Starwood Property Trust, Inc. Reports Results for the Quarter Ended September 30, 2013

- Quarterly Core Earnings of $0.61 per Diluted Common Share -

- Declares Dividend of $0.46 per Share for Fourth Quarter 2013 -

- Announces Spin-off of Single-Family Residential Business Targeted for First Quarter 2014 -

GREENWICH, Conn. - Nov. 7, 2013 // PRNewswire // - Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the third fiscal quarter ended September 30, 2013. The Company's Core Earnings, a Non-GAAP financial measure, were $104.4 million, or $0.61 per diluted share, for the third quarter of 2013, compared to $58.8 million, or $0.50 per diluted share, for the third quarter of 2012. Core Earnings for the nine months ended September 30, 2013 were $231.4 million, or $1.47 per diluted share, compared to Core Earnings for the nine months ended September 30, 2012 of $163.8 million, or $1.52 per diluted share. Core Earnings for the nine months ended September 30, 2013 includes $22.1 million, or $0.14 per diluted share, of one-time expense attributable to the acquisition of LNR.

Net income attributable to the Company for the three months ended September 30, 2013 was $89.7 million, or $0.52 per diluted share outstanding, compared to $50.2 million, or $0.43 per diluted share outstanding for the three months ended September 30, 2012. Net income attributable to the Company for the nine months ended September 30, 2013 was $214.2 million, or $1.36 per diluted share outstanding, compared to $144.9 million, or $1.34 per diluted share outstanding for the nine months ended September 30, 2012. Net income for the nine months ended September 30, 2013 includes $22.1 million, or $0.14 per diluted share outstanding, of one-time expense attributable to the acquisition of LNR.

Barry Sternlicht, Chairman and CEO of Starwood Property Trust, commented, "This quarter is the first to reflect a full quarter's results of the acquisition of LNR, which closed in April of this year. Our strong financial performance was attributable to the continued acceleration of our loan origination business, with over $1.1 billion of quality investments closed during the quarter, as well as the significant performance of LNR, which offset the impact of our single family residential business during its ramp-up period. Importantly, we are continuing to broaden our lines of business and gaining meaningful traction in building our European debt franchise. Our ability to systematically deploy capital into attractive investments, while keeping the LTV of our portfolio at less than 66%, continues to enhance our returns and contribute to our consistent results."

Mr. Sternlicht continued, "We have deployed over $5.1 billion in capital since the beginning of 2013 and have been able to maintain our diversified and disciplined approach to investing. As we look out to 2014, our pipeline of originations remains extremely robust and we expect to continue capitalizing on new investment opportunities from LNR. Furthermore, we recently announced the spin-off of our single-family residential and non-performing residential mortgage loans business into a new public REIT, to be called Starwood Waypoint Residential Trust. This new company will be unleveraged, led by a best-in-class management team and will emerge as one of the largest investors, owners and operators of U.S. single-family rental homes and NPLs in the United States. We will continue to seek opportunities to leverage Starwood Capital Group's considerable real estate market knowledge and relationships in order to create additional value for our shareholders."

Highlights for the Third Quarter 2013 by Business Segment

Since its inception in 2009, the Company has focused primarily on originating and acquiring real estate-related debt investments and operated in one reportable segment. As a result of both the acquisition of LNR and the increased significance of the single family residential operation, the Company now has the following three reportable segments: Real Estate Investment Lending, LNR and Single-Family Residential.

Real Estate Investment Lending Segment

The Real Estate Investment Lending segment (the "Lending Segment") represents the Company's commercial real estate finance business. During the third quarter of 2013, the Lending Segment originated and/or acquired $1.1 billion of new investments, of which $976.4 million was funded at closing and/or acquisition. The carrying value of the Lending Segment portfolio was $4.5 billion as of September 30, 2013.

The carrying value of the Lending Segment's core investment portfolio was approximately $3.9 billion at September 30, 2013, which is anticipated to generate an annualized leveraged return of between 10.8% and 12.0% on an annually compounded basis.

