Starwood Property Trust Reports Results for the Quarter Ended June 30, 2018

- Quarterly GAAP Earnings of $0.40 and Core Earnings of $0.54 per Diluted Common Share -

- Deploys a Record $2.8 Billion of Capital, including $2.2 Billion in Lending Segment -

- Year-to-Date Capital Deployed of $4.7 Billion, Up 63% Versus 2017 -

- Declares Dividend of $0.48 per share for the Third Quarter of 2018 -

- Subsequent to Quarter End, Commits to Acquire $2.6 Billion Platform and Loan Portfolio from GE Capital -

News provided by

Aug 08, 2018, 07:00 ET

GREENWICH, Conn., Aug. 8, 2018 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2018. The Company's second quarter 2018 GAAP net income was $109.2 million, or $0.40 per diluted share, and Core Earnings (a non-GAAP financial measure) was $148.4 million, or $0.54 per diluted share.

"I am very pleased with the performance of our Company this quarter, with every business line continuing to perform at or above our expectations. The majority of our earnings are still derived from our primary line of business, real estate lending, where the $2.0 billion of loan originations this quarter were the largest in our Company's history. Our property investments, residential lending platform, CMBS and conduit operations continue to enhance our enterprise, along with our special servicer, where we added 13 new special servicing assignments, the highest since we acquired LNR in 2013. With the acquisition of GE Capital's Energy Project Finance platform, we have further diversified our lending opportunity set outside of traditional real estate and have never been more excited about our Company's future," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

Dividend

On August 8, 2018, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending September 30, 2018. The dividend is payable on October 15, 2018 to common stockholders of record as of September 28, 2018.

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 Wednesday, August 8, 2018, 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: 13681522

The playback can be accessed through August 22, 2018.

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. With total capital deployed since inception of over $44 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 June 30, 2018
(Amounts in thousands)

					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	148,268	$	—	$	3,436	$	—	$	151,704	$	—	$	151,704
Interest income from investment securities		8,930		—		30,472		—		39,402		(28,612)		10,790
Servicing fees		50		—		24,687		—		24,737		(7,422)		17,315
Rental income		—		74,401		14,490		—		88,891		—		88,891
Other revenues		224		81		516		86		907		(51)		856
Total revenues		157,472		74,482		73,601		86		305,641		(36,085)		269,556
Costs and expenses:
Management fees		463		—		18		26,907		27,388		106		27,494
Interest expense		34,826		19,380		5,807		31,854		91,867		(275)		91,592
General and administrative		6,251		1,971		23,855		3,367		35,444		84		35,528
Acquisition and investment pursuit costs		1,692		(52)		(79)		—		1,561		—		1,561
Costs of rental operations		—		25,991		6,906		—		32,897		—		32,897
Depreciation and amortization		16		31,738		5,396		—		37,150		—		37,150
Loan loss allowance, net		25,259		—		—		—		25,259		—		25,259
Other expense		77		—		420		—		497		—		497
Total costs and expenses		68,584		79,028		42,323		62,128		252,063		(85)		251,978
Income (loss) before other income (loss), income taxes and non- controlling interests		88,888		(4,546)		31,278		(62,042)		53,578		(36,000)		17,578
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		43,946		43,946
Change in fair value of servicing rights		—		—		(3,255)		—		(3,255)		1,052		(2,203)
Change in fair value of investment securities, net		482		—		15,110		—		15,592		(7,890)		7,702
Change in fair value of mortgage loans held-for-sale, net		184		—		14,649		—		14,833		—		14,833
Earnings (loss) from unconsolidated entities		1,803		2,933		1,454		—		6,190		(720)		5,470
Gain on sale of investments and other assets, net		135		2,941		10,361		—		13,437		—		13,437
Gain (loss) on derivative financial instruments, net		19,467		19,920		(398)		(6,367)		32,622		—		32,622
Foreign currency (loss) gain, net		(13,264)		(1)		1		—		(13,264)		—		(13,264)
Loss on extinguishment of debt		—		—		(186)		—		(186)		—		(186)
Other income, net		—		489		9		—		498		—		498
Total other income (loss)		8,807		26,282		37,745		(6,367)		66,467		36,388		102,855
Income (loss) before income taxes		97,695		21,736		69,023		(68,409)		120,045		388		120,433
Income tax provision		(1,720)		(611)		(1,012)		—		(3,343)		—		(3,343)
Net income (loss)		95,975		21,125		68,011		(68,409)		116,702		388		117,090
Net income attributable to non-controlling interests		(361)		(4,684)		(2,427)		—		(7,472)		(388)		(7,860)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	95,614	$	16,441	$	65,584	$	(68,409)	$	109,230	$	—	$	109,230

