Starwood Property Trust Reports Results for the Quarter Ended September 30, 2017

Investing

Investing

Lending

Property

and Servicing

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

134,149

$

—

$

4,450

$

—

$

138,599

$

—

$

138,599

Interest income from investment
   securities

11,540

—

31,740

—

43,280

(30,829)

12,451

Servicing fees

142

—

23,093

—

23,235

(8,393)

14,842

Rental income

—

47,663

12,490

—

60,153

—

60,153

Other revenues

181

164

441

—

786

(64)

722

Total revenues

146,012

47,827

72,214

—

266,053

(39,286)

226,767

Costs and expenses:

Management fees

482

—

18

30,370

30,870

110

30,980

Interest expense

27,929

11,360

5,710

31,709

76,708

(277)

76,431

General and administrative

5,302

1,090

24,167

2,251

32,810

82

32,892

Acquisition and investment pursuit
   costs

807

245

(28)

—

1,024

—

1,024

Costs of rental operations

—

18,660

5,139

—

23,799

—

23,799

Depreciation and amortization

17

17,852

5,002

—

22,871

—

22,871

Loan loss allowance, net

(171)

—

—

—

(171)

—

(171)

Other expense

72

97

207

—

376

—

376

Total costs and expenses

34,438

49,304

40,215

64,330

188,287

(85)

188,202

Income (loss) before other income
   (loss), income taxes and non-
   controlling interests

111,574

(1,477)

31,999

(64,330)

77,766

(39,201)

38,565

Other income (loss):

Change in net assets related to
   consolidated VIEs

—

—

—

—

—

56,177

56,177

Change in fair value of servicing
   rights

—

—

(5,652)

—

(5,652)

785

(4,867)

Change in fair value of investment
   securities, net

276

—

13,962

—

14,238

(14,635)

(397)

Change in fair value of mortgage
   loans held-for-sale, net

(397)

—

19,882

—

19,485

—

19,485

Earnings (loss) from unconsolidated
   entities

848

(33,731)

30,225

—

(2,658)

(2,031)

(4,689)

Gain on sale of investments and other
   assets, net

—

—

11,877

—

11,877

—

11,877

Loss on derivative financial
   instruments, net

(10,813)

(11,276)

(2,135)

—

(24,224)

—

(24,224)

Foreign currency gain (loss), net

10,657

(1)

4

—

10,660

—

10,660

Other income, net

—

—

28

—

28

—

28

Total other income (loss)

571

(45,008)

68,191

—

23,754

40,296

64,050

Income (loss) before income taxes

112,145

(46,485)

100,190

(64,330)

101,520

1,095

102,615

Income tax benefit (provision)

11

—

(9,827)

—

(9,816)

—

(9,816)

Net income (loss)

112,156

(46,485)

90,363

(64,330)

91,704

1,095

92,799

Net income attributable to non-
   controlling interests

(357)

—

(2,919)

—

(3,276)

(1,095)

(4,371)

Net income (loss) attributable to
   Starwood Property Trust, Inc.

$

111,799

$

(46,485)

$

87,444

$

(64,330)

$

88,428

$

—

$

88,428

Reconciliation of Net Income to Core Earnings

For the three months ended September 30, 2017

(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.

$

111,799

$

(46,485)

$

87,444

$

(64,330)

$

88,428

Add / (Deduct):

Non-cash equity compensation expense

783

33

1,015

3,379

5,210

Management incentive fee

—

—

—

10,378

10,378

Acquisition and investment pursuit costs

74

151

49

—

274

Depreciation and amortization

17

18,102

4,600

—

22,719

Loan loss allowance, net

(171)

—

—

—

(171)

Interest income adjustment for securities

(225)

—

5,071

—

4,846

Income tax adjustment for discrete transactions

—

—

(9,356)

—

(9,356)

Other non-cash items

—

(496)

187

—

(309)

Reversal of unrealized (gains) / losses on:

Loans held-for-sale

397

—

(19,882)

—

(19,485)

Securities

(276)

—

(13,962)

—

(14,238)

Derivatives

10,394

11,291

1,555

—

23,240

Foreign currency

(10,657)