The $1.1 billion of new investments during the third quarter of 2013 included the following significant transactions:

  • Origination of a $275.0 million first mortgage loan secured by the leasehold interest on the Four Seasons Resort Hualalai, located in Hawaii . Approximately $225.0 million was funded at closing
  • Recapitalization of an existing loan into a $140.0 million first mortgage loan secured by an office building located in San Francisco, CA. Approximately $115.0 million was funded at closing
  • Refinancing of an existing loan into a $142.5 million first mortgage loan collateralized by a portfolio of hotel properties located across the United States
  • Origination of a $67.0 million first mortgage and a $78.6 million mezzanine loan secured by a media campus located in Burbank, CA. Approximately $115.0 million was funded at closing
  • Origination of a $102.6 million first mortgage and a $34.2 million mezzanine loan collateralized by eight office/research and development buildings located on a campus in San Jose, CA. Approximately $112.0 million was funded at closing
  • Origination of a $112.0 million first mortgage loan secured by 844,820 square feet of land, fully entitled and approved for a 22 building master planned redevelopment located in Boston, MA
  • Co-origination with an affiliate of the Company's Manager of a $126.8 million EUR-denominated first mortgage loan collateralized by a portfolio of 225 retail properties located across Finland . The Company funded $53.8 million at closing

With over 95% of our pipeline made of up LIBOR based floating rate loans and our policy of matching floating rate investments with floating rate debt and fixed rate investments with fixed rate debt, our Company remains well positioned to benefit from a rising rate environment," said Boyd Fellows, President and Director of Starwood Property Trust.

The following is a summary of the Lending Segment's investments as of September 30, 2013:

Lending Segment Investment Portfolio
(Amounts in millions)

               

Investment

Face 
Amount   

Carry 
Value (1)   

Existing 
Leverage    
(2) 

Net 
Investment   

Return 
  on 
Asset

   Leveraged     
   Return (3)  

Optimal 
   Leveraged  Return (4)

First mortgages held for investment

 $1,964

$1,920

$582

$1,338

7.4%

8.3%

10.7%

Subordinated mortgages held for investment

(subject to $95,000 participation liability)

559

524

4

520

11.7%

12.1%

12.1%

Mezzanine loans held for investment

1,355

1,343

150

1,193

11.9%

12.9%

12.9%

CMBS available-for-sale at fair value

100

113

113

13.3%

13.3%

13.3%

Total core portfolio of Lending Segment (3) 

$3,978

$3,900

$736

$3,164

9.7%

10.8%

12.0%

First mortgages held for sale

67

66

66

3.7%

   

RMBS available-for-sale at fair value

453

316

73

243

11.5%

   

Loans transferred in secured borrowings

86

86

87

(1)

     

Debt security held to maturity

38

37

37

     

Equity Security

15

15

15

     

Investment in unconsolidated entities

35

35

35

     

 Total investments

$4,672

$4,455

$896

$3,559

     
 

(1) The difference between the Carry Value and Face Amount of the loans held for investment consists of unamortized purchase discount, deferred loan fees and loan origination costs. The difference between the Carry Value and Face Amount of the available-for-sale securities consists of the unrealized gains/(losses) on the fair value of the securities and unamortized purchase discount.

(2) Current financings are either floating rate or swapped to fixed rate to match the interest rate characteristics of the underlying asset.

(3) Leveraged returns for core investments as of September 30, 2013 are the compounded effective rate of return earned over the life of the investment determined after the effects of existing and projected leverage, and calculated on a weighted average basis. The leveraged returns include the loan coupon, amortization of premium or discount, and the effects of costs and fees, all recognized on the effective interest method as disclosed in the Company's filings. Leveraged returns are based upon management's assumptions, which the Company believes are reasonable. The leveraged returns are presented solely for informational purposes and will not equal income recognized in prior or future periods due mainly to the fact that (i) interest earned on the Company's floating rate loans will change in the future when interest rates change, and these leveraged returns assume interest rates remain at current levels and (ii) the Company assumes that the leverage levels existing at September 30, 2013 will be maintained either throughout the remaining term of the applicable credit facilities or the remaining term of the investment, if shorter. However, leverage levels in future periods will likely fluctuate as the Company manages its day-to-day liquidity.

(4) The optimal leveraged return is calculated in the same manner as the leveraged return except (i) the assumed financing on any investments that are less than fully leveraged as of September 30, 2013 is increased to the full advance amount available under the Company's credit facilities that has either been approved or is expected to be approved by the respective lender and (ii) the assumed syndication of first mortgages.

