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Section 1: 8-K (8-K)

stwd_Current folio_8K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 8-K

 

CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 

 

Date of Report (Date of earliest event reported): August 4, 2016

 

Starwood Property Trust, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland
(State or other jurisdiction
of incorporation)

 

001-34436
(Commission
File Number)

 

27-0247747
(IRS Employer
Identification No.)

 

 

591 West Putnam Avenue

Greenwich, CT 

 

06830

(Address of principal

 

(Zip Code)

executive offices)

 

 

Registrant’s telephone number,
including area code:
(203) 422-7700

 

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CAR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CAR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CAR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CAR 240.13e-4(c))

 

 


 

Item 2.02. Results of Operations and Financial Condition.

 

On August 4, 2016, Starwood Property Trust, Inc. issued a press release announcing its financial results for the quarter ended June 30, 2016. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

Item 9.01.  Financial Statements and Exhibits.

 

(d)Exhibits

 

 

 

Exhibit

Number

 

Description

 

 

99.1

Press Release, dated August 4, 2016

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: August 4, 2016

STARWOOD PROPERTY TRUST, INC. 

 

 

 

By:

/s/ ANDREW J. SOSSEN

 

Name:

Andrew J. Sossen

 

Title:

Chief Operating Officer

 

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EXHIBIT INDEX

 

Exhibit
Number

Description

 

 

99.1

Press Release, dated August 4, 2016

 

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(Back To Top)

Section 2: EX-99.1 (EX-99.1)

stwd_Current folio_Press Release

Exhibit 99.1

C:\Users\105621\Desktop\Starwood_Logo.jpg

 

For Immediate Release

Starwood Property Trust Reports Results for the

Quarter Ended June 30, 2016

– Quarterly GAAP Earnings of $0.47 and Core Earnings of $0.50 per Diluted Common Share –

– Deploys $1.6 Billion of Capital During the Quarter –

– Declares Dividend of $0.48 per Share for the Third Quarter of 2016 –

 

GREENWICH, Conn., August 4, 2016 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter ended June 30, 2016.  The Company’s second quarter 2016 GAAP net income was $111.5 million, or $0.47 per diluted share, and Core Earnings (a non-GAAP financial measure) was $119.9 million, or $0.50 per diluted share.    

 

“We are pleased with our strong performance this quarter, driven by significant contributions from each of our business segments. Despite a volatile market backdrop in the first half of the year, including an uncertain domestic economic and geopolitical environment, we deployed $2.5 billion of capital and continued to source investments with attractive returns and a risk profile consistent with our historical standards. In our seven years as a public company, we have not realized a single credit loss in the $19.0 billion of loans we have originated or acquired. As a testament to our conservative underwriting, our loan portfolio continues to maintain a conservative weighted average LTV of 61.9%, which is down from a peak of 67.8% in 2011 when our loan book was one-third the size it is today. We are particularly pleased with the progress of our equity investments, including those embedded in our loan book, where we continue to expect meaningful appreciation over time,” stated Barry Sternlicht, Chairman and Chief Executive Officer of Starwood Property Trust.

 

Mr. Sternlicht continued, “We believe opportunities will remain abundant as recent structural changes in the U.S. and European lending markets are coinciding with increasing levels of commercial real estate debt maturities. Our servicing platform should provide a front row seat to any distress that may occur as those pre-2008 borrowers refinance. Our conservative balance sheet and access to liquidity should allow us to capitalize on these opportunities and any future dislocations in the credit markets. As we have done in the past, we will leverage our global operating platforms across Starwood Property Trust and Starwood Capital Group to source the best risk-adjusted investments for our shareholders in order to generate exceptional returns over the long term.”

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Highlights for the Second Quarter 2016 by Business Segment

 

The Company currently operates in three reportable segments: Real Estate Lending (the “Lending Segment”), Real Estate Investing and Servicing (the “Investing and Servicing Segment”) and Real Estate Property (the “Property Segment”). The Lending Segment primarily represents the Company’s on-balance sheet loan origination business. The Investing and Servicing Segment includes the Company’s U.S. and European servicing businesses, CMBS investment business, conduit loan origination platform and commercial real estate properties acquired from CMBS trusts.  The Property Segment includes the Company’s investments in stabilized commercial real estate properties that are held for investment. 

 

Real Estate Lending Segment

During the second quarter of 2016, the Lending Segment contributed GAAP Earnings of $98.9 million, or $0.42 per diluted share, and Core Earnings of $102.4 million, or $0.43 per diluted share. 

