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

- Quarterly GAAP Earnings of $0.45 and Core Earnings of $0.52 per Diluted Common Share -

- Deploys $2.1 Billion of Capital, Including $1.1 Billion in Commercial Lending -

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

- Subsequent to Quarter End, Executes $2.1 Billion of Capital Transactions, Including $1.1 Billion CRE CLO, $500 Million Infrastructure Financing Facility, $400 Million Term Loan B and $100 Million Revolver -

News provided by

Starwood Property Trust, Inc.

Aug 07, 2019, 07:00 ET

GREENWICH, Conn., Aug. 7, 2019 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2019. The Company's second quarter 2019 GAAP net income was $127.0 million, or $0.45 per diluted share, and Core Earnings (a non-GAAP financial measure) was $153.9 million, or $0.52 per diluted share.

"Our strong second quarter results included positive contributions from across our business segments, led by commercial lending with $1.1 billion of capital deployed. The performance of our Property Segment continues to strengthen as we realized over 6% rent increases across our affordable multifamily portfolio, well above our underwriting. We are also pleased with the growth of our non-agency residential lending business. We remain disciplined and focused and are well positioned to continue to deploy capital across our various cylinders with a robust pipeline of global opportunities," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

"This year has been the year of balance sheet restructuring. Subsequent to quarter end, we diversified and strengthened our liability structure, executing over $2.1 billion of capital transactions and dramatically reducing our reliance on on-balance sheet bank financing. We priced the largest post-crisis CRE CLO, which we expect to close in mid-August and will provide us with a highly flexible structure and competitive expected cost of funds. We also closed a $400 million Term Loan B facility which was attractively priced, unprecedented in structure and significantly grew our unencumbered asset base. Finally, we successfully increased financing capacity for our Infrastructure Lending platform. With this meaningful expansion of our financial capacity, we have further improved our competitive positioning as we seek to continue creating shareholder value over the long term."

Dividend

On August 7, 2019, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending September 30, 2019. The dividend is payable on October 15, 2019 to common stockholders of record as of September 30, 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 Wednesday, August 7, 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: 13692433
The playback can be accessed through August 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 $55 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. 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 June 30, 2019 (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	$	163,071	$	25,291	$	—	$	3,104	$	—	$	191,466	$	—	$	191,466
Interest income from investment securities		24,367		868		—		31,163		—		56,398		(33,853)		22,545
Servicing fees		90		—		—		15,880		—		15,970		(6,962)		9,008
Rental income		—		—		72,326		14,971		—		87,297		—		87,297
Other revenues		252		7		88		515		6		868		(3)		865
Total revenues		187,780		26,166		72,414		65,633		6		351,999		(40,818)		311,181
Costs and expenses:
Management fees		353		—		—		18		22,107		22,478		45		22,523
Interest expense		58,564		16,258		19,132		8,515		27,821		130,290		(164)		130,126
General and administrative		6,754		4,830		1,706		20,177		4,019		37,486		92		37,578
Acquisition and investment pursuit costs		160		14		—		(100)		—		74		—		74
Costs of rental operations		741		—		23,125		6,789		—		30,655		—		30,655
Depreciation and amortization		285		—		23,076		5,191		—		28,552		—		28,552
Loan loss provision, net		2,096		422		—		—		—		2,518		—		2,518
Other expense		76		—		1,173		194		—		1,443		—		1,443
Total costs and expenses		69,029		21,524		68,212		40,784		53,947		253,496		(27)		253,469
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		55,158		55,158
Change in fair value of servicing rights		—		—		—		(1,159)		—		(1,159)		243		(916)
Change in fair value of investment securities, net		(948)		—		—		15,815		—		14,867		(14,200)		667
Change in fair value of mortgage loans held-for-sale, net		5,363		—		—		16,528		—		21,891		—		21,891
Earnings from unconsolidated entities		5,492		—		1,044		2,754		—		9,290		(473)		8,817
Gain on sale of investments and other assets, net		239		2,276		—		—		—		2,515		—		2,515
Gain (loss) on derivative financial instruments, net		5,592		(2,833)		(11,147)		(6,953)		15,309		(32)		—		(32)
Foreign currency (loss) gain, net		(6,927)		(83)		(8)		1		—		(7,017)		—		(7,017)
Loss on extinguishment of debt		—		(2,816)		—		—		—		(2,816)		—		(2,816)
Total other income (loss)		8,811		(3,456)		(10,111)		26,986		15,309		37,539		40,728		78,267
Income (loss) before income taxes		127,562		1,186		(5,909)		51,835		(38,632)		136,042		(63)		135,979
Income tax (provision) benefit		(1,832)		186		—		(1,887)		—		(3,533)		—		(3,533)
Net income (loss)		125,730		1,372		(5,909)		49,948		(38,632)		132,509		(63)		132,446
Net income attributable to non-controlling interests		(21)		—		(5,355)		(117)		—		(5,493)		63		(5,430)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	125,709	$	1,372	$	(11,264)	$	49,831	$	(38,632)	$	127,016	$	—	$	127,016