Loan to Value of Portfolio

The Company's risk-adjusted investment strategy for the Lending Segment's loan portfolio has resulted in an ending weighted average loan-to-value ("LTV") ratio that has consistently been in the range of 62.5% to 66.0% for the past 18 months. The following table reflects the weighted average LTV ratio of the Lending Segment's loan portfolio as of September 30, 2013:

Weighted Average LTV of Loan Portfolio (1)

   

First 
Mortgages

 

Subordinated 
Mortgages

 

Mezzanine

 

Total (2)

Beginning LTV

 

0.0%

 

46.4%

 

39.5%

 

19.4%

Ending LTV

 

63.8%

 

73.4%

 

64.1%

 

65.1%

 

(1) Underlying property values are determined by the Company's management based on its ongoing asset assessments, and loan balances that are the face value of a loan regardless of whether the Company has purchased the loan at a discount or premium to par. Assets characterized as first mortgages include all loan components where the Company owns the senior most interest in the loan and assets characterized as subordinated mortgages are the subordinated components of first mortgages where the Company does not own the senior most interest in the loan. For any loans collateralized by ground-up construction projects, the fully-funded loan balance is included in the numerator and an estimate of the stabilized value upon completion of construction in the denominator. Includes loans held for investment (excluding a $95.0 million participation liability) and first mortgages held for sale.

(2) Represents the Company's entire investment, which includes all components of the capital stack that it owns (i.e., first mortgages, subordinated mortgages and mezzanine loans).

LNR Segment

The Company acquired LNR on April 19, 2013. In connection with the acquisition, the Company established several taxable REIT subsidiaries ("TRSs") in order to permit it to participate in certain activities from which REITSs are generally precluded. The TRSs house the special servicing operation, the conduit loan business and certain other real estate related operations. As of September 30, 2013, $1.1 billion of the LNR Segment's assets were owned by TRS entities. These entities are taxed as corporations. The remaining $0.4 billion of the LNR Segment's assets as of September 30, 2013 were held by non-TRSs and are therefore not taxable.

For the third quarter, the LNR Segment contributed GAAP and Core net income of $44.5 million and $46.2 million, respectively, each after an income tax provision of $13.1 million and $7.0 million in shared cost allocations of management fees and corporate interest expense. For the period from April 19, 2013 to September 30, 2013, the LNR Segment contributed GAAP and Core net income of $79.1 million and $81.8 million, respectively, each after an income tax provision of $24.0 million and $11.2 million in shared cost allocations of management fees and corporate interest expense. GAAP net income was further impacted during these periods by an incentive fee cost allocation of $2.0 million.

These third quarter results compare to GAAP and Core net income in the second quarter stub period (April 19, 2013 to June 30, 2013) of $34.6 million and $35.6 million, respectively, with the third quarter exceeding these amounts by 28% and 30%, respectively. The improved performance of this segment in the third quarter is principally due to: (i) the inclusion of the LNR Segment in the Company's results for a full quarter, as opposed to only 72 days in the second quarter stub period; (ii) higher net profits from the conduit loan business; and (iii) higher gains on sales of CMBS.

At September 30, 2013, the carrying amount of the LNR Segment's principal assets, consisting of CMBS, servicing intangibles and conduit loans, was $965 million and is summarized below:

LNR Investments as of September 30, 2013
(Amounts in millions)

 

Investment

 

Face 
Amount

 

Carry 
Value/Fair 
Value

 

Existing 
Leverage

 

Net 
Investment

CMBS

$

2,859

    $

410

    $

    $

410

Special servicing intangibles

 

N/A

 

276

 

 

276

Conduit loans

 

273

 

279

 

205

 

74

     Total investments

$

3,132

$

965

$

205

$

760

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

  • Net decrease in the fair value of the domestic servicing intangible on a GAAP basis of $3.9 million, which is better than had been underwritten. The net decline is attributable to the amortization of this deteriorating asset, offset by increases in fair value due to the attainment of new servicing contracts in the quarter. These new contracts contributed to an overall higher than expected balance of loans in special servicing. Core net income was unaffected by the decline in the intangible
  • The conduit loan business, including the impact of associated hedging, also continued to outperform underwriting expectations, with net profit of $20.6 million and $17.3 million on a GAAP and Core basis, respectively
  • CMBS purchases of $33.4 million, including new issue B-piece purchases of $20.6 million
  • Gains on sales of CMBS of $6.2 million

