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

- Quarterly GAAP Earnings of $0.31 and Core Earnings of $0.53 per Diluted Common Share -

- Year-to-Date Capital Deployed of $8.9 Billion, Up 77% Versus 2017 -

- Deploys $2.5 Billion for the Acquisition of Infrastructure Finance Platform and Portfolio and $1.3 Billion in the Commercial and Residential Lending Segment -

- Moody's Revises Rating Outlook to Positive from Stable -

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

News provided by

Starwood Property Trust, Inc.

Nov 09, 2018, 07:00 ET

GREENWICH, Conn., Nov. 9, 2018 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended September 30, 2018. The Company's third quarter 2018 GAAP net income was $84.5 million, or $0.31 per diluted share, and Core Earnings (a non-GAAP financial measure) was $148.4 million, or $0.53 per diluted share. This includes $6.9 million, or $0.03 per diluted share, and $3.0 million, or $0.01 per diluted share, of acquisition costs associated with the infrastructure finance platform and portfolio for GAAP and Core Earnings, respectively.

"We are excited to have completed another successful quarter which was highlighted by record levels of capital deployment including the acquisition of our new infrastructure finance platform," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust. "We continue to see the benefits of a multi-cylinder approach as we execute on attractive investments across our existing businesses. During the quarter, our asset base and commercial loan portfolio both reached record levels, with assets of $16.0 billion and commercial loans of $7.5 billion."

"We intend to capitalize on attractive opportunities to expand our infrastructure finance platform as we continue to execute on the prudent allocation of capital across our cylinders allowing us to achieve the best risk-adjusted returns for our shareholders."

Dividend

On November 9, 2018, the Company's Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending December 31, 2018. The dividend is payable on January 15, 2019 to common stockholders of record as of December 31, 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 Friday, November 9, 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: 13684083

The playback can be accessed through November 23, 2018.

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 $48 billion of capital since inception and manages a portfolio in excess of $15 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 September 30, 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	$	147,913	$	3,053	$	—	$	3,535	$	—	$	154,501	$	—	$	154,501
Interest income from investment securities		10,320		107		—		34,477		—		44,904		(33,396)		11,508
Servicing fees		98		—		—		34,100		—		34,198		(6,374)		27,824
Rental income		—		—		76,067		15,065		—		91,132		—		91,132
Other revenues		265		44		169		229		89		796		(42)		754
Total revenues		158,596		3,204		76,236		87,406		89		325,531		(39,812)		285,719
Costs and expenses:
Management fees		453		—		—		18		25,937		26,408		111		26,519
Interest expense		43,322		2,258		19,483		7,396		30,475		102,934		(276)		102,658
General and administrative		7,016		537		1,680		19,131		2,753		31,117		86		31,203
Acquisition and investment pursuit costs		341		6,725		—		(539)		—		6,527		—		6,527
Costs of rental operations		—		—		23,052		7,139		—		30,191		—		30,191
Depreciation and amortization		17		—		28,448		5,828		—		34,293		—		34,293
Loan loss allowance, net		929		—		—		—		—		929		—		929
Other expense		76		—		—		—		—		76		—		76
Total costs and expenses		52,154		9,520		72,663		38,973		59,165		232,475		(79)		232,396
Income (loss) before other income (loss), income taxes and non-controlling interests		106,442		(6,316)		3,573		48,433		(59,076)		93,056		(39,733)		53,323
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		33,289		33,289
Change in fair value of servicing rights		—		—		—		(1,994)		—		(1,994)		1,020		(974)
Change in fair value of investment securities, net		238		—		—		(4,966)		—		(4,728)		5,029		301
Change in fair value of mortgage loans held-for-sale, net		1,343		—		—		2,597		—		3,940		—		3,940
Earnings (loss) from unconsolidated entities		514		—		1,988		(134)		—		2,368		257		2,625
Gain on sale of investments and other assets, net		47		—		—		1,415		—		1,462		—		1,462
Gain (loss) on derivative financial instruments, net		7,278		455		5,895		3,076		(4,969)		11,735		—		11,735
Foreign currency loss, net		(3,546)		(531)		(1)		—		—		(4,078)		—		(4,078)
Loss on extinguishment of debt		(730)		—		—		—		(1,810)		(2,540)		—		(2,540)
Other income (loss), net		(1)		—		2		(1,422)		—		(1,421)		—		(1,421)
Total other income (loss)		5,143		(76)		7,884		(1,428)		(6,779)		4,744		39,595		44,339
Income (loss) before income taxes		111,585		(6,392)		11,457		47,005		(65,855)		97,800		(138)		97,662
Income tax provision		(314)		—		(125)		(7,842)		—		(8,281)		—		(8,281)
Net income (loss)		111,271		(6,392)		11,332		39,163		(65,855)		89,519		(138)		89,381
Net (income) loss attributable to non-controlling interests		(365)		—		(4,769)		151		—		(4,983)		138		(4,845)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	110,906	$	(6,392)	$	6,563	$	39,314	$	(65,855)	$	84,536	$	—	$	84,536

