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

GREENWICH, Conn., Aug. 5, 2020 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2020.  The Company's second quarter 2020 GAAP net income was $139.7 million, or $0.49 per diluted share, and Core Earnings (a non-GAAP financial measure) was $126.1 million, or $0.43 per diluted share.

"It is a difficult time to figure out the right balance between playing offense and defense as this Category 5 hurricane that we call the Coronavirus sweeps through the U.S. and the global economies. Since March, we have erred on the side of caution and are only making occasional investments that we find decidedly compelling. From the outset of this pandemic, our strategy has been to solidify our fortress balance sheet. We now sit with over $800 million of cash and approved, undrawn debt capacity, after paying our full dividend the past two quarters, deleveraging our balance sheet by more than $350 million and dramatically lowering our future funding obligations by over $700 million.

All this caution has and will probably continue to reduce our earnings until our capital deployment returns to more normalized levels. Nonetheless, the breadth of our enterprise provides numerous opportunities for us to realize the significant embedded gains in our portfolio if and when we choose to do so. Our complex, but diversified, business lines have performed in line with our expectations. We are very well-positioned to carefully comb through investments in each of our business segments, work with our borrowers, and return to investing globally where the opportunity set is clearly better today than in years past," 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 Wednesday, August 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:  13706902
The playback can be accessed through August 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 $63 billion of capital since inception and manages a portfolio of $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 June 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: ztanenbaum@starwood.com



Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations by Segment
For the three months ended June 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


$

150,136


$

19,126


$


$

1,841


$


$

171,103


$


$

171,103

Interest income from investment securities



17,345



683





24,924





42,952



(28,308)



14,644

Servicing fees



142







8,591





8,733



(2,075)



6,658

Rental income



690





63,566



8,454





72,710





72,710

Other revenues



54



100



58



280





492



(1)



491

Total revenues 



168,367



19,909



63,624



44,090





295,990



(30,384)



265,606

Costs and expenses:

























Management fees



339







220



22,554



23,113



2



23,115

Interest expense



41,871



9,678



15,942



6,177



27,825



101,493





101,493

General and administrative



8,615



4,337



1,281



14,993



3,368



32,594



83



32,677

Acquisition and investment pursuit costs



578



1,100





(88)





1,590





1,590

Costs of rental operations



988





24,703



3,941





29,632





29,632

Depreciation and amortization



430



89



19,153



3,749





23,421





23,421

Credit loss provision, net



11,294



(1,092)









10,202





10,202

Other expense



76





26







102





102

Total costs and expenses 



64,191



14,112



61,105



28,992



53,747



222,147



85



222,232

Other income (loss):

























Change in net assets related to consolidated VIEs















51,261



51,261

Change in fair value of servicing rights









5,328





5,328



(7,897)



(2,569)

Change in fair value of investment securities, net



5,454







7,941





13,395



(12,568)



827

Change in fair value of mortgage loans, net



33,010







1,440





34,450





34,450

Earnings (loss) from unconsolidated entities



671



(1,118)





29,526





29,079



(303)



28,776

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



(961)







7,433





6,472





6,472

(Loss) gain on derivative financial instruments, net



(11,736)



(437)



(4,614)



(3,828)



4,517



(16,098)





(16,098)

Foreign currency gain (loss), net



6,942



310



(48)



(31)





7,173





7,173

Loss on extinguishment of debt



(22)





(2,185)







(2,207)





(2,207)

Other income, net







191



13





204





204

Total other income (loss)



33,358



(1,245)



(6,656)



47,822



4,517



77,796



30,493



108,289

Income (loss) before income taxes 



137,534



4,552



(4,137)



62,920



(49,230)



151,639



24



151,663

Income tax (provision) benefit



(3,257)



(56)





4,611





1,298





1,298

Net income (loss) 



134,277



4,496



(4,137)



67,531



(49,230)



152,937



24



152,961

Net income attributable to non-controlling interests



(4)





(5,111)



(8,166)





(13,281)



(24)



(13,305)

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


$

134,273


$

4,496


$

(9,248)


$

59,365


$

(49,230)


$

139,656


$


$

139,656

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, 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.