Single Family Residential ("SFR") Segment

On October 31, 2013, the Company's Board of Directors unanimously approved a spin-off of the SFR segment to its stockholders. The newly formed real estate investment trust (REIT), to be called Starwood Waypoint Residential Trust, will apply to list on the New York Stock Exchange and trade under the ticker symbol "SWAY." Upon completion of the spin-off, SWAY will be one of the largest publicly traded investors, owners and operators of U.S. single-family rental homes ("SFR Homes") and non-performing residential mortgage loans ("NPLs") in the United States. SWAY Management, an affiliate of Starwood Capital Group, will serve as the manager of SWAY. In connection with the spin-off, Waypoint Real Estate Group ("Waypoint"), a leading vertically integrated single-family rental operating platform, will merge with SWAY Management.

As part of the spin-off, the Company expects to contribute $100 million in cash to SWAY to fund its growth and operations. In addition, at the time of the spin-off, SWAY also expects to have a fully committed financing line of credit with initial available borrowing capacity in excess of $400 million. Together, the available cash and credit facility will provide SWAY with the financial capacity to support its growth and operating plans.

The Company's stockholders of record at the close of business on January 24, 2014, subject to the completion of the merger of Waypoint with SWAY Management, will receive one common share of SWAY for every five shares of the Company's common stock. The transaction is expected to close during the first quarter of 2014.

As of September 30, 2013, the Company's single-family residential portfolio and NPLs, which will be owned and operated by SWAY following the completion of the spin-off, consisted of approximately 5,817 units. The investment balance for this segment, net of depreciation, was $745.7 million as of September 30, 2013. During the third quarter, the Company invested $213.8 million in SFR Homes, NPLs, and capital expenditures. The unlevered net yield from this portfolio is estimated to be between 6.0% and 6.5% based on leases in place and management's estimates, including estimates of capital costs, management and other expenses and turnover frequency.

Investment Related Activity Subsequent to Quarter-End

Since October 1, 2013, the Lending Segment originated, acquired, and/or refinanced $876.7 million of new investments, of which $854.7 million was funded at closing and/or acquisition, which includes the following:

  • Co-origination, with Starwood European Real Estate Finance, of a $467.1 million first mortgage loan to refinance the iconic Heron Tower in London. In conjunction with the loan closing, the Company obtained a LIBOR-based $340.6 millioncollateralized term financing facility and retained a $97.3 million junior position in the investment
  • Refinancing of an existing loan into a $106.0 million mezzanine loan secured by the Hyatt Regency in New Orleans, LA. Approximately $84.0 million was funded at close
  • Origination of an $86.0 million first mortgage secured by 432 multifamily units and 23 retail units in San Francisco, CA
  • Origination of a $250.0 million preferred equity investment on a 41 property portfolio of single tenant office and industrial buildings comprised of approximately 9.1 million square feet located across the United States

Investment Capacity

As of November 5, 2013, the Company had approximately $267 million of available cash and equivalents, approximately $137.7 million of net equity invested in RMBS that are classified as available-for-sale and $93.1 million of approved but undrawn capacity under existing financing facilities. Accordingly, the Company has the capacity to acquire or originate an additional $400 million to $750 million of new investments.

Financing Activities

As of September 30, 2013, the Company had an aggregate outstanding balance of approximately $2.5 billion under ten financing facilities and two convertible senior notes. During the third quarter, the Company:

  • Raised approximately $691.2 million in total gross proceeds through the sale of 28,750,000 shares of common stock
  • Closed the sale of $460.0 million of convertible senior notes with a coupon rate of 4.0%, raising total proceeds of $450.2 million, net of the underwriter's discount
  • Closed in early August a $200.0 million standalone securitization (STWD 2013-FV1) of the senior component of a $285.0 million total financing secured by a portfolio of 123 Red Roof Inns. The loan served to refinance a loan to the same borrower. The Company acquired the original loan in 2011, which was a 50/50 co-origination with another financial institution. The proceeds of the securitization were used to repay warehouse line borrowings secured by the original loan
  • Sold $261.6 million in face amount of first mortgage loans
  • Upsized an existing financing facility to $225.0 million from $125.0 million, extended the maturity for an additional two years, expanded draw capacity, and reduced pricing

Subsequent to quarter end, the Company closed a new $340.6 million non-revolving warehouse line in conjunction with the financing of a GBP-denominated first mortgage. The Company is currently in discussions with lenders to upsize and extend certain existing financing facilities, all of which are expected to close in the fourth quarter.

