Starwood Property Trust Reports Results for the Quarter Ended March 31, 2015

GREENWICH, Conn., May 5, 2015 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended March 31, 2015.  The Company's first quarter 2015 Core Earnings (a non-GAAP financial measure) were $123.7 million, or $0.55 per diluted share, an increase of over 10% from the $112.1 million, or $0.50 per diluted share, reported for the fourth quarter of 2014.

GAAP net income for the first quarter of 2015 was $120.4 million, or $0.52 per diluted share. GAAP net income increased 32% over the $91.5 million, or $0.40 per diluted share, reported for the fourth quarter of 2014.

"Starwood Property Trust is off to a strong start in 2015, deploying $1.2 billion in capital across our various business lines in the first quarter. We're particularly pleased to have announced the €452 million acquisition of a portfolio of office and multifamily assets in Dublin, Ireland. Investments in real estate will complement Starwood Property Trust's primary business segments with high quality earnings, consistent cash flow, and extending the duration of our $9.3 billion asset base, while leveraging Starwood Capital's global platform of over 1,000 professionals to source attractive risk adjusted investments. This acquisition marks the continued expansion of Starwood Property Trust's equity investment strategy which is focused on investing in high-quality, well occupied real estate assets with strong tenants," stated Barry Sternlicht, Chairman and Chief Executive Officer of Starwood Property Trust.

Mr. Sternlicht continued, "We remain well positioned to capitalize on opportunities across the evolving real estate finance and investment landscape. Our multi-cylinder platform, coupled with Starwood Capital's global real estate expertise, should enable Starwood Property Trust to continue to source very attractive risk adjusted investments across asset classes. We'll also look to continue to optimize our balance sheet by selling seasoned and shorter duration loans and exploring a variety of financing executions. To that point, we are positioned to benefit from any rise in short term interest rates. Our goal remains the same: to build the world's premiere diversified real estate company, generating attractive and stable returns for our shareholders."

Highlights for the First Quarter 2015 by Business Segment

The Company currently operates in two reportable segments: Real Estate Lending (the "Lending Segment") and Real Estate Investing and Servicing (the "Investing and Servicing Segment"). Beginning in the second quarter, the Company will add a third segment for its investments in commercial real estate equity. During the first quarter of 2015, the Company established a separate presentation for corporate overhead which includes expenses associated with corporate-level debt, management fee expenses and general and administrative expenses not directly allocable to the Company's segments.  We have retrospectively reclassified prior periods to conform to this presentation.

Real Estate Lending Segment

The Lending Segment primarily represents the Company's on-balance sheet loan origination business.  During the first quarter of 2015, the Lending Segment contributed Core Earnings of $109.9 million, or $0.49 per diluted share, an increase of 3% from the $106.5 million, or $0.47 per diluted share, contributed for the fourth quarter of 2014.  GAAP earnings during the first quarter of 2015 were $114.5 million, or $0.50 per diluted share, compared to $109.1 million, or $0.48 per diluted share, contributed for the fourth quarter of 2014. 

The Lending Segment originated and/or acquired $721.4 million of new investments during the quarter, of which $658.7 million was funded at closing. During the quarter, the Company also funded an additional $130.4 million of pre-existing loan commitments. The Company's activity during the quarter includes:

• Originated a $111.6 million first mortgage and mezzanine loan for the acquisition of a 129-acre office park in Boca Raton, Florida.
  
• Acquired a $105.6 million mezzanine loan secured by a 6,530-room, 24-property U.S. hotel portfolio.
  
• Originated a $73.3 million first mortgage and mezzanine loan for the acquisition of a 367-room full service hotel in New Orleans, Louisiana.
  
• Originated a $61.6 million first mortgage and mezzanine loan for the acquisition of a 499-room full service hotel in Indianapolis, Indiana.
  
• Originated a $58.9 million first mortgage and mezzanine loan for the acquisition of an 11-building office portfolio in Sonoma County, California.
  
• Originated a $48.4 million first mortgage and mezzanine loan for the acquisition of a portfolio of 29 bank branch properties located primarily in Phoenix, Arizona.