 

The Lending Segment originated or acquired investments of $1.1 billion during the quarter, with fundings of $775.0 million, including $123.8 million related to previously originated loans. Repayments during the quarter totaled $1.0 billion. Newly originated or acquired investments included the following:

 

·

$330.0 million first mortgage and mezzanine loan for the development of an 856-unit luxury multi-family project located in Brooklyn, New York.

 

·

$216.0 million portfolio of three first mortgage loans secured by 25 office properties located in Long Island, New York and a two-building office complex in San Jose, California.

 

·

€165.4 million investment in a €98.9 million first mortgage loan, secured by a shopping center in Lisbon, Portugal and a €66.5 million first mortgage loan portfolio, secured by five food-related retail properties primarily in the Greater Lisbon area. 

 

·

$183.0 million first mortgage and mezzanine loan for the refinancing and renovation of a four-tower luxury multi-family complex located in the Greater Philadelphia area.

 

At June 30, 2016, the Lending Segment’s principal assets were as follows: 

 

Lending Segment Investments

(Dollars in millions)

Investment

    

Face
Amount

    

Carry
Value (1)

    

Asset Specific
Financing (2)

    

Net
Investment

    

Unlevered
Return on
Asset

    

Current
Leveraged
Return (3)

    

Optimal
Asset-Level
Return (4)

 

First mortgages held-for-investment (5)

 

$

4,586 

 

$

4,530 

 

$

2,179 

 

$

2,351 

 

6.7 

%  

9.3 

%  

10.7 

%  

Subordinated mortgages held-for-investment

 

 

413 

 

 

392 

 

 

 

 

386 

 

11.3 

%  

11.3 

%  

11.4 

%  

Mezzanine loans held-for-investment (5)

 

 

756 

 

 

765 

 

 

-

 

 

765 

 

10.9 

%  

10.9 

%  

10.9 

%  

CMBS held-to-maturity

 

 

507 

 

 

501 

 

 

314 

 

 

187 

 

5.5 

%  

10.6 

%  

11.6 

%  

Preferred equity investments held-to-maturity

 

 

19 

 

 

20 

 

 

-

 

 

20 

 

13.3 

%  

13.3 

%  

13.3 

%  

Target portfolio of Lending Segment

 

$

6,281 

 

$

6,208 

 

$

2,499 

 

$

3,709 

 

7.4 

%  

9.9 

%  

10.9 

%  

RMBS available-for-sale at fair value

 

 

409 

 

 

251 

 

 

102 

 

 

149 

 

10.3 

%  

 

 

 

 

Loans transferred as secured borrowings 

 

 

95 

 

 

93 

 

 

95 

 

 

(2)

 

 

 

 

 

 

 

Equity security

 

 

12 

 

 

13 

 

 

-

 

 

13 

 

 

 

 

 

 

 

Investment in unconsolidated entities

 

 

N/A

 

 

31 

 

 

-

 

 

31 

 

 

 

 

 

 

 

Total investments

 

$

6,797 

 

$

6,596 

 

$

2,696 

 

$

3,900 

 

 

 

 

 

 

 

 

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Loan-to-Value of Portfolio

 

The following table reflects the weighted average loan-to-value (“LTV”) ratio of the Lending Segment’s loan portfolio as of June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average LTV of Loan Portfolio (5)(6)

 

 

    

First
Mortgages

    

Subordinated
Mortgages

    

Mezzanine

    

Preferred
Equity

    

Total (7)

 

Beginning LTV

 

0.0 

%  

25.3 

%  

48.3 

%  

64.9 

%  

8.3 

%  

Ending LTV

 

61.7 

%  

52.8 

%  

67.8 

%  

78.9 

%  

61.9 

%  

 

Real Estate Investing and Servicing Segment

 

During the second quarter of 2016, the Investing and Servicing Segment contributed GAAP Earnings of $51.2 million, or $0.22 per diluted share, and Core Earnings of $49.9 million, or $0.21 per diluted share. 

 

Significant activity during the quarter included:

 

·

Originated $288.2 million of conduit loans and participated in two securitizations with loan sales totaling $218.4 million.

 

·

Invested $54.8 million in CMBS, including two new issue B-pieces where we partnered with another party and acquired a minority share.

 

·

Awarded special servicing on $1.8 billion of collateral in connection with our CMBS investments during the quarter.