Book Value and Fair Value Net of Minority Interest

The fair value of the Company's net assets at September 30, 2013 was approximately $22.09 per fully diluted share, excluding appreciation from single-family residential homes, which based on recent third party valuation work is estimated to be 1.1x to 1.2x the Company's cost basis. On a fully diluted basis, the Company's GAAP book value at September 30, 2013 was $21.78 per share.

Dividend

On November 7, 2013, the Company's Board of Directors declared a dividend of $0.46 per share of common stock for the quarter ending December 31, 2013. The dividend is payable on January 15, 2014 to common shareholders of record as of December 31, 2013.

2013 Guidance

For 2013, the Company is tightening its range of Core Earnings to $1.95 to $2.10 per diluted share from $1.90 to $2.10 per diluted share. This guidance does not include the impact of a potential separation of the SFR Segment or any incremental (i) investments beyond the Company's existing pipeline or (ii) capital markets transactions. In addition, this guidance reflects the Company's estimates on the (i) yield on existing investments; (ii) amount and timing of capital deployment and (iii) cost of and continued access to additional financing. 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 Thursday, November 7, 2013 at 10:00 a.m. Eastern Time to discuss third quarter 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 software.

To Participate in the Telephone Conference Call:

Dial in at least five minutes prior to start time.
Domestic: 1-800-289-0496
International: 1-913-312-0845
Conference Call Playback:
Domestic: 1-877-870-5176
International: 1-858-384-5517
Passcode: 8073305

The playback can be accessed through November 21, 2013.

About Starwood Property Trust, Inc.

Starwood Property Trust, Inc. is focused on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities ("CMBS"), and other commercial real estate-related debt investments. The Company through its 2013 acquisition of LNR now also operates as a special servicer in the United States and as a primary and special servicer in Europe and has expanded its product offering to include fixed rate conduit loans. Starwood Property Trust, Inc. also invests in residential mortgage-backed securities ("RMBS"), residential real estate owned and non-performing residential loans, and may invest in non-performing commercial loans, commercial properties subject to net leases and performing residential mortgage loans. The Company is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.

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.

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations by Segment
For the three months ended September 30, 2013
(Amounts in thousands except per share data)

 
   

 

 

Real Estate
Investment
Lending

 

Single 

Family
Residential

 

LNR

 

Subtotal

 

LNR VIEs

 

Total

Revenues:

                                      

Interest income from loans

 

$

90,837

 

$

 

$

3,208

 

$

94,045

 

$

 

$

94,045

Interest income from investment securities

 

12,301

 

 

18,792

 

31,093

 

(13,289)

 

17,804

Servicing fees

 

 

 

59,566

 

59,566

 

(23,057)

 

36,509

Other revenues

 

116

 

75

 

2,229

 

2,420

 

(322)

 

2,098

Rental income

 

 

5,080

 

 

5,080

 

 

5,080

Total revenues

 

103,254

 

5,155

 

83,795

 

192,204

 

(36,668)

 

155,536

                         

Costs and expenses:

                       

Management fees

 

15,581

 

3,310

 

5,298

 

24,189

 

46

 

24,235

Interest expense

 

29,866

 

2,287

 

4,590

 

36,743

 

 

36,743

General and administrative

 

3,748

 

652

 

43,752

 

48,152

 

183

 

48,335

Business combination costs

 

342

 

 

 

342

 

 

342

Acquisition and investment pursuit 
    costs

 

742

 

223

 

212

 

1,177

 

 

1,177

Residential segment, other operating 
    costs

 

 

6,023

 

 

6,023

 

 

6,023

Depreciation and amortization

 

 

1,553

 

3,435

 

4,988

 

 

4,988

Loan loss allowance

 

1,160

 

 

 

1,160

 

 

1,160

Other expense

 

59

 

 

245

 

304

 

 

304

Total costs and expenses

 

51,498

 

14,048

 

57,532

 

123,078

 

229

 

123,307

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

 

51,756

 

(8,893)

 

26,263

 

69,126

 

(36,897)

 

32,229

                         

Other income:

                       

Income of consolidated VIEs, net

 

 

 

 

 

47,963

 

47,963

Change in fair value of servicing rights

 

 

 

(3,939)

 

(3,939)

 

2,072

 

(1,867)

Change in fair value of investment 
    securities, net

 

