Starwood Property Trust Reports Results for the Quarter Ended September 30, 2020

-- Quarterly GAAP Earnings of $0.52 and Core Earnings of $0.50 per Diluted Share --

-- Originated or Acquired $1.5 Billion of Assets --

-- Paid Third Quarter Dividend of $0.48 per Share --

-- Subsequent to Quarter End, Issued $550 Million of Corporate Debt --

News provided by

Nov 05, 2020, 07:00 ET

GREENWICH, Conn., Nov. 5, 2020 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended September 30, 2020. The Company's third quarter 2020 GAAP net income was $151.8 million, or $0.52 per diluted share, and Core Earnings (a non-GAAP financial measure) was $148.6 million, or $0.50 per diluted share.

"We shifted from a cautious stance in the second quarter and deployed $1.5 billion in the third quarter, taking advantage of the most compelling risk adjusted returns presented across our various business lines. We also proactively addressed the near-term maturity of our $500 million February 2021 notes by successfully completing two successful debt raises, including issuing our first ever sustainability bond.

Our diversified platform showed its power versus pure play commercial mortgage REITs, as we deployed nearly two thirds of the capital this quarter outside our core commercial real estate lending business. Our owned real estate portfolio, over half of which consists of affordable housing, continues to shine, producing a cash on cash yield exceeding 15%. We estimate that we have approximately $3.00 per share of unrealized gains across our owned property assets today. With over $880 million of cash and undrawn debt capacity, our liquidity remains strong and we remain well positioned to selectively deploy capital going forward," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

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.

Webcast and Conference Call Information

The Company will host a live webcast and conference call on Thursday, November 5, 2020, 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, download and install any necessary audio software. The webcast is available at www.starwoodpropertytrust.com in the Investor Relations section of the website. The Company encourages use of the webcast due to potential extended wait times to access the conference call via dial-in.

To Participate via Telephone Conference Call:

Dial in at least 15 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: 13709052
The playback can be accessed through November 12, 2020.

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 $65 billion of capital since inception and manages a portfolio of over $17 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, the severity and duration of economic disruption caused by the COVID-19 global pandemic, completion of pending investments and financings, continued ability to acquire additional investments, competition within the finance and real estate industries, 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, 2019 and our quarterly report on Form 10-Q for the quarter ended September 30, 2020, 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 September 30, 2020
(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	$	149,972	$	17,835	$	—	$	1,597	$	—	$	169,404	$	—	$	169,404
Interest income from investment securities		21,385		635		—		23,587		—		45,607		(33,421)		12,186
Servicing fees		110		—		—		13,749		—		13,859		(4,311)		9,548
Rental income		2,014		—		63,925		10,039		—		75,978		—		75,978
Other revenues		66		101		48		98		—		313		(2)		311
Total revenues		173,547		18,571		63,973		49,070		—		305,161		(37,734)		267,427
Costs and expenses:
Management fees		297		—		—		221		22,596		23,114		13		23,127
Interest expense		38,422		8,914		16,180		5,425		27,040		95,981		—		95,981
General and administrative		12,483		3,568		1,094		18,813		3,436		39,394		84		39,478
Acquisition and investment pursuit costs		757		62		—		65		—		884		—		884
Costs of rental operations		643		—		24,302		4,577		—		29,522		—		29,522
Depreciation and amortization		430		87		19,130		3,934		—		23,581		—		23,581
Credit loss provision (reversal), net		782		(4,369)		—		—		—		(3,587)		—		(3,587)
Other expense		77		—		95		—		—		172		—		172
Total costs and expenses		53,891		8,262		60,801		33,035		53,072		209,061		97		209,158
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		58,585		58,585
Change in fair value of servicing rights		—		—		—		3,960		—		3,960		(3,326)		634
Change in fair value of investment securities, net		13,611		—		—		3,249		—		16,860		(17,059)		(199)
Change in fair value of mortgage loans, net		59,402		—		—		1,982		—		61,384		—		61,384
Earnings (loss) from unconsolidated entities		3,253		(80)		—		358		—		3,531		(339)		3,192
(Loss) gain on derivative financial instruments, net		(28,577)		110		(313)		38		645		(28,097)		—		(28,097)
Foreign currency gain, net		25,302		110		14		26		—		25,452		—		25,452
Other (loss) income, net		—		—		(1)		358		—		357		—		357
Total other income (loss)		72,991		140		(300)		9,971		645		83,447		37,861		121,308
Income (loss) before income taxes		192,647		10,449		2,872		26,006		(52,427)		179,547		30		179,577
Income tax (provision) benefit		(16,700)		(86)		—		1,943		—		(14,843)		—		(14,843)
Net income (loss)		175,947		10,363		2,872		27,949		(52,427)		164,704		30		164,734
Net income attributable to non-controlling interests		(3)		—		(5,072)		(7,795)		—		(12,870)		(30)		(12,900)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	175,944	$	10,363	$	(2,200)	$	20,154	$	(52,427)	$	151,834	$	—	$	151,834

