		1,321		3,677		6,312
Management incentive fee		—		—		—		—		21,779		21,779
Acquisition and investment pursuit costs		(39)		57		(88)		(118)		—		(188)
Depreciation and amortization		26		—		24,359		5,042		—		29,427
Loan loss allowance, net		7,095		—		—		—		—		7,095
Interest income adjustment for securities		(205)		—		—		8,548		—		8,343
Extinguishment of debt, net		—		—		—		—		(387)		(387)
Other non-cash items		—		—		(625)		10		295		(320)
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		6,686		—		—		(20,635)		—		(13,949)
Securities		(504)		—		—		(9,106)		—		(9,610)
Derivatives		(1,774)		(1,366)		6,374		7,553		(17,276)		(6,489)
Foreign currency		4,556		894		2		—		—		5,452
Earnings from unconsolidated entities		(1,302)		—		(2,252)		(893)		—		(4,447)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		(2,103)		—		—		17,778		—		15,675
Securities		3,286		—		—		10,628		—		13,914
Derivatives		(1,410)		(105)		(3,138)		(4,407)		—		(9,060)
Foreign currency		1,777		51		(2)		(31)		—		1,795
Earnings from unconsolidated entities		1,192		—		—		1,367		—		2,559
Sales of properties		—		—		(5,014)		(5,293)		—		(10,307)
Core Earnings (Loss)	$	107,713	$	3,814	$	33,199	$	61,833	$	(51,116)	$	155,443
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.37	$	0.01	$	0.12	$	0.22	$	(0.18)	$	0.54

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the year ended December 31, 2018
(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	$	576,564	$	28,995	$	—	$	14,984	$	—	$	620,543	$	—	$	620,543
Interest income from investment securities		50,063		1,095		—		127,100		—		178,258		(121,419)		56,839
Servicing fees		421		—		—		103,866		—		104,287		(25,521)		78,766
Rental income		—		—		292,453		57,231		—		349,684		—		349,684
Other revenues		902		619		444		1,299		360		3,624		(176)		3,448
Total revenues		627,950		30,709		292,897		304,480		360		1,256,396		(147,116)		1,109,280
Costs and expenses:
Management fees		1,838		—		—		72		127,133		129,043		412		129,455
Interest expense		160,769		20,949		75,192		27,459		124,805		409,174		(986)		408,188
General and administrative		26,324		5,631		7,113		84,978		11,747		135,793		339		136,132
Acquisition and investment pursuit costs		2,490		6,806		(46)		(663)		—		8,587		—		8,587
Costs of rental operations		—		—		99,632		27,436		—		127,068		—		127,068
Depreciation and amortization		76		—		110,684		21,889		—		132,649		—		132,649
Loan loss allowance, net		34,821		—		—		—		—		34,821		—		34,821
Other expense		307		—		(27)		452		—		732		—		732
Total costs and expenses		226,625		33,386		292,548		161,623		263,685		977,867		(235)		977,632
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		165,892		165,892
Change in fair value of servicing rights		—		—		—		(14,373)		—		(14,373)		4,171		(10,202)
Change in fair value of investment securities, net		(2,765)		—		—		33,229		—		30,464		(20,119)		10,345
Change in fair value of mortgage loans held-for-sale, net		(6,851)		—		—		47,373		—		40,522		—		40,522
Earnings from unconsolidated entities		5,063		—		3,658		3,809		—		12,530		(1,990)		10,540
Gain on sale of investments and other assets, net		4,019		—		28,468		26,557		—		59,044		—		59,044
Gain (loss) on derivative financial instruments, net		17,654		1,821		22,756		(298)		(7,330)		34,603		—		34,603
Foreign currency loss, net		(7,816)		(1,425)		(2)		(2)		—		(9,245)		—		(9,245)
Loss on extinguishment of debt		(730)		—		(2,661)		(318)		(2,099)		(5,808)		—		(5,808)
Other income (loss), net		43		—		508		(1,363)		—		(812)		—		(812)
Total other income (loss)		8,617		396		52,727		94,614		(9,429)		146,925		147,954		294,879
Income (loss) before income taxes		409,942		(2,281)		53,076		237,471		(272,754)		425,454		1,073		426,527
Income tax provision		(2,801)		(292)		(7,549)		(4,688)		—		(15,330)		—		(15,330)
Net income (loss)		407,141		(2,573)		45,527		232,783		(272,754)		410,124		1,073		411,197
Net income attributable to non-controlling interests		(1,451)		—		(17,623)		(5,220)		—		(24,294)		(1,073)		(25,367)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	405,690	$	(2,573)	$	27,904	$	227,563	$	(272,754)	$	385,830	$	—	$	385,830