(157)

 

 

9,820

 

9,663

 

(11,941)

 

(2,278)

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

 

 

 

25,857

 

25,857

 

 

25,857

Earnings from unconsolidated entities

 

896

 

 

4,459

 

5,355

 

(778)

 

4,577

Gain on sale of investments, net

 

6,184

 

1,875

 

 

8,059

 

 

8,059

Loss on derivative financial instruments

 

(17,166)

 

 

(5,285)

 

(22,451)

 

 

(22,451)

Foreign currency gain, net

 

9,555

 

 

25

 

9,580

 

 

9,580

OTTI

 

(52)

 

 

 

(52)

 

 

(52)

Other income

 

 

3,320

 

385

 

3,705

 

 

3,705

Total other income (loss)

 

(740)

 

5,195

 

31,322

 

35,777

 

37,316

 

73,093

                         

Income (loss) before income taxes

 

51,016

 

(3,698)

 

57,585

 

104,903

 

419

 

105,322

Income tax provision

 

619

 

 

13,102

 

13,721

 

 

13,721

Net income (loss)

 

50,397

 

(3,698)

 

44,483

 

91,182

 

419

 

91,601

Net income attributable to non-
    controlling interests

 

1,451

 

16

 

 

1,467

 

419

 

1,886

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

 

$

48,946

 

$

(3,714)

 

$

44,483

 

$

89,715

 

$

 

$

89,715

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, depreciation and amortization (to the extent that the Company owns any 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 will be 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 three months ended September 30, 2013
(Amounts in thousands except per share data)

 
   

Real Estate
Investment
Lending

 

Single Family
Residential

 

LNR

 

Total

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

$

48,946

   $

(3,714)

   $

44,483

   $

89,715

                 

Add / (Deduct):

               

Non-cash equity compensation expense

 

4,041

 

 

 

4,041

Management incentive fee

 

2,766

 

 

2,009

 

4,775

Change in Control Plan

 

 

 

7,291

 

7,291

Depreciation and amortization

 

 

1,552

 

234

 

1,786

Loan loss allowance

 

1,160

 

 

 

1,160

Interest income adjustment for securities

 

(344)

 

 

874

 

530

(Gains) / losses on:

               

Loans held for sale

 

 

 

(14,355)

 

(14,355)

Securities

 

(715)

 

 

(6,162)

 

(6,877)

Impairment of real estate

 

 

78

 

 

78

Gain on foreclosure of non-performing loans

 

 

(3,320)

 

 

(3,320)

Derivatives

 

17,180

 

 

11,086

 

28,226

Foreign currency

 

(9,433)

 

 

 

(9,433)

Earnings from unconsolidated entities

 

 

 

(3,241)

 

(3,241)

U.S. special servicing intangible

 

 

 

3,939

 

3,939

Core Earnings (Loss)

$

63,601

$

(5,404)

$

46,158

$

104,355

Core Earnings (Loss) per Weighted 
    Average Diluted Share

$

0.37

$

(0.03)

$

0.27

$

0.61

 

Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations by Segment
For the nine months ended September 30, 2013
(Amounts in thousands except per share data)

 
   

Real Estate
Investment
Lending

 

Single
Family
Residential

 

LNR

 

Subtotal

 

LNR VIEs

 

Total

Revenues

                       

Interest income from loans

 

$

231,203

    

$

    

$

5,468

    

$

236,671

    

$

    

$

236,671

Interest income from investment 
    securities

 

42,179

 

 

30,550

 

72,729

 

(20,108)

 

52,621

Servicing fees

 

 

 

112,426

 

112,426

 

(36,782)

 

75,644

Other revenues

 

291

 

180

 

4,201

 

4,672

 

(595)

 

4,077

Rental income

 

 

8,733

 

 

8,733

 

 

8,733

Total revenues

 

273,673

 

8,913

 

152,645

 

435,231

 

(57,485)

 

377,746

                         

Costs and expenses:

                       

Management fees

 

44,504

 

6,535

 

7,572

 

58,611

 

64

 

58,675

Interest expense

 

66,794

 

3,587

 

7,297

 

77,678

 

 

77,678

General and administrative

 

11,401

 

1,713

 

84,325

 

97,439

 

330

 

97,769

Business combination costs

 

17,958

 

 

 

17,958

 

 

17,958

Acquisition and investment pursuit

    costs

 