 

·

Purchased four properties and a 50% interest in one additional property from CMBS trusts for $62.6 million.

 

As of June 30, 2016, the Company was active special servicer on $11.0 billion of loans and real estate owned and was named special servicer on $100.9 billion of loans and real estate owned.  The Investing and Servicing Segment’s principal assets were as follows: 

 

Investing and Servicing Segment Investments

(Amounts in millions)

Investment

    

Carry Value

    

Asset
Specific
Financing

    

Net
Investment

CMBS (8)

 

$

1,051 

 

$

240 

 

$

811 

Special servicing intangibles

 

 

115 

 

 

-

 

 

115 

Conduit loans

 

 

237 

 

 

147 

 

 

90 

Properties and lease intangibles, net

 

 

256 

 

 

117 

 

 

139 

Investment in unconsolidated entities

 

 

55 

 

 

-

 

 

55 

Loans held-for-investment

 

 

 

 

-

 

 

    Total investments

 

$

1,720 

 

$

504 

 

$

1,216 

 

Real Estate Property Segment

 

During the second quarter of 2016, the Property Segment contributed GAAP Earnings of $14.8 million, or $0.06 per diluted share, and Core Earnings of $12.7 million, or $0.05 per diluted share. 

 

In April, the Property Segment acquired the final two of the 32 previously announced affordable housing communities referred to as the “Woodstar Portfolio” for $39.4 million and net equity of $17.9 million.  These two properties are comprised of 628 units and were funded with a combination of cash, assumed government-

3

 


 

sponsored financing and other assumed debt.  The Woodstar Portfolio totals 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach, Florida metropolitan areas and, as of June 30, 2016, is 98% occupied.   

 

At June 30, 2016, the Property Segment’s principal assets were as follows: 

 

Property Segment Investments

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

Carrying Value

 

Asset Specific Financing

 

Net Investment

 

Q2 2016 Net Operating Income

 

Occupancy Rate

 

Weighted Average Lease Term

 

Wholly-Owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dublin, Ireland - Office (9)

 

$

485

 

$

311

 

$

174

 

$

6.8

 

98.6 

%

10.1 years

 

Dublin, Ireland - Multi-family residential (9)

 

 

17

 

 

11

 

 

6

 

 

0.2

 

97.0 

%

0.5 years

 

Southeast, U.S. - Multi-family residential (9)

 

 

606

 

 

404

 

 

202

 

 

9.6

 

97.5 

%

0.5 years

 

Subtotal - Undepreciated Carrying Value

 

$

1,108

 

$

726

 

$

382

 

$

16.6

(10)

 

 

 

 

Accumulated Depreciation and Amortization

 

 

(46)

 

 

-

 

 

(46)

 

 

 

 

 

 

 

 

Net Carrying Value

 

$

1,062

 

$

726

 

$

336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joint Venture:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in unconsolidated entity - retail

 

 

122

 

 

-

 

 

122

 

 

 

 

 

 

 

 

 

 

$

1,184

 

$

726

 

$

458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

As of June 30, 2016, the Company had an aggregate outstanding debt balance of $5.9 billion and maximum borrowing capacity of $8.4 billion, with a debt-to-equity ratio of 1.4x. 

 

During the second quarter of 2016, the Company:

 

·

Expanded an existing repurchase financing facility by €124.1 million in order to finance the acquisition of the Company’s new investments in Portugal. The financing carries a four-year term and an annual interest rate of EURIBOR plus 2.00%.

 

·

Amended an existing revolving repurchase facility to increase available borrowings to $185.0 million from $125.0 million.

 

·

Modified an existing revolving repurchase facility to allow for up to $200.0 million of financing for conduit mortgage loan originations under the existing borrowing capacity.

 

Book Value and Undepreciated Book Value Per Share

 

The Company’s book value per diluted share metrics were as follows:

 

    


June 30, 2016

    

March 31, 2016

    

Undepreciated book value per diluted share (11)

 

$

17.19 

 

$

17.13 

 

Book value per diluted share

 

$

16.96 

 

$

16.98 

 

 

As of June 30, 2016, these per share metrics include dilution of $0.03 per diluted share attributable to the Company’s 2019 convertible senior notes.  There was no such dilution as of March 31, 2016.