Reconciliation of Net Income to Core Earnings
For the year ended December 31, 2018
(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.	$	405,690	$	(2,573)	$	27,904	$	227,563	$	(272,754)	$	385,830
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		17,623		—		—		17,623
Non-cash equity compensation expense		2,857		477		300		4,934		14,312		22,880
Management incentive fee		—		—		—		—		41,399		41,399
Acquisition and investment pursuit costs		1,391		3,827		(337)		(333)		—		4,548
Depreciation and amortization		76		—		112,007		20,295		—		132,378
Loan loss allowance, net		34,821		—		—		—		—		34,821
Interest income adjustment for securities		(736)		—		—		16,754		—		16,018
Extinguishment of debt, net		—		—		—		—		8,199		8,199
Other non-cash items		—		—		(3,031)		2,204		3,057		2,230
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		6,851		—		—		(47,373)		—		(40,522)
Securities		(763)		—		—		(33,229)		—		(33,992)
Derivatives		(18,439)		(1,821)		(18,854)		(1,235)		9,521		(30,828)
Foreign currency		7,816		1,425		2		2		—		9,245
Earnings from unconsolidated entities		(5,063)		—		(3,658)		(3,809)		—		(12,530)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		(616)		—		—		46,063		—		45,447
Securities		3,528		—		—		6,209		—		9,737
Derivatives		(7,258)		(105)		(4,076)		2,790		—		(8,649)
Foreign currency		9,913		43		(2)		(73)		—		9,881
Earnings from unconsolidated entities		5,178		—		—		4,242		—		9,420
Sales of properties		—		—		(5,379)		(9,667)		—		(15,046)
Core Earnings (Loss)	$	445,246	$	1,273	$	122,499	$	235,337	$	(196,266)	$	608,089
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.61	$	—	$	0.44	$	0.85	$	(0.71)	$	2.19

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet by Segment
As of December 31, 2018
(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	$	14,385	$	13	$	27,408	$	31,449	$	164,015	$	237,270	$	2,554	$	239,824
Restricted cash		28,324		175,659		25,144		11,679		7,235		248,041		—		248,041
Loans held-for-investment, net		7,072,220		1,456,779		—		3,357		—		8,532,356		—		8,532,356
Loans held-for-sale		670,155		469,775		—		47,622		—		1,187,552		—		1,187,552
Loans transferred as secured borrowings		74,346		—		—		—		—		74,346		—		74,346
Investment securities		1,050,920		60,768		—		998,820		—		2,110,508		(1,204,040)		906,468
Properties, net		—		—		2,512,847		272,043		—		2,784,890		—		2,784,890
Intangible assets		—		—		90,889		78,219		—		169,108		(24,075)		145,033
Investment in unconsolidated entities		35,274		—		114,362		44,129		—		193,765		(22,000)		171,765
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		18,174		1,066		32,733		718		—		52,691		—		52,691
Accrued interest receivable		39,862		6,982		359		616		13,177		60,996		(641)		60,355
Other assets		13,958		20,472		67,098		49,363		2,057		152,948		(26)		152,922
VIE assets, at fair value		—		—		—		—		—		—		53,446,364		53,446,364
Total Assets	$	9,017,618	$	2,310,923	$	2,870,840	$	1,678,452	$	186,484	$	16,064,317	$	52,198,136	$	68,262,453
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	26,508	$	26,476	$	67,415	$	75,655	$	21,467	$	217,521	$	142	$	217,663
Related-party payable		—		—		—		53		43,990		44,043		—		44,043
Dividends payable		—		—		—		—		133,466		133,466		—		133,466
Derivative liabilities		1,290		477		37		1,423		12,188		15,415		—		15,415
Secured financing agreements, net		4,405,599		1,524,551		1,884,187		585,258		297,920		8,697,515		(13,950)		8,683,565
Unsecured senior notes, net		—		—		—		—		1,998,831		1,998,831		—		1,998,831
Secured borrowings on transferred loans, net		74,239		—		—		—		—		74,239		—		74,239
VIE liabilities, at fair value		—		—		—		—		—		—		52,195,042		52,195,042
Total Liabilities		4,507,636		1,551,504		1,951,639		662,389		2,507,862		11,181,030		52,181,234		63,362,264
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,808		2,808		—		2,808
Additional paid-in capital		1,430,503		761,992		645,561		87,779		2,069,321		4,995,156		—		4,995,156
Treasury stock		—		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		53,516		—		5,208		(64)		—		58,660		—		58,660
Retained earnings (accumulated deficit)		3,015,676		(2,573)		13,570		913,642		(4,289,313)		(348,998)		—		(348,998)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,499,695		759,419		664,339		1,001,357		(2,321,378)		4,603,432		—		4,603,432
Non-controlling interests in consolidated subsidiaries		10,287		—		254,862		14,706		—		279,855		16,902		296,757
Total Equity		4,509,982		759,419		919,201		1,016,063		(2,321,378)		4,883,287		16,902		4,900,189
Total Liabilities and Equity	$	9,017,618	$	2,310,923	$	2,870,840	$	1,678,452	$	186,484	$	16,064,317	$	52,198,136	$	68,262,453