1,787

 

2,105

 

603

 

4,495

 

 

4,495

Residential segment, other operating

    costs

 

 

10,622

 

 

10,622

 

 

10,622

Depreciation and amortization

 

 

2,981

 

5,663

 

8,644

 

 

8,644

Loan loss allowance

 

1,915

 

 

 

1,915

 

 

1,915

Other expense

 

150

 

 

383

 

533

 

 

533

Total costs and expenses

 

144,509

 

27,543

 

105,843

 

277,895

 

394

 

278,289

                         

Income/(Loss) before other income

    (expense), income taxes and non-

    controlling interests

 

129,164

 

(18,630)

 

46,802

 

157,336

 

(57,879)

 

99,457

Other income

                       

Income of consolidated VIEs, net

 

 

 

 

 

79,912

 

79,912

Change in fair value of servicing rights

 

 

 

2,175

 

2,175

 

(1,144)

 

1,031

Change in fair value of investment

    securities, net

 

(83)

 

 

16,208

 

16,125

 

(19,390)

 

(3,265)

Change in fair value of mortgage loans

    held-for-sale, net

 

 

 

26,315

 

26,315

 

 

26,315

Earnings from unconsolidated entities

 

3,488

 

 

8,401

 

11,889

 

(974)

 

10,915

Gain/loss on sale of investments, net

 

19,690

 

3,278

 

 

22,968

 

 

22,968

Gain/loss on derivative financial

    instruments, net

 

(2,939)

 

 

2,874

 

(65)

 

 

(65)

Foreign currency gain/loss, net

 

3,537

 

 

(42)

 

3,495

 

 

3,495

OTTI

 

(453)

 

 

 

(453)

 

 

(453)

Other income

 

 

3,320

 

424

 

3,744

 

 

3,744

Total other income

 

23,240

 

6,598

 

56,355

 

86,193

 

58,404

 

144,597

                         

Income/(Loss) before income taxes

 

152,404

 

(12,032)

 

103,157

 

243,529

 

525

 

244,054

Income tax provision

 

1,645

 

12

 

24,034

 

25,691

 

 

25,691

Net Income/(Loss)

 

150,759

 

(12,044)

 

79,123

 

217,838

 

525

 

218,363

Net income attributable to non-

    controlling interests

 

3,599

 

 

 

3,599

 

525

 

4,124

Net income/(loss) attributable to

    Starwood Property Trust, Inc.

 

$

147,160

 

$

(12,044)

 

$

79,123

 

$

214,239

 

$

 

$

214,239

 

Reconciliation of Net Income to Core Earnings
For nine months ended September 30, 2013
(Amounts in thousands except per share data)

 
   

Real Estate
Investment
Lending

 

Single Family
Residential

 

LNR

 

Total

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

$

147,160

    $

(12,044)

    $

79,123

    $

214,239

                 

Add / (Deduct):

               

Non-cash equity compensation expense

 

12,870

 

 

 

12,870

Management incentive fee

 

2,813

 

 

2,009

 

4,822

Change in Control Plan

 

 

 

15,803

 

15,803

Depreciation and amortization

 

 

2,981

 

346

 

3,327

Loan loss allowance

 

1,915

 

 

 

1,915

Interest income adjustment for securities

 

(832)

 

 

4,680

 

3,848

(Gains) / losses on:

               

Loans held for sale

 

 

 

(6,011)

 

(6,011)

Securities

 

(463)

 

 

(11,410)

 

(11,873)

Impairment of real estate

 

 

536

 

 

536

Gain on foreclosure of non-performing loans

 

 

(3,320)

 

 

(3,320)

Derivatives

 

1,744

 

 

5,049

 

6,793

Foreign currency

 

(3,722)

 

 

 

(3,722)

Earnings from unconsolidated entities

 

 

 

(5,614)

 

(5,614)

U.S. special servicing intangible

 

 

 

(2,175)

 

(2,175)

Core Earnings (Loss)

$

161,485

$

(11,847)

$

81,800

$

231,438

Core Earnings (Loss) per Weighted 
    Average Diluted Share

$

1.03

$

(0.08)

$

0.52

$

1.47

Additional information can be found on the Company's website at www.starwoodpropertytrust.com

Contact:

Investor Relations
203-422-7788
investorrelations@stwdreit.com

SOURCE Starwood Property Trust, Inc.

###

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