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, 2020
(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.		175,944		10,363		(2,200)		20,154		(52,427)		151,834
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		5,072		—		—		5,072
Non-cash equity compensation expense		1,015		(126)		54		1,215		4,131		6,289
Acquisition and investment pursuit costs		(163)		—		(89)		—		—		(252)
Depreciation and amortization		370		78		19,191		3,525		—		23,164
Credit loss reversal, net		(259)		(4,369)		—		—		—		(4,628)
Interest income adjustment for securities		(1,035)		—		—		1,914		—		879
Extinguishment of debt, net		—		—		—		—		(246)		(246)
Income tax provision associated with fair value adjustments		5,519		—		—		879		—		6,398
Other non-cash items		3		—		(713)		225		158		(327)
Reversal of GAAP unrealized (gains) / losses on:
Loans		(59,402)		—		—		(1,982)		—		(61,384)
Securities		(13,611)		—		—		(3,249)		—		(16,860)
Derivatives		28,336		(173)		(1,377)		(551)		4,380		30,615
Foreign currency		(25,302)		(110)		(14)		(26)		—		(25,452)
(Earnings) loss from unconsolidated entities		(3,253)		80		—		(358)		—		(3,531)
Recognition of Core realized gains / (losses) on:
Loans		49,241		—		—		6,201		—		55,442
Securities		—		—		—		(4,318)		—		(4,318)
Derivatives		(11,625)		—		(35)		(7,341)		—		(19,001)
Foreign currency		799		(5)		16		26		—		836
Earnings (loss) from unconsolidated entities		3,352		(80)		—		772		—		4,044
Core Earnings (Loss)	$	149,929	$	5,658	$	19,905	$	17,086	$	(44,004)	$	148,574
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.51	$	0.02	$	0.06	$	0.06	$	(0.15)	$	0.50

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the nine months ended September 30, 2020
(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	$	492,489	$	59,374	$	—	$	6,071	$	—	$	557,934	$	—	$	557,934
Interest income from investment securities		57,358		2,019		—		73,311		—		132,688		(90,618)		42,070
Servicing fees		424		—		—		28,782		—		29,206		(8,207)		20,999
Rental income		2,782		—		191,452		28,600		—		222,834		—		222,834
Other revenues		298		344		228		891		—		1,761		(5)		1,756
Total revenues		553,351		61,737		191,680		137,655		—		944,423		(98,830)		845,593
Costs and expenses:
Management fees		987		—		—		680		85,257		86,924		46		86,970
Interest expense		134,243		31,709		49,243		18,796		83,670		317,661		(162)		317,499
General and administrative		29,230		12,328		3,453		54,490		11,105		110,606		251		110,857
Acquisition and investment pursuit costs		2,195		1,179		12		(3)		—		3,383		—		3,383
Costs of rental operations		2,409		—		71,857		13,102		—		87,368		—		87,368
Depreciation and amortization		1,275		246		57,571		11,890		—		70,982		—		70,982
Credit loss provision, net		52,293		2,991		—		—		—		55,284		—		55,284
Other expense		230		—		432		—		—		662		—		662
Total costs and expenses		222,862		48,453		182,568		98,955		180,032		732,870		135		733,005
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		—		64,353		64,353
Change in fair value of servicing rights		—		—		—		9,606		—		9,606		(11,934)		(2,328)
Change in fair value of investment securities, net		(8,814)		—		—		(36,026)		—		(44,840)		47,972		3,132
Change in fair value of mortgage loans, net		56,895		—		—		22,805		—		79,700		—		79,700
Earnings (loss) from unconsolidated entities		3,975		(1,198)		—		30,504		—		33,281		(1,216)		32,065
(Loss) gain on sale of investments and other assets, net		(961)		296		—		7,433		—		6,768		—		6,768
(Loss) gain on derivative financial instruments, net		(9,508)		(1,328)		(35,150)		(22,896)		34,397		(34,485)		—		(34,485)
Foreign currency (loss) gain, net		(1,757)		(53)		(53)		2		—		(1,861)		—		(1,861)
Loss on extinguishment of debt		(22)		(170)		(2,185)		—		—		(2,377)		—		(2,377)
Other income, net		—		—		240		447		—		687		—		687
Total other income (loss)		39,808		(2,453)		(37,148)		11,875		34,397		46,479		99,175		145,654
Income (loss) before income taxes		370,297		10,831		(28,036)		50,575		(145,635)		258,032		210		258,242
Income tax (provision) benefit		(15,535)		3		—		8,716		—		(6,816)		—		(6,816)
Net income (loss)		354,762		10,834		(28,036)		59,291		(145,635)		251,216		210		251,426
Net income attributable to non-controlling interests		(10)		—		(15,294)		(11,191)		—		(26,495)		(210)		(26,705)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	354,752	$	10,834	$	(43,330)	$	48,100	$	(145,635)	$	224,721	$	—	$	224,721