The carrying value of the Lending Segment's total investment portfolio was $7.1 billion as of March 31, 2015, of which $6.8 billion represents its target portfolio.  The target portfolio is anticipated to generate a current optimal asset-level return of 10.6% (refer to footnote (4) for a discussion of how this return is computed). 

The following is a summary of the Lending Segment's investments as of March 31, 2015:

Loan-to-Value of Portfolio

The following table reflects the weighted average loan-to-value ("LTV") ratio of the Lending Segment's loan portfolio as of March 31, 2015:

Real Estate Investing and Servicing Segment

The Investing and Servicing Segment includes the Company's U.S. and European servicing businesses, CMBS investment business and conduit loan origination platform. During the first quarter of 2015, the Investing and Servicing Segment contributed Core Earnings of $60.9 million, or $0.27 per diluted share, an increase of 28% from the $47.5 million, or $0.21 per diluted share, contributed for the fourth quarter of 2014.  GAAP earnings during the first quarter of 2015 were $66.8 million, or $0.29 per diluted share, an increase of 34% from the $49.8 million, or $0.22 per diluted share, contributed for the fourth quarter of 2014.

At March 31, 2015, the carrying amount of the Investing and Servicing Segment's principal assets was $1.4 billion and is summarized below: 

Significant investment activity during the first quarter with respect to these assets includes:

• Purchase of $60.3 million of CMBS, including $47.5 million in new issue B-pieces.
• Net decrease in the fair value of the domestic servicing intangible on a GAAP and Core basis of $4.9 million, resulting from the continued amortization of this asset, net of increases in fair value due to the attainment of new servicing contracts. As of March 31, 2015, the Company was special servicer on $13.7 billion of loans and real estate owned and added three new issue special servicing assignments during the first quarter.
• Origination in our conduit loan business of $413.2 million of loans, contributing net securitization profits of $11.6 million and $11.1 million on a GAAP and Core basis, respectively.

We also sold assets on an opportunistic basis, including (i) sales of CMBS for a gain of $1.8 million and $11.2 million on a GAAP and Core basis, respectively; and (ii) the sale of an operating property for a gain of $17.1 million and $16.6 million on a GAAP and Core basis, respectively ($10.5 million and $10.2 million net of tax, respectively).

Financing Activities

As of March 31, 2015, the Company had an aggregate outstanding balance of $5.1 billion and a maximum borrowing capacity of $5.8 billion under its fourteen financing facilities and three convertible senior notes. In April 2015, the Company issued 13.8 million shares of common stock for gross proceeds of $326.1 million.  Pro forma for this equity offering, the Company's debt-to-equity ratio was 1.2x. 

During the first quarter, the Company:

• Obtained a third repurchase facility for $150.0 million to fund the origination of commercial mortgage loans for future securitization through the Investing and Servicing Segment's conduit platform.
• Borrowed $190.5 million on a new repurchase facility to finance certain CMBS holdings. The facility has no maximum facility size as the lender will evaluate all eligible collateral on an asset-by-asset basis.
• Repurchased $104.1 million aggregate principal amount of the Company's 4.0% Convertible Senior Notes for $119.9 million, resulting in a loss on extinguishment of debt for the quarter of $5.3 million.

Interest Rate Sensitivity

The Company's Lending Segment should benefit from a rising rate environment given its high volume of LIBOR-based floating rate loans.  As of March 31, 2015, 80% of the Lending Segment's existing loan portfolio and 100% of its current loan pipeline is indexed to LIBOR. In addition, 85% of the floating rate portfolio benefits from having a LIBOR floor at an average rate of 0.32%.  For the 20% of the portfolio that is fixed rate, the weighted average coupon is 8.1%. 

The Company continues to pursue its strategy of financing floating rate investments with floating rate debt and fixed rate investments with either fixed rate debt or floating rate debt hedged by interest swaps. The Company realizes an additional benefit from its fixed rate convertible senior notes, which help limit exposure to rising rates.