$

134,273


$

4,496


$

(9,248)


$

59,365


$

(49,230)


$

139,656

Add / (Deduct):



















Non-controlling interests attributable to Woodstar II Class A Units







5,111







5,111

Non-cash equity compensation expense



1,436



481



58



1,247



4,130



7,352

Acquisition and investment pursuit costs



206





(88)



(72)





46

Depreciation and amortization



370



79



19,236



3,337





23,022

Credit loss provision, net



11,294



(1,092)









10,202

Interest income adjustment for securities



1,149







1,627





2,776

Extinguishment of debt, net











(247)



(247)

Income tax provision (benefit) associated with fair value adjustments



1,914







(392)





1,522

Other non-cash items



4





(485)



230



156



(95)

Reversal of GAAP unrealized (gains) / losses on:



















Loans



(33,010)







(1,440)





(34,450)

Securities



(5,454)







(7,941)





(13,395)

Derivatives



11,043



420



3,401



3,524



(240)



18,148

Foreign currency



(6,942)



(310)



48



31





(7,173)

(Earnings) loss from unconsolidated entities



(671)



1,118





(29,526)





(29,079)

Recognition of Core realized gains / (losses) on:



















Loans



(5,663)







(1)





(5,664)

Securities









(181)





(181)

Derivatives



4,522





(369)



(10)





4,143

Foreign currency



(1,969)



52



(50)



(31)





(1,998)

(Loss) earnings from unconsolidated entities



(24)



(733)





12,992





12,235

Sales of properties









(5,789)





(5,789)

Core Earnings (Loss)


$

112,478


$

4,511


$

17,614


$

36,970


$

(45,431)


$

126,142

Core Earnings (Loss) per Weighted Average Diluted Share


$

0.38


$

0.02


$

0.06


$

0.12


$

(0.15)


$

0.43

 

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the six months ended June 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


$

342,517


$

41,539


$


$

4,474


$


$

388,530


$


$

388,530

Interest income from investment securities



35,973



1,384





49,724





87,081



(57,197)



29,884

Servicing fees



314







15,033





15,347



(3,896)



11,451

Rental income



768





127,527



18,561





146,856





146,856

Other revenues



232



243



180



793





1,448



(3)



1,445

Total revenues 



379,804



43,166



127,707



88,585





639,262



(61,096)



578,166

Costs and expenses:

























Management fees



690







459



62,661



63,810



33



63,843

Interest expense



95,821



22,795



33,063



13,371



56,630



221,680



(162)



221,518

General and administrative



16,747



8,760



2,359



35,677



7,669



71,212



167



71,379

Acquisition and investment pursuit costs



1,438



1,117



12



(68)





2,499





2,499

Costs of rental operations



1,766





47,555



8,525





57,846





57,846

Depreciation and amortization



845



159



38,441



7,956





47,401





47,401

Credit loss provision, net



51,511



7,360









58,871





58,871

Other expense



153





337







490





490

Total costs and expenses 



168,971



40,191



121,767



65,920



126,960



523,809



38



523,847

Other income (loss):

























Change in net assets related to consolidated VIEs















5,768



5,768

Change in fair value of servicing rights









5,646





5,646



(8,608)



(2,962)

Change in fair value of investment securities, net



(22,425)







(39,275)





(61,700)



65,031



3,331

Change in fair value of mortgage loans, net



(2,507)







20,823





18,316





18,316

Earnings (loss) from unconsolidated entities



722



(1,118)





30,146





29,750



(877)



28,873

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



(961)



296





7,433





6,768





6,768

Gain (loss) on derivative financial instruments, net



19,069



(1,438)



(34,837)



(22,934)



33,752



(6,388)





(6,388)

Foreign currency loss, net



(27,059)



(163)



(67)



(24)





(27,313)





(27,313)

Loss on extinguishment of debt



(22)



(170)



(2,185)







(2,377)





(2,377)

Other income, net







241



89





330





330

Total other (loss) income



(33,183)



(2,593)



(36,848)



1,904



33,752



(36,968)



61,314



24,346

Income (loss) before income taxes 



177,650



382



(30,908)



24,569



(93,208)



78,485



180



78,665

Income tax benefit



1,165



89





6,773





8,027





8,027

Net income (loss) 



178,815



471



(30,908)



31,342



(93,208)



86,512



180



86,692

Net income attributable to non-controlling interests



(7)





(10,222)



(3,396)





(13,625)



(180)



(13,805)

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


$

178,808


$

471


$

(41,130)


$

27,946


$

(93,208)


$

72,887


$


$

72,887

 


Reconciliation of Net Income to Core Earnings

For the six months ended June 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.