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 September 30, 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.	$	110,906	$	(6,392)	$	6,563	$	39,314	$	(65,855)	$	84,536
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		4,769		—		—		4,769
Non-cash equity compensation expense		750		13		98		1,321		3,769		5,951
Management incentive fee		—		—		—		—		4,299		4,299
Acquisition and investment pursuit costs		45		3,770		(89)		(129)		—		3,597
Depreciation and amortization		17		—		28,780		5,456		—		34,253
Loan loss allowance, net		929		—		—		—		—		929
Interest income adjustment for securities		(137)		—		—		6,573		—		6,436
Extinguishment of debt, net		—		—		—		—		(922)		(922)
Other non-cash items		—		—		(632)		1,622		986		1,976
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		(1,343)		—		—		(2,597)		—		(3,940)
Securities		(338)		—		—		4,966		—		4,628
Derivatives		(7,497)		(455)		(4,779)		(3,424)		5,248		(10,907)
Foreign currency		3,546		531		1		—		—		4,078
Earnings from unconsolidated entities		(514)		—		(1,988)		134		—		(2,368)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		3,558		—		—		4,415		—		7,973
Securities		100		—		—		1,673		—		1,773
Derivatives		6		—		(230)		1,048		—		824
Foreign currency		225		(8)		—		—		—		217
Earnings from unconsolidated entities		581		—		—		613		—		1,194
Sales of properties		—		—		—		(928)		—		(928)
Core Earnings (Loss)	$	110,834	$	(2,541)	$	32,493	$	60,057	$	(52,475)	$	148,368
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.40	$	(0.01)	$	0.12	$	0.21	$	(0.19)	$	0.53