The following table summarizes the impact to annual net income from a specified hypothetical change in LIBOR: 

Additionally, the Company's special servicing revenues would likely benefit from a rising rate environment due to an expected increase in the number of loans that would enter special servicing. 

Book Value and Fair Value Per Share, Net of Minority Interest

Decreases in fair value and book value per diluted share are principally the result of an additional 1.9 million shares included in the diluted share count as of March 31, 2015 due to an increase in the "in-the-money" portion of the Company's convertible notes. 

Investment Related Activity Subsequent to March 31, 2015

The Company expects to acquire 13 properties, including 12 office properties and one multi-family residential property totaling 630,000 square feet, all located in the central business district of Dublin, Ireland. The portfolio has a weighted average lease term of 6.2 years and is 99.9% leased primarily to multinational and government tenants. The Company has already entered into agreements to acquire 10 of these properties, however, completion of the portfolio acquisition is subject to the Company executing agreements to acquire the remaining three properties and other customary closing conditions. The aggregate purchase price for the portfolio is approximately €452 million. 

Subsequent to quarter end, the Lending Segment invested in the following:

• $170.0 million first mortgage and mezzanine loan for the refinancing of a 1,054-room, five property hotel portfolio in California.

Subsequent to quarter end, the following occurred in the Investing and Servicing Segment:

• Originated conduit loans of $83.5 million.
• Received proceeds of $231.5 million from the securitization of conduit loan inventory.

Investment Capacity

As of April 30, 2015, the Company had approximately $369.8 million of available cash and equivalents, approximately $79.1 million of net equity invested in RMBS that are classified as available-for-sale, $133.1 million of approved but undrawn capacity under existing financing facilities and $303.5 million of unallocated warehouse capacity. In addition, the Company expects to receive $903.8 million during the second quarter from expected maturities, prepayments, sales and participations. These liquidity sources provide the Company with the capacity to acquire or originate up to $1.5 billion of new investments. 

Dividend

On May 5, 2015, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending June 30, 2015.  The dividend is payable on July 15, 2015 to common shareholders of record as of June 30, 2015. 

2015 Guidance

For 2015, the Company is reaffirming its Core Earnings guidance in the range of $2.05 to $2.25 per diluted share.  This guidance reflects the Company's estimates on the (i) yield on existing investments; (ii) yield on incremental investments inclusive of the Company's existing pipeline; (iii) amount and timing of debt and equity capital deployment to fund new investments; (iv) costs of additional debt and equity capital to fund new investments; (v) pace of amortization of the servicing intangible based on the amount and timing of servicing fees on existing contracts; (vi) taxation associated with the TRSs, particularly the Investing and Servicing TRSs, which house this segment's servicing and conduit loan operations, both of which generate significant taxable income; and (vii) changes in costs and expenses reflective of the Company's forecasted operations.  This guidance does not reflect any impact which may result from repurchases of equity or convertible debt securities pursuant to the Company's existing repurchase program.  All guidance is based on current expectations of future economic conditions, the dynamics of the commercial real estate markets in which it operates and the judgment of the Company's management team. 

Supplemental Schedules

The Company has published supplemental earnings schedules in order to provide additional disclosure and financial information for the benefit of the Company's stakeholders.  These can be found at the Company's website in the Investor Relations section under "Financial Information".

Conference Call and Webcast Information 

The Company will host a webcast and conference call on Tuesday, May 5, 2015 at 10:00 a.m. Eastern Time to discuss first quarter 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 15 minutes prior to start time.

Domestic:  1-888-430-8694
International:  1-719-325-2448

Conference Call Playback:
Domestic:  1-877-870-5176
International:  1-858-384-5517
Passcode:  7068289

The playback can be accessed through May 19, 2015

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 investments. Through its subsidiaries LNR Property, LLC and Hatfield Philips International, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States and one of the largest primary and special servicers in Europe. With total capital deployed since inception of approximately $18.5 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.

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, depreciation and amortization of real estate (to the extent that the Company owns properties), 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. 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. 

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]

SOURCE Starwood Property Trust, Inc.

Related Links

http://www.starwoodpropertytrust.com