 

4

 


 

Investment Capacity

 

As of July 29, 2016, the Company has the capacity to acquire or originate up to $2.3 billion of new investments through (i) $1.2 billion of unallocated warehouse capacity; (ii) $586.9 million of available cash and equivalents; (iii) $549.7 million of expected maturities, prepayments, sales and participations over the next 90 days; (iv) $99.3 million of approved but undrawn capacity under existing financing facilities; and (v) approximately $107.4 million of net equity invested in RMBS that are classified as available-for-sale.

 

Dividend

 

On August 4, 2016, the Company’s Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending September 30, 2016. The dividend is payable on October 17, 2016 to common stockholders of record as of September 30, 2016. 

 

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, August 4, 2016 at 10:00 a.m. Eastern Time to discuss second quarter 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 five 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:  1-888-364-3104

International:  1-719-325-2298

 

Conference Call Playback:

Domestic:  1-877-870-5176

International:  1-858-384-5517

Passcode:  8410647

 

The playback can be accessed through August 18, 2016.

 

About Starwood Property Trust, Inc.

 

Starwood Property Trust (NYSE: STWD), an affiliate of global private investment firm Starwood Capital Group, is the largest commercial mortgage real estate investment trust in the United States. The Company’s core business focuses on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt and equity investments. Through its subsidiaries LNR Property, LLC and Hatfield Philips International, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States and one of the largest primary and special servicers in Europe. With total capital deployed since inception of over $28 billion, Starwood Property Trust continues to solidify its position as one of the premier real estate finance companies in the country.

 

5

 


 

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.

6

 


 

Footnotes

 

(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 RMBS 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)

The current leveraged return represents the compounded effective rate of return earned over the life of the investment based on existing leverage levels as of June 30, 2016, and calculated on a weighted average basis.  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. 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 leveraged returns assume that the leverage levels existing at June 30, 2016 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 asset-level return assumes (i) maximum available leverage in place or in negotiation for each asset, notwithstanding the amount actually borrowed, and (ii) full syndication of the first mortgage when syndication is deemed probable.

(5)

First mortgages include first mortgage loans and any contiguous subordinated mortgage and/or mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan.  The application of this methodology resulted in mezzanine loans with carrying values of $949.2 million being classified as first mortgages as of June 30, 2016.

(6)

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, which may include subordinated mortgages and/or mezzanine loans.  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. Assets characterized as mezzanine loans are mezzanine loans where the Company does not own the senior most interest in the loan. For any loans collateralized by ground-up construction projects without significant leasing or units with executed sales contracts, the fully funded loan balance is included in the numerator and the fully budgeted construction cost, including costs of acquisition of the property, is included in the denominator. For ground up construction loans which have significant leasing or units under contract for sale, the fully funded loan balance is included in the numerator with an estimate of the stabilized value upon completion of construction included in the denominator.  Includes loans held for investment and preferred equity.

(7)

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

(8)

Face amount is $4.7 billion. Differences between face amount and carry value are principally attributable to purchase discounts and changes in fair value.

(9)

Carrying value includes all components of the related asset, including properties and intangibles.

(10)

Excludes income of $0.8 million associated with the forgiveness of certain government-sponsored financing.

(11)

Adjusted for accumulated depreciation and amortization associated with commercial real estate properties. 

 

 

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the three months ended June 30, 2016

(Amounts in thousands)

 

    

 

    

Investing

    

 

    

 

    

 

    

Investing

    

 

 

 

Lending

 

and Servicing

 

Property

 

 

 

 

 

and Servicing

 

 

 

 

Segment

 

Segment

 

Segment

 

Corporate

 

Subtotal

 

VIEs

 

Total

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income from loans

  

$

119,296

  

$

3,261

  

$

 —

  

$

 —

  

$

122,557

  

$

 —

  

$

122,557

Interest income from investment securities

 

 

11,046

  

 

32,435

 

 

 —

 

 

 —

 

 

43,481

 

 

(28,180)

 

 

15,301

Servicing fees

 

 

206

  

 

37,249

 

 

 —

 

 

 —

 

 

37,455

 

 

(14,143)

 

 

23,312

Rental income

 

 

 —

 

 

8,223

 

 

29,620

 

 

 —

 

 

37,843

 

 

 —

 

 

37,843

Other revenues

 

 

58

 

 

1,076

 

 

18

 

 

 —

 

 

1,152

 

 

(173)

 

 

979

Total revenues 

 

 

130,606

 

 

82,244

 

 

29,638

 

 

 —

 

 

242,488

 

 

(42,496)

 

 

199,992

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

 

395

 