1

(4)

—

(10,660)

Earnings from unconsolidated entities

(848)

33,731

(30,225)

—

2,658

Purchases and sales of properties

—

—

—

—

—

Recognition of realized gains / (losses) on:

Loans held-for-sale

(397)

—

19,330

—

18,933

Securities

—

—

(2,657)

—

(2,657)

Derivatives

(290)

(140)

(500)

(247)

(1,177)

Foreign currency

549

—

(240)

—

309

Earnings from unconsolidated entities

849

—

52,921

—

53,770

Purchases and sales of properties

—

—

(1,838)

—

(1,838)

Core Earnings (Loss)

$

111,998

$

16,188

$

93,508

$

(50,820)

$

170,874

Core Earnings (Loss) per Weighted Average
   Diluted Share

$

0.43

$

0.06

$

0.36

$

(0.20)

$

0.65

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the nine months ended September 30, 2017

(Amounts in thousands)

Investing

Investing

Lending

Property

and Servicing

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

360,188

$

—

$

10,906

$

—

$

371,094

$

—

$

371,094

Interest income from investment
   securities

35,870

—

104,768

—

140,638

(100,593)

40,045

Servicing fees

568

—

86,837

—

87,405

(39,833)

47,572

Rental income

—

138,795

37,366

—

176,161

—

176,161

Other revenues

553

430

1,450

—

2,433

(249)

2,184

Total revenues

397,179

139,225

241,327

—

777,731

(140,675)

637,056

Costs and expenses:

Management fees

1,405

—

54

78,328

79,787

210

79,997

Interest expense

72,372

32,466

14,924

94,667

214,429

(821)

213,608

General and administrative

14,872

3,471

69,536

7,719

95,598

243

95,841

Acquisition and investment
   pursuit costs

1,707

516

9

—

2,232

—

2,232

Costs of rental operations

—

51,843

15,858

—

67,701

—

67,701

Depreciation and amortization

50

52,288

14,793

—

67,131

—

67,131

Loan loss allowance, net

(3,170)

—

—

—

(3,170)

—

(3,170)

Other expense

72

63

1,141

—

1,276

—

1,276

Total costs and expenses

87,308

140,647

116,315

180,714

524,984

(368)

524,616

Income (loss) before other income
   (loss), income taxes and non-
   controlling interests

309,871

(1,422)

125,012

(180,714)

252,747

(140,307)

112,440

Other income (loss):

Change in net assets related to
   consolidated VIEs

—

—

—

—

—

203,108

203,108

Change in fair value of servicing
   rights

—

—

(28,956)

—

(28,956)

7,655

(21,301)

Change in fair value of investment

   securities, net

299

—

45,263

—

45,562

(49,623)

(4,061)

Change in fair value of mortgage
   loans held-for-sale, net

(549)

—

46,033

—

45,484

—

45,484

Earnings (loss) from unconsolidated
   entities

2,548

(28,782)

67,134

—

40,900

(13,137)

27,763

(Loss) gain on sale of investments
   and other assets, net

(59)

77

16,986

—

17,004

—

17,004

Loss on derivative financial
   instruments, net

(30,274)

(32,268)

(3,617)

—

(66,159)

—

(66,159)

Foreign currency gain, net

28,402

16

16

—

28,434

—

28,434

OTTI

(109)

—

—

—

(109)

—

(109)

Loss on extinguishment of debt

—

—

—

(5,916)

(5,916)

—

(5,916)

Other income, net

—

—

1,097

—

1,097

(613)

484

Total other income (loss)

258

(60,957)

143,956

(5,916)

77,341

147,390

224,731

Income (loss) before income taxes

310,129

(62,379)

268,968

(186,630)

330,088

7,083

337,171

Income tax provision

(331)

—

(17,954)

—

(18,285)

—

(18,285)

Net income (loss)

309,798

(62,379)

251,014

(186,630)

311,803

7,083

318,886

Net income attributable to non-
   controlling interests

(1,064)

—

(2,573)

—

(3,637)

(7,083)

(10,720)

Net income (loss) attributable
   to Starwood Property
   Trust, Inc.