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the nine months ended September 30, 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	$	431,153	$	3,053	$	—	$	9,619	$	—	$	443,825	$	—	$	443,825
Interest income from investment securities		33,689		107		—		99,348		—		133,144		(95,577)		37,567
Servicing fees		313		—		—		92,221		—		92,534		(21,328)		71,206
Rental income		—		—		217,178		43,955		—		261,133		—		261,133
Other revenues		683		44		351		973		227		2,278		(147)		2,131
Total revenues		465,838		3,204		217,529		246,116		227		932,914		(117,052)		815,862
Costs and expenses:
Management fees		1,396		—		—		54		82,895		84,345		310		84,655
Interest expense		110,169		2,258		55,397		18,298		96,132		282,254		(821)		281,433
General and administrative		19,962		537		5,510		64,006		8,602		98,617		256		98,873
Acquisition and investment pursuit costs		2,253		6,725		(46)		(467)		—		8,465		—		8,465
Costs of rental operations		—		—		72,531		20,250		—		92,781		—		92,781
Depreciation and amortization		50		—		86,655		16,482		—		103,187		—		103,187
Loan loss allowance, net		27,726		—		—		—		—		27,726		—		27,726
Other expense		230		—		—		447		—		677		—		677
Total costs and expenses		161,786		9,520		220,047		119,070		187,629		698,052		(255)		697,797
Income (loss) before other income (loss), income taxes and non-controlling interests		304,052		(6,316)		(2,518)		127,046		(187,402)		234,862		(116,797)		118,065
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		129,888		129,888
Change in fair value of servicing rights		—		—		—		(14,417)		—		(14,417)		5,426		(8,991)
Change in fair value of investment securities, net		16		—		—		24,123		—		24,139		(16,285)		7,854
Change in fair value of mortgage loans held-for-sale, net		(165)		—		—		26,738		—		26,573		—		26,573
Earnings from unconsolidated entities		3,761		—		1,406		2,916		—		8,083		(1,450)		6,633
Gain on sale of investments and other assets, net		461		—		6,883		18,215		—		25,559		—		25,559
Gain (loss) on derivative financial instruments, net		15,927		455		27,734		7,720		(24,338)		27,498		—		27,498
Foreign currency loss, net		(3,260)		(531)		—		(2)		—		(3,793)		—		(3,793)
Loss on extinguishment of debt		(730)		—		—		(186)		(1,810)		(2,726)		—		(2,726)
Other income (loss), net		42		—		508		(1,365)		—		(815)		—		(815)
Total other income (loss)		16,052		(76)		36,531		63,742		(26,148)		90,101		117,579		207,680
Income (loss) before income taxes		320,104		(6,392)		34,013		190,788		(213,550)		324,963		782		325,745
Income tax provision		(2,981)		—		(1,997)		(9,502)		—		(14,480)		—		(14,480)
Net income (loss)		317,123		(6,392)		32,016		181,286		(213,550)		310,483		782		311,265
Net income attributable to non-controlling interests		(1,087)		—		(11,906)		(3,792)		—		(16,785)		(782)		(17,567)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	316,036	$	(6,392)	$	20,110	$	177,494	$	(213,550)	$	293,698	$	—	$	293,698

Reconciliation of Net Income to Core Earnings
For the nine months ended September 30, 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.	$	316,036	$	(6,392)	$	20,110	$	177,494	$	(213,550)	$	293,698
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		11,906		—		—		11,906
Non-cash equity compensation expense		2,079		13		228		3,613		10,635		16,568
Management incentive fee		—		—		—		—		19,620		19,620
Acquisition and investment pursuit costs		1,430		3,770		(249)		(215)		—		4,736
Depreciation and amortization		50		—		87,648		15,253		—		102,951
Loan loss allowance, net		27,726		—		—		—		—		27,726
Interest income adjustment for securities		(531)		—		—		8,206		—		7,675
Extinguishment of debt, net		—		—		—		—		8,586		8,586
Other non-cash items		—		—		(2,406)		2,194		2,762		2,550
Reversal of GAAP unrealized (gains) / losses on:
Loans held-for-sale		165		—		—		(26,738)		—		(26,573)
Securities		(259)		—		—		(24,123)		—		(24,382)
Derivatives		(16,665)		(455)		(25,228)		(8,788)		26,797		(24,339)
Foreign currency		3,260		531		—		2		—		3,793
Earnings from unconsolidated entities		(3,761)		—		(1,406)		(2,916)		—		(8,083)
Recognition of Core realized gains / (losses) on:
Loans held-for-sale		1,487		—		—		28,285		—		29,772
Securities		242		—		—		(4,419)		—		(4,177)
Derivatives		(5,848)		—		(938)		7,197		—		411
Foreign currency		8,136		(8)		—		(42)		—		8,086
Earnings from unconsolidated entities		3,986		—		—		2,875		—		6,861
Sales of properties		—		—		(365)		(4,374)		—		(4,739)
Core Earnings (Loss)	$	337,533	$	(2,541)	$	89,300	$	173,504	$	(145,150)	$	452,646
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.24	$	(0.01)	$	0.33	$	0.63	$	(0.53)	$	1.66