 

12

 

 

 —

 

 

23,304

 

 

23,711

 

 

56

 

 

23,767

Interest expense

 

 

22,572

 

 

3,328

 

 

5,678

 

 

26,057

 

 

57,635

 

 

 —

 

 

57,635

General and administrative

 

 

4,540

 

 

26,721

 

 

837

 

 

3,130

 

 

35,228

 

 

181

 

 

35,409

Acquisition and investment pursuit costs

 

 

942

 

 

780

 

 

166

 

 

1,000

 

 

2,888

 

 

 —

 

 

2,888

Costs of rental operations

 

 

 —

 

 

3,661

 

 

12,191

 

 

 —

 

 

15,852

 

 

 —

 

 

15,852

Depreciation and amortization

 

 

 —

 

 

3,730

 

 

15,343

 

 

 —

 

 

19,073

 

 

 —

 

 

19,073

Loan loss allowance, net

 

 

2,029

 

 

 —

 

 

 —

 

 

 —

 

 

2,029

 

 

 —

 

 

2,029

Total costs and expenses 

 

 

30,478

 

 

38,232

 

 

34,215

 

 

53,491

 

 

156,416

 

 

237

 

 

156,653

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

 

 

100,128

 

 

44,012

 

 

(4,577)

 

 

(53,491)

 

 

86,072

 

 

(42,733)

 

 

43,339

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net assets related to consolidated VIEs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

50,707

 

 

50,707

Change in fair value of servicing rights

 

 

 —

 

 

(11,034)

 

 

 —

 

 

 —

 

 

(11,034)

 

 

(1,157)

 

 

(12,191)

Change in fair value of investment securities, net

 

 

(30)

 

 

7,459

 

 

 —

 

 

 —

 

 

7,429

 

 

(6,110)

 

 

1,319

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

 

 

 —

 

 

13,235

 

 

 —

 

 

 —

 

 

13,235

 

 

 —

 

 

13,235

Earnings from unconsolidated entities

 

 

1,224

 

 

1,286

 

 

2,429

 

 

 —

 

 

4,939

 

 

(460)

 

 

4,479

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

 

 

(90)

 

 

 —

 

 

 —

 

 

 —

 

 

(90)

 

 

 —

 

 

(90)

Gain (loss) on derivative financial instruments, net

 

 

15,868

 

 

(3,945)

 

 

8,330

 

 

 —

 

 

20,253

 

 

 —

 

 

20,253

Foreign currency (loss) gain, net

 

 

(17,840)

 

 

870

 

 

(18)

 

 

 —

 

 

(16,988)

 

 

 —

 

 

(16,988)

Other income, net

 

 

 —

 

 

34

 

 

8,680

 

 

 —

 

 

8,714

 

 

 —

 

 

8,714

Total other (loss) income

 

 

(868)

 

 

7,905

 

 

19,421

 

 

 —

 

 

26,458

 

 

42,980

 

 

69,438

Income (loss) before income taxes 

 

 

99,260

 

 

51,917

 

 

14,844

 

 

(53,491)

 

 

112,530

 

 

247

 

 

112,777

Income tax provision

 

 

 —

 

 

(706)

 

 

 —

 

 

 —

 

 

(706)

 

 

 —

 

 

(706)

Net income (loss) 

 

 

99,260

 

 

51,211

 

 

14,844

 

 

(53,491)

 

 

111,824

 

 

247

 

 

112,071

Net income attributable to non-controlling interests

 

 

(348)

 

 

(3)

 

 

 —

 

 

 —

 

 

(351)

 

 

(247)

 

 

(598)

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

 

$

98,912

 

$

51,208

 

$

14,844

 

$

(53,491)

 

$

111,473

 

$

 —

 

$

111,473

 

 

8

 


 

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,  losses on debt extinguishment 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. 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, 2016

(Amounts in thousands except per share data)

 

    

 

    

Investing

    

 

    

 

    

 

 

 

 

Lending

 

and Servicing

 

Property

 

 

 

 

 

 

 

Segment

 

Segment

 

Segment

 

Corporate

 

Total

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

 

98,912

 

$

51,208

 

$

14,844

 

$

(53,491)

 

$

111,473

Add / (Deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash equity compensation expense

 

 

704

 

 

1,401

 

 

29

 

 

5,524

 

 

7,658

Management incentive fee

 

 

 —

 

 

 —

 

 

 —

 

 

2,868

 

 