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, 2018
(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.	$	95,614	$	16,441	$	65,584	$	(68,409)	$	109,230
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		4,684		—		—		4,684
Non-cash equity compensation expense		766		87		1,317		3,667		5,837
Management incentive fee		—		—		—		5,687		5,687
Acquisition and investment pursuit costs		1,266		(67)		(57)		—		1,142
Depreciation and amortization		16		32,063		4,885		—		36,964
Loan loss allowance, net		25,259		—		—		—		25,259
Interest income adjustment for securities		(197)		—		2,695		—		2,498
Extinguishment of debt, net		—		—		—		(247)		(247)
Other non-cash items		—		(1,212)		448		895		131
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		(184)		—		(14,649)		—		(14,833)
Securities		(625)		—		(15,110)		—		(15,735)
Derivatives		(19,697)		(19,013)		58		7,151		(31,501)
Foreign currency		13,264		1		(1)		—		13,264
Earnings from unconsolidated entities		(1,803)		(2,933)		(1,454)		—		(6,190)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(1,196)		—		14,227		—		13,031
Securities		142		—		(1,978)		—		(1,836)
Derivatives		(129)		(229)		618		—		260
Foreign currency		(140)		(2)		(1)		—		(143)
Earnings from unconsolidated entities		1,558		—		1,218		—		2,776
Sales of properties		—		(155)		(1,681)		—		(1,836)
Core Earnings (Loss)	$	113,914	$	29,665	$	56,119	$	(51,256)	$	148,442
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.42	$	0.11	$	0.20	$	(0.19)	$	0.54

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the six months ended June 30, 2018
(Amounts in thousands)

					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	283,240	$	—	$	6,084	$	—	$	289,324	$	—	$	289,324
Interest income from investment securities		23,369		—		64,871		—		88,240		(62,181)		26,059
Servicing fees		215		—		58,121		—		58,336		(14,954)		43,382
Rental income		—		141,111		28,890		—		170,001		—		170,001
Other revenues		418		182		744		138		1,482		(105)		1,377
Total revenues		307,242		141,293		158,710		138		607,383		(77,240)		530,143
Costs and expenses:
Management fees		943		—		36		56,958		57,937		199		58,136
Interest expense		66,847		35,914		10,902		65,657		179,320		(545)		178,775
General and administrative		12,946		3,830		44,875		5,849		67,500		170		67,670
Acquisition and investment pursuit costs		1,912		(46)		72		—		1,938		—		1,938
Costs of rental operations		—		49,479		13,111		—		62,590		—		62,590
Depreciation and amortization		33		58,207		10,654		—		68,894		—		68,894
Loan loss allowance, net		26,797		—		—		—		26,797		—		26,797
Other expense		154		—		447		—		601		—		601
Total costs and expenses		109,632		147,384		80,097		128,464		465,577		(176)		465,401
Income (loss) before other income (loss), income taxes and non- controlling interests		197,610		(6,091)		78,613		(128,326)		141,806		(77,064)		64,742
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		96,599		96,599
Change in fair value of servicing rights		—		—		(12,423)		—		(12,423)		4,406		(8,017)
Change in fair value of investment securities, net		(222)		—		29,089		—		28,867		(21,314)		7,553
Change in fair value of mortgage loans held-for-sale, net		(1,508)		—		24,141		—		22,633		—		22,633
Earnings (loss) from unconsolidated entities		3,247		(582)		3,050		—		5,715		(1,707)		4,008
Gain on sale of investments and other assets, net		414		6,883		16,800		—		24,097		—		24,097
Gain (loss) on derivative financial instruments, net		8,649		21,839		4,644		(19,369)		15,763		—		15,763
Foreign currency gain (loss), net		286		1		(2)		—		285		—		285
Loss on extinguishment of debt		—		—		(186)		—		(186)		—		(186)
Other income, net		43		506		57		—		606		—		606
Total other income (loss)		10,909		28,647		65,170		(19,369)		85,357		77,984		163,341
Income (loss) before income taxes		208,519		22,556		143,783		(147,695)		227,163		920		228,083
Income tax provision		(2,667)		(1,872)		(1,660)		—		(6,199)		—		(6,199)
Net income (loss)		205,852		20,684		142,123		(147,695)		220,964		920		221,884
Net income attributable to non- controlling interests		(722)		(7,137)		(3,943)		—		(11,802)		(920)		(12,722)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	205,130	$	13,547	$	138,180	$	(147,695)	$	209,162	$	—	$	209,162