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet by Segment
As of September 30, 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	$	15,217	$	8	$	23,496	$	44,771	$	180,946	$	264,438	$	1,319	$	265,757
Restricted cash		34,325		28,222		18,239		14,508		28,970		124,264		—		124,264
Loans held-for-investment, net		7,004,938		1,492,276		—		3,460		—		8,500,674		—		8,500,674
Loans held-for-sale		719,781		320,270		—		286,786		—		1,326,837		—		1,326,837
Loans transferred as secured borrowings		74,281		—		—		—		—		74,281		—		74,281
Investment securities		718,262		65,060		—		1,027,554		—		1,810,876		(1,047,426)		763,450
Properties, net		—		—		2,620,220		268,517		—		2,888,737		—		2,888,737
Properties held-for-sale		—		—		31,928		20,374		—		52,302		—		52,302
Intangible assets		—		—		96,348		80,420		—		176,768		(22,820)		153,948
Investment in unconsolidated entities		34,334		—		112,110		43,804		—		190,248		(21,460)		168,788
Goodwill		—		115,988		—		140,437		—		256,425		—		256,425
Derivative assets		15,232		481		41,461		2,633		—		59,807		—		59,807
Accrued interest receivable		42,080		6,356		269		1,090		3,243		53,038		(127)		52,911
Other assets		38,604		8,398		99,412		49,882		2,399		198,695		(7)		198,688
VIE assets, at fair value		—		—		—		—		—		—		48,034,610		48,034,610
Total Assets	$	8,697,054	$	2,037,059	$	3,043,483	$	1,984,236	$	215,558	$	15,977,390	$	46,944,089	$	62,921,479
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	23,681	$	10,889	$	71,253	$	80,353	$	28,600	$	214,776	$	126	$	214,902
Related-party payable		—		—		—		74		25,212		25,286		—		25,286
Dividends payable		—		—		—		—		132,549		132,549		—		132,549
Derivative liabilities		3,015		381		2,276		251		29,463		35,386		—		35,386
Secured financing agreements, net		4,117,051		1,507,073		1,929,596		759,012		297,655		8,610,387		(23,700)		8,586,687
Unsecured senior notes, net		—		—		—		—		2,024,570		2,024,570		—		2,024,570
Secured borrowings on transferred loans, net		74,148		—		—		—		—		74,148		—		74,148
VIE liabilities, at fair value		—		—		—		—		—		—		46,945,674		46,945,674
Total Liabilities		4,217,895		1,518,343		2,003,125		839,690		2,538,049		11,117,102		46,922,100		58,039,202
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,793		2,793		—		2,793
Additional paid-in capital		1,481,943		525,108		809,734		270,045		1,876,231		4,963,061		—		4,963,061
Treasury stock		—		—		—		—		(104,194)		(104,194)		—		(104,194)
Accumulated other comprehensive income (loss)		60,811		—		7,171		(62)		—		67,920		—		67,920
Retained earnings (accumulated deficit)		2,926,015		(6,392)		5,775		863,580		(4,097,321)		(308,343)		—		(308,343)
Total Starwood Property Trust, Inc. Stockholders' Equity		4,468,769		518,716		822,680		1,133,563		(2,322,491)		4,621,237		—		4,621,237
Non-controlling interests in consolidated subsidiaries		10,390		—		217,678		10,983		—		239,051		21,989		261,040
Total Equity		4,479,159		518,716		1,040,358		1,144,546		(2,322,491)		4,860,288		21,989		4,882,277
Total Liabilities and Equity	$	8,697,054	$	2,037,059	$	3,043,483	$	1,984,236	$	215,558	$	15,977,390	$	46,944,089	$	62,921,479