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, 2019 (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.	$	125,709	$	1,372	$	(11,264)	$	49,831	$	(38,632)	$	127,016
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,355		—		—		5,355
Non-cash equity compensation expense		911		563		77		1,702		3,811		7,064
Acquisition and investment pursuit costs		(24)		—		(88)		(305)		(356)		(773)
Depreciation and amortization		285		—		23,416		4,822		—		28,523
Loan loss provision, net		2,096		422		—		—		—		2,518
Interest income adjustment for securities		(194)		—		—		3,381		—		3,187
Extinguishment of debt, net		—		—		—		—		(246)		(246)
Other non-cash items		—		—		(452)		371		150		69
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		(5,363)		—		—		(16,528)		—		(21,891)
Securities		948		—		—		(15,815)		—		(14,867)
Derivatives		(5,519)		2,833		12,717		6,927		(15,858)		1,100
Foreign currency		6,927		83		8		(1)		—		7,017
Earnings from unconsolidated entities		(5,492)		—		(1,044)		(2,754)		—		(9,290)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		(550)		(755)		—		20,155		—		18,850
Securities		597		—		—		(423)		—		174
Derivatives		736		(2,228)		1,484		(7,614)		—		(7,622)
Foreign currency		(1,205)		64		(8)		1		—		(1,148)
Earnings from unconsolidated entities		4,682		—		—		4,137		—		8,819
Core Earnings (Loss)	$	124,544	$	2,354	$	30,201	$	47,887	$	(51,131)	$	153,855
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.42	$	0.01	$	0.10	$	0.16	$	(0.17)	$	0.52

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the six months ended June 30, 2019 (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	$	317,666	$	52,206	$	—	$	5,010	$	—	$	374,882	$	—	$	374,882
Interest income from investment securities		44,275		1,753		—		55,456		—		101,484		(61,307)		40,177
Servicing fees		213		—		—		43,123		—		43,336		(9,895)		33,441
Rental income		—		—		142,847		28,283		—		171,130		—		171,130
Other revenues		456		693		166		711		26		2,052		(21)		2,031
Total revenues		362,610		54,652		143,013		132,583		26		692,884		(71,223)		621,661
Costs and expenses:
Management fees		764		—		—		36		45,095		45,895		94		45,989
Interest expense		120,168		34,835		38,122		16,261		55,736		265,122		(324)		264,798
General and administrative		13,522		9,309		3,224		39,028		7,245		72,328		180		72,508
Acquisition and investment pursuit costs		409		30		—		(23)		—		416		—		416
Costs of rental operations		760		—		46,062		13,484		—		60,306		—		60,306
Depreciation and amortization		356		—		46,972		10,478		—		57,806		—		57,806
Loan loss provision, net		2,085		1,196		—		—		—		3,281		—		3,281
Other expense		153		—		1,307		194		—		1,654		—		1,654
Total costs and expenses		138,217		45,370		135,687		79,458		108,076		506,808		(50)		506,758
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		102,994		102,994
Change in fair value of servicing rights		—		—		—		(1,674)		—		(1,674)		(9)		(1,683)
Change in fair value of investment securities, net		(2,642)		—		—		33,955		—		31,313		(30,584)		729
Change in fair value of mortgage loans held-for-sale, net		6,749		—		—		26,408		—		33,157		—		33,157
Earnings (loss) from unconsolidated entities		6,069		—		(42,761)		3,348		—		(33,344)		(1,039)		(34,383)
Gain on sale of investments and other assets, net		2,994		3,066		—		940		—		7,000		—		7,000
(Loss) gain on derivative financial instruments, net		(3,705)		(3,228)		(9,857)		(10,385)		24,936		(2,239)		—		(2,239)
Foreign currency (loss) gain, net		(1,688)		217		1		—		—		(1,470)		—		(1,470)
(Loss) gain on extinguishment of debt		—		(6,120)		—		—		6		(6,114)		—		(6,114)
Other loss, net		—		—		—		—		(73)		(73)		—		(73)
Total other income (loss)		7,777		(6,065)		(52,617)		52,592		24,869		26,556		71,362		97,918
Income (loss) before income taxes		232,170		3,217		(45,291)		105,717		(83,181)		212,632		189		212,821
Income tax (provision) benefit		(1,584)		271		(258)		(2,296)		—		(3,867)		—		(3,867)
Net income (loss)		230,586		3,488		(45,549)		103,421		(83,181)		208,765		189		208,954
Net (income) loss attributable to non-controlling interests		(392)		—		(11,072)		98		—		(11,366)		(189)		(11,555)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	230,194	$	3,488	$	(56,621)	$	103,519	$	(83,181)	$	197,399	$	—	$	197,399