2,868

Acquisition and investment pursuit costs

 

 

 —

 

 

226

 

 

136

 

 

 —

 

 

362

Depreciation and amortization

 

 

 —

 

 

2,921

 

 

15,369

 

 

 —

 

 

18,290

Loan loss allowance, net

 

 

2,029

 

 

 —

 

 

 —

 

 

 —

 

 

2,029

Interest income adjustment for securities

 

 

(243)

 

 

5,857

 

 

 —

 

 

 —

 

 

5,614

Other non-cash items

 

 

 —

 

 

17

 

 

(9,206)

 

 

 —

 

 

(9,189)

Reversal of unrealized (gains) / losses on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

 —

 

 

(13,235)

 

 

 —

 

 

 —

 

 

(13,235)

Securities

 

 

30

 

 

(7,459)

 

 

 —

 

 

 —

 

 

(7,429)

Derivatives

 

 

(16,530)

 

 

3,635

 

 

(8,330)

 

 

 —

 

 

(21,225)

Foreign currency

 

 

17,840

 

 

(870)

 

 

18

 

 

 —

 

 

16,988

Earnings from unconsolidated entities

 

 

(1,224)

 

 

(1,286)

 

 

(2,429)

 

 

 —

 

 

(4,939)

Recognition of realized gains / (losses) on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

 —

 

 

13,679

 

 

 —

 

 

 —

 

 

13,679

Securities

 

 

 —

 

 

(4,554)

 

 

 —

 

 

 —

 

 

(4,554)

Derivatives

 

 

25,321

 

 

(3,104)

 

 

 —

 

 

 —

 

 

22,217

Foreign currency

 

 

(25,704)

 

 

839

 

 

(19)

 

 

 —

 

 

(24,884)

Earnings from unconsolidated entities

 

 

1,224

 

 

630

 

 

2,333

 

 

 —

 

 

4,187

Core Earnings (Loss)

 

$

102,359

 

$

49,905

 

$

12,745

 

$

(45,099)

 

$

119,910

Core Earnings (Loss) per Weighted Average Diluted Share

 

$

0.43

 

$

0.21

 

$

0.05

 

$

(0.19)

 

$

0.50

 

 

9

 


 

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the six months ended June 30, 2016

(Amounts in thousands)

 

    

 

    

Investing

    

 

    

 

    

 

    

Investing

    

 

 

 

Lending

 

and Servicing

 

Property

 

 

 

 

 

and Servicing

 

 

 

 

Segment

 

Segment

 

Segment

 

Corporate

 

Subtotal

 

VIEs

 

Total

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income from loans

  

$

233,954

  

$

6,135

  

$

 —

  

$

 —

  

$

240,089

  

$

 —

  

$

240,089

Interest income from investment securities

 

 

20,674

  

 

80,061

 

 

 —

 

 

 —

 

 

100,735

 

 

(66,031)

 

 

34,704

Servicing fees

 

 

365

  

 

73,467

 

 

 —

 

 

 —

 

 

73,832

 

 

(25,829)

 

 

48,003

Rental income

 

 

 —

 

 

14,698

 

 

55,822

 

 

 —

 

 

70,520

 

 

 —

 

 

70,520

Other revenues

 

 

81

 

 

2,418

 

 

24

 

 

 —

 

 

2,523

 

 

(354)

 

 

2,169

Total revenues 

 

 

255,074

 

 

176,779

 

 

55,846

 

 

 —

 

 

487,699

 

 

(92,214)

 

 

395,485

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

 

770

 

 

30

 

 

 —

 

 

47,832

 

 

48,632

 

 

98

 

 

48,730

Interest expense

 

 

44,907

 

 

6,566

 

 

10,627

 

 

52,055

 

 

114,155

 

 

 —

 

 

114,155

General and administrative

 

 

8,462

 

 

52,015

 

 

1,392

 

 

5,980

 

 

67,849

 

 

358

 

 

68,207

Acquisition and investment pursuit costs

 

 

1,280

 

 

1,135

 

 

758

 

 

1,000

 

 

4,173

 

 

 —

 

 

4,173

Costs of rental operations

 

 

 —

 

 

6,723

 

 

21,784

 

 

 —

 

 

28,507

 

 

 —

 

 

28,507

Depreciation and amortization

 

 

 —

 

 

6,781

 

 

31,052

 

 

 —

 

 

37,833

 

 

 —

 

 

37,833

Loan loss allowance, net