$

178,808


$

471


$

(41,130)


$

27,946


$

(93,208)


$

72,887

Add / (Deduct):



















Non-controlling interests attributable to Woodstar II Class A Units







10,222







10,222

Non-cash equity compensation expense



2,548



947



131



2,510



10,016



16,152

Management incentive fee











15,799



15,799

Acquisition and investment pursuit costs



564





(177)



(72)





315

Depreciation and amortization



725



130



38,617



7,144





46,616

Credit loss provision, net



51,511



7,360









58,871

Interest income adjustment for securities



1,273







7,942





9,215

Extinguishment of debt, net











(493)



(493)

Income tax benefit associated with fair value adjustment



(3,907)







(1,834)





(5,741)

Other non-cash items



7





(976)



478



312



(179)

Reversal of GAAP unrealized (gains) / losses on:



















Loans



2,507







(20,823)





(18,316)

Securities



22,425







39,275





61,700

Derivatives



(19,520)



1,433



33,970



22,537



(27,889)



10,531

Foreign currency



27,059



163



67



24





27,313

(Earnings) loss from unconsolidated entities



(722)



1,118





(30,146)





(29,750)

Recognition of Core realized gains / (losses) on:



















Loans



(3,499)



(62)





16,558





12,997

Securities









(4,393)





(4,393)

Derivatives



7,772



118



(404)



(6,097)





1,389

Foreign currency



(6,240)



(142)



(69)



(24)





(6,475)

(Loss) earnings from unconsolidated entities



(580)



(733)





16,730





15,417

Sales of properties









(5,789)





(5,789)

Core Earnings (Loss)


$

260,731


$

10,803


$

40,251


$

71,966


$

(95,463)


$

288,288

Core Earnings (Loss) per Weighted Average Diluted Share


$

0.88


$

0.04


$

0.14


$

0.24


$

(0.32)


$

0.98

 

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of June 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


$

13,959


$

299


$

30,237


$

35,855


$

266,333


$

346,683


$

1,051


$

347,734

Restricted cash



114,656



34,160



7,537



20,044





176,397





176,397

Loans held-for-investment, net



8,960,410



1,459,239





1,153





10,420,802





10,420,802

Loans held-for-sale



432,786



44,876





194,097





671,759





671,759

Investment securities



1,120,624



40,312





1,094,613





2,255,549



(1,503,524)



752,025

Properties, net



27,283





1,998,759



198,281





2,224,323





2,224,323

Intangible assets







43,580



67,567





111,147



(34,854)



76,293

Investment in unconsolidated entities



49,853



24,744





47,114





121,711



(16,798)



104,913

Goodwill





119,409





140,437





259,846





259,846

Derivative assets



47,875





348



586



42,096



90,905





90,905

Accrued interest receivable



55,877



3,163





520



13,589



73,149



(1,401)



71,748

Other assets



29,864



5,616



81,859



57,321



9,512



184,172



(25)



184,147

VIE assets, at fair value















64,175,387



64,175,387

Total Assets


$

10,853,187


$

1,731,818


$

2,162,320


$

1,857,588


$

331,530


$

16,936,443


$

62,619,836


$

79,556,279

Liabilities and Equity

























Liabilities:

























Accounts payable, accrued expenses and other liabilities


$

27,941


$

10,285


$

45,277


$

36,400


$

91,765


$

211,668


$

54


$

211,722

Related-party payable









5



20,936



20,941





20,941

Dividends payable











138,778



138,778





138,778

Derivative liabilities



2,260



1,620









3,880





3,880

Secured financing agreements, net



4,749,321



1,221,001



1,792,818



683,466



389,714



8,836,320





8,836,320

Collateralized loan obligations, net



929,307











929,307





929,307

Unsecured senior notes, net











1,932,560



1,932,560





1,932,560

VIE liabilities, at fair value















62,617,975



62,617,975

Total Liabilities



5,708,829



1,232,906



1,838,095



719,871



2,573,753



12,073,454



62,618,029



74,691,483

Equity:

























Starwood Property Trust, Inc. Stockholders' Equity:

























Common stock











2,916



2,916





2,916

Additional paid-in capital



1,473,921



504,262



137,777



(228,654)



3,306,266



5,193,572





5,193,572

Treasury stock











(133,024)



(133,024)





(133,024)

Accumulated other comprehensive income (loss)



42,930







(64)





42,866





42,866

Retained earnings (accumulated deficit)



3,627,392



(5,350)



(40,699)



1,222,945



(5,418,381)



(614,093)





(614,093)

Total Starwood Property Trust, Inc. Stockholders' Equity



5,144,243



498,912



97,078



994,227



(2,242,223)



4,492,237





4,492,237

Non-controlling interests in consolidated subsidiaries



115





227,147



143,490





370,752



1,807



372,559

Total Equity



5,144,358



498,912



324,225



1,137,717



(2,242,223)



4,862,989



1,807



4,864,796

Total Liabilities and Equity


$

10,853,187


$

1,731,818


$

2,162,320


$

1,857,588


$

331,530


$

16,936,443


$

62,619,836


$

79,556,279

 

Cision View original content:http://www.prnewswire.com/news-releases/starwood-property-trust-reports-results-for-the-quarter-ended-june-30-2020-301106286.html

SOURCE Starwood Property Trust, Inc.

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