$

308,734

$

(62,379)

$

248,441

$

(186,630)

$

308,166

$

—

$

308,166

Reconciliation of Net Income to Core Earnings

For the nine months ended September 30, 2017

(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.

$

308,734

$

(62,379)

$

248,441

$

(186,630)

$

308,166

Add / (Deduct):

Non-cash equity compensation expense

2,353

82

2,491

8,340

13,266

Management incentive fee

—

—

—

20,183

20,183

Acquisition and investment pursuit costs

74

162

91

—

327

Depreciation and amortization

50

52,982

13,441

—

66,473

Loan loss allowance, net

(3,170)

—

—

—

(3,170)

Interest income adjustment for securities

(697)

—

9,436

—

8,739

Income tax adjustment for discrete transactions

—

—

555

—

555

Other non-cash items

—

(1,665)

1,005

5,916

5,256

Reversal of unrealized (gains) / losses on:

Loans held-for-sale

549

—

(46,033)

—

(45,484)

Securities

(189)

—

(45,263)

—

(45,452)

Derivatives

28,897

31,510

2,056

—

62,463

Foreign currency

(28,402)

(16)

(16)

—

(28,434)

Earnings from unconsolidated entities

(2,548)

28,782

(67,134)

—

(40,900)

Purchases and sales of properties

—

—

(613)

—

(613)

Recognition of realized gains / (losses) on:

Loans held-for-sale

(549)

—

48,950

—

48,401

Securities

—

—

8,332

—

8,332

Derivatives

14,567

(18)

(1,251)

(493)

12,805

Foreign currency

(12,655)

16

(1,138)

—

(13,777)

Earnings from unconsolidated entities

2,529

3,563

55,774

—

61,866

Purchases and sales of properties

—

(153)

611

—

458

Core Earnings (Loss)

$

309,543

$

52,866

$

229,735

$

(152,684)

$

439,460

Core Earnings (Loss) per Weighted Average
   Diluted Share

$

1.18

$

0.20

$

0.88

$

(0.58)

$

1.68

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of September 30, 2017

(Amounts in thousands)

Investing

Investing

Lending

Property

and Servicing

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Assets:

Cash and cash equivalents

$

43,513

$

8,581

$

58,584

$

298,006

$

408,684

$

5,161

$

413,845

Restricted cash

22,527

20,189

11,875

—

54,591

—

54,591

Loans held-for-investment, net

6,378,468

—

3,903

—

6,382,371

—

6,382,371

Loans held-for-sale

418,618

—

190,006

—

608,624

—

608,624

Loans transferred as secured
   borrowings

74,339

—

—

—

74,339

—

74,339

Investment securities

677,977

—

1,026,634

—

1,704,611

(1,002,793)

701,818

Properties, net

—

2,234,646

286,696

—

2,521,342

—

2,521,342

Intangible assets

—

116,856

91,591

—

208,447

(26,582)

181,865

Investment in unconsolidated
   entities

36,831

109,607

117,772

—

264,210

(20,760)

243,450

Goodwill

—

—

140,437

—

140,437

—

140,437

Derivative assets

13,513

22,480

2,300

—

38,293

—

38,293

Accrued interest receivable

34,569

—

478

—

35,047

—

35,047

Other assets

10,286

40,705

61,787

2,293

115,071

(2,806)

112,265

VIE assets, at fair value

—

—

—

—

—

51,197,981

51,197,981

Total Assets

$

7,710,641

$

2,553,064

$

1,992,063

$

300,299

$

12,556,067

$

50,150,201

$

62,706,268

Liabilities and Equity

Liabilities:

Accounts payable, accrued
   expenses and other liabilities

$

27,821

$

71,726

$

78,398

$

24,739

$

202,684

$

1,098

$

203,782

Related-party payable

—

—

43

29,946

29,989

—

29,989

Dividends payable

—

—

—

125,674

125,674

—

125,674

Derivative liabilities

14,105

8,784

1

—

22,890

—

22,890

Secured financing agreements,
   net

3,223,863

1,501,006

516,933

296,593