Reconciliation of Net Income to Core Earnings
For the six months ended June 30, 2018
(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.	$	205,130	$	13,547	$	138,180	$	(147,695)	$	209,162
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		7,137		—		—		7,137
Non-cash equity compensation expense		1,329		130		2,292		6,866		10,617
Management incentive fee		—		—		—		15,321		15,321
Acquisition and investment pursuit costs		1,385		(160)		(86)		—		1,139
Depreciation and amortization		33		58,868		9,797		—		68,698
Loan loss allowance, net		26,797		—		—		—		26,797
Interest income adjustment for securities		(394)		—		1,633		—		1,239
Extinguishment of debt, net		—		—		—		9,508		9,508
Other non-cash items		—		(1,774)		572		1,776		574
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		1,508		—		(24,141)		—		(22,633)
Securities		79		—		(29,089)		—		(29,010)
Derivatives		(9,168)		(20,449)		(5,364)		21,549		(13,432)
Foreign currency		(286)		(1)		2		—		(285)
Earnings from unconsolidated entities		(3,247)		582		(3,050)		—		(5,715)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(2,071)		—		23,870		—		21,799
Securities		142		—		(6,092)		—		(5,950)
Derivatives		(5,854)		(708)		6,149		—		(413)
Foreign currency		7,911		—		(42)		—		7,869
Earnings from unconsolidated entities		3,405		—		2,262		—		5,667
Sales of properties		—		(365)		(3,446)		—		(3,811)
Core Earnings (Loss)	$	226,699	$	56,807	$	113,447	$	(92,675)	$	304,278
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.84	$	0.21	$	0.41	$	(0.34)	$	1.12

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet by Segment
As of June 30, 2018
(Amounts in thousands)
					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	10,303	$	25,141	$	68,853	$	130,211	$	234,508	$	911	$	235,419
Restricted cash		51,942		15,493		9,639		12,720		89,794		—		89,794
Loans held-for-investment, net		6,924,600		—		3,576		—		6,928,176		—		6,928,176
Loans held-for-sale		792,664		—		300,105		—		1,092,769		—		1,092,769
Loans transferred as secured borrowings		74,217		—		—		—		74,217		—		74,217
Investment securities		389,509		—		1,076,411		—		1,465,920		(1,023,985)		441,935
Properties, net		—		2,642,076		294,608		—		2,936,684		—		2,936,684
Intangible assets		—		104,425		86,101		—		190,526		(23,840)		166,686
Investment in unconsolidated entities		33,876		110,122		44,435		—		188,433		(21,717)		166,716
Goodwill		—		—		140,437		—		140,437		—		140,437
Derivative assets		10,748		39,184		883		—		50,815		—		50,815
Accrued interest receivable		40,180		244		1,042		13,194		54,660		—		54,660
Other assets		31,146		92,785		51,794		1,878		177,603		(25)		177,578
VIE assets, at fair value		—		—		—		—		—		48,044,873		48,044,873
Total Assets	$	8,359,185	$	3,029,470	$	2,077,884	$	158,003	$	13,624,542	$	46,976,217	$	60,600,759
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	21,461	$	70,113	$	69,129	$	28,875	$	189,578	$	95	$	189,673
Related-party payable		65		—		39		25,220		25,324		—		25,324
Dividends payable		—		—		—		126,857		126,857		—		126,857
Derivative liabilities		6,321		4,736		862		24,216		36,135		—		36,135
Secured financing agreements, net		3,466,334		1,912,368		564,226		297,389		6,240,317		(23,700)		6,216,617
Unsecured senior notes, net		—		—		—		2,255,976		2,255,976		—		2,255,976
Secured borrowings on transferred loans, net		74,058		—		—		—		74,058		—		74,058
VIE liabilities, at fair value		—		—		—		—		—		46,976,428		46,976,428
Total Liabilities		3,568,239		1,987,217		634,256		2,758,533		8,948,245		46,952,823		55,901,068
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		2,675		2,675		—		2,675
Additional paid-in capital		1,905,265		826,782		606,583		1,400,339		4,738,969		—		4,738,969
Treasury stock		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		60,082		8,115		(63)		—		68,134		—		68,134
Retained earnings (accumulated deficit)		2,815,109		(788)		824,267		(3,899,350)		(260,762)		—		(260,762)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,780,456		834,109		1,430,787		(2,600,530)		4,444,822		—		4,444,822
Non-controlling interests in consolidated subsidiaries		10,490		208,144		12,841		—		231,475		23,394		254,869
Total Equity		4,790,946		1,042,253		1,443,628		(2,600,530)		4,676,297		23,394		4,699,691
Total Liabilities and Equity	$	8,359,185	$	3,029,470	$	2,077,884	$	158,003	$	13,624,542	$	46,976,217	$	60,600,759