Reconciliation of Net Income to Core Earnings For the six months ended June 30, 2019 (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.	$	230,194	$	3,488	$	(56,621)	$	103,519	$	(83,181)	$	197,399
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		11,072		—		—		11,072
Non-cash equity compensation expense		1,617		1,114		146		3,052		7,498		13,427
Management incentive fee		—		—		—		—		173		173
Acquisition and investment pursuit costs		(62)		2		(177)		(305)		(356)		(898)
Depreciation and amortization		356		—		47,627		9,737		—		57,720
Loan loss provision, net		2,085		1,196		—		—		—		3,281
Interest income adjustment for securities		(391)		—		—		9,353		—		8,962
Extinguishment of debt, net		—		—		—		—		(1,457)		(1,457)
Other non-cash items		—		—		(886)		508		318		(60)
Reversal of GAAP unrealized (gains) / losses on:										—
Loans held-for-sale		(6,749)		—		—		(26,408)		—		(33,157)
Securities		2,642		—		—		(33,955)		—		(31,313)
Derivatives		3,986		3,228		13,033		10,251		(26,002)		4,496
Foreign currency		1,688		(217)		(1)		—		—		1,470
(Earnings) loss from unconsolidated entities		(6,069)		—		42,761		(3,348)		—		33,344
Recognition of Core realized gains / (losses) on:										—
Loans held-for-sale		(1,203)		(755)		—		27,585		—		25,627
Securities		597		—		—		7,109		—		7,706
Derivatives		823		(1,460)		1,851		(9,239)		—		(8,025)
Foreign currency		(814)		(827)		1		9		—		(1,631)
Earnings (loss) from unconsolidated entities		4,780		—		(68,905)		12,870		—		(51,255)
Sales of properties		—		—		—		(76)		—		(76)
Core Earnings (Loss)	$	233,480	$	5,769	$	(10,099)	$	110,662	$	(103,007)	$	236,805
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.80	$	0.02	$	(0.04)	$	0.38	$	(0.35)	$	0.81

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of June 30, 2019 (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	$	21,709	$	126	$	30,493	$	27,082	$	253,779	$	333,189	$	1,099	$	334,288
Restricted cash		34,070		111,076		21,598		15,166		—		181,910		—		181,910
Loans held-for-investment, net		7,406,274		1,356,511		—		1,431		—		8,764,216		—		8,764,216
Loans held-for-sale		1,156,778		214,501		—		215,620		—		1,586,899		—		1,586,899
Investment securities		957,783		55,332		—		1,015,379		—		2,028,494		(1,178,922)		849,572
Properties, net		27,150		—		2,476,175		268,635		—		2,771,960		—		2,771,960
Intangible assets		—		—		80,840		72,720		—		153,560		(24,083)		129,477
Investment in unconsolidated entities		36,336		—		71,601		34,536		—		142,473		(22,597)		119,876
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		21,604		357		17,857		44		13,814		53,676		—		53,676
Accrued interest receivable		42,644		5,512		350		366		13,277		62,149		(769)		61,380
Other assets		15,048		4,645		71,166		66,564		9,222		166,645		10		166,655
VIE assets, at fair value		—		—		—		—		—		—		57,667,606		57,667,606
Total Assets	$	9,719,396	$	1,867,469	$	2,770,080	$	1,857,980	$	290,092	$	16,505,017	$	56,442,344	$	72,947,361
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	33,625	$	4,099	$	61,947	$	68,021	$	53,666	$	221,358	$	76	$	221,434
Related-party payable		—		—		—		11		21,133		21,144		—		21,144
Dividends payable		—		—		—		—		136,424		136,424		—		136,424
Derivative liabilities		5,966		435		—		2,490		—		8,891		—		8,891
Secured financing agreements, net		5,177,123		1,237,526		1,882,956		702,781		298,451		9,298,837		(13,950)		9,284,887
Unsecured senior notes, net		—		—		—		—		1,924,711		1,924,711		—		1,924,711
VIE liabilities, at fair value		—		—		—		—		—		—		56,446,619		56,446,619
Total Liabilities		5,216,714		1,242,060		1,944,903		773,303		2,434,385		11,611,365		56,432,745		68,044,110
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,864		2,864		—		2,864
Additional paid-in capital		1,203,757		624,494		625,962		49,768		2,599,790		5,103,771		—		5,103,771
Treasury stock		—		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		53,050		—		4,139		(65)		—		57,124		—		57,124
Retained earnings (accumulated deficit)		3,245,875		915		(43,051)		1,017,156		(4,642,753)		(421,858)		—		(421,858)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,502,682		625,409		587,050		1,066,859		(2,144,293)		4,637,707		—		4,637,707
Non-controlling interests in consolidated subsidiaries		—		—		238,127		17,818		—		255,945		9,599		265,544
Total Equity		4,502,682		625,409		825,177		1,084,677		(2,144,293)		4,893,652		9,599		4,903,251
Total Liabilities and Equity	$	9,719,396	$	1,867,469	$	2,770,080	$	1,857,980	$	290,092	$	16,505,017	$	56,442,344	$	72,947,361