Reconciliation of Net Income to Core Earnings
For the nine months ended September 30, 2020
(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.		354,752		10,834		(43,330)		48,100		(145,635)		224,721
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units		—		—		15,294		—		—		15,294
Non-cash equity compensation expense		3,563		821		185		3,725		14,147		22,441
Management incentive fee		—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs		401		—		(266)		(72)		—		63
Depreciation and amortization		1,095		208		57,808		10,669		—		69,780
Credit loss provision, net		51,252		2,991		—		—		—		54,243
Interest income adjustment for securities		238		—		—		9,856		—		10,094
Extinguishment of debt, net		—		—		—		—		(739)		(739)
Income tax provision (benefit) associated with fair value adjustments		1,612		—		—		(955)		—		657
Other non-cash items		10		—		(1,689)		703		470		(506)
Reversal of GAAP unrealized (gains) / losses on:
Loans		(56,895)		—		—		(22,805)		—		(79,700)
Securities		8,814		—		—		36,026		—		44,840
Derivatives		8,816		1,260		32,593		21,986		(23,509)		41,146
Foreign currency		1,757		53		53		(2)		—		1,861
(Earnings) loss from unconsolidated entities		(3,975)		1,198		—		(30,504)		—		(33,281)
Recognition of Core realized gains / (losses) on:
Loans		45,742		(62)		—		22,759		—		68,439
Securities		—		—		—		(8,711)		—		(8,711)
Derivatives		(3,853)		118		(439)		(13,438)		—		(17,612)
Foreign currency		(5,441)		(147)		(53)		2		—		(5,639)
Earnings (loss) from unconsolidated entities		2,772		(813)		—		17,502		—		19,461
Sales of properties		—		—		—		(5,789)		—		(5,789)
Core Earnings (Loss)	$	410,660	$	16,461	$	60,156	$	89,052	$	(139,467)	$	436,862
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.39	$	0.06	$	0.20	$	0.30	$	(0.47)	$	1.48

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet by Segment
As of September 30, 2020
(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	$	19,111	$	994	$	38,119	$	22,054	$	298,844	$	379,122	$	748	$	379,870
Restricted cash		69,351		31,515		7,632		22,838		—		131,336		—		131,336
Loans held-for-investment, net		9,373,503		1,544,068		—		1,081		—		10,918,652		—		10,918,652
Loans held-for-sale		747,654		—		—		265,019		—		1,012,673		—		1,012,673
Investment securities		1,152,362		39,813		—		1,097,322		—		2,289,497		(1,544,384)		745,113
Properties, net		27,123		—		1,983,124		197,575		—		2,207,822		—		2,207,822
Intangible assets		—		—		41,946		70,374		—		112,320		(38,181)		74,139
Investment in unconsolidated entities		50,850		24,664		—		45,236		—		120,750		(16,366)		104,384
Goodwill		—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets		25,805		—		54		1,250		37,716		64,825		—		64,825
Accrued interest receivable		72,344		3,244		—		334		3,484		79,406		(1,376)		78,030
Other assets		24,705		4,216		70,369		52,352		11,829		163,471		3		163,474
VIE assets, at fair value		—		—		—		—		—		—		64,477,475		64,477,475
Total Assets	$	11,562,808	$	1,767,923	$	2,141,244	$	1,915,872	$	351,873	$	17,739,720	$	62,877,919	$	80,617,639
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	36,378	$	8,545	$	49,758	$	35,796	$	70,956	$	201,433	$	58	$	201,491
Related-party payable		—		—		—		5		22,091		22,096		—		22,096
Dividends payable		—		—		—		—		138,264		138,264		—		138,264
Derivative liabilities		8,839		1,516		—		3,097		—		13,452		—		13,452
Secured financing agreements, net		5,576,092		1,243,001		1,793,731		614,055		389,013		9,615,892		—		9,615,892
Collateralized loan obligations, net		929,931		—		—		—		—		929,931		—		929,931
Unsecured senior notes, net		—		—		—		—		1,934,555		1,934,555		—		1,934,555
VIE liabilities, at fair value		—		—		—		—		—		—		62,876,265		62,876,265
Total Liabilities		6,551,240		1,253,062		1,843,489		652,953		2,554,879		12,855,623		62,876,323		75,731,946
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock		—		—		—		—		2,918		2,918		—		2,918
Additional paid-in capital		1,165,764		509,848		115,246		(124,805)		3,534,663		5,200,716		—		5,200,716
Treasury stock		—		—		—		—		(133,024)		(133,024)		—		(133,024)
Accumulated other comprehensive income (loss)		42,350		—		—		(65)		—		42,285		—		42,285
Retained earnings (accumulated deficit)		3,803,336		5,013		(42,898)		1,243,098		(5,607,563)		(599,014)		—		(599,014)
Total Starwood Property Trust, Inc. Stockholders' Equity		5,011,450		514,861		72,348		1,118,228		(2,203,006)		4,513,881		—		4,513,881
Non-controlling interests in consolidated subsidiaries		118		—		225,407		144,691		—		370,216		1,596		371,812
Total Equity		5,011,568		514,861		297,755		1,262,919		(2,203,006)		4,884,097		1,596		4,885,693
Total Liabilities and Equity	$	11,562,808	$	1,767,923	$	2,141,244	$	1,915,872	$	351,873	$	17,739,720	$	62,877,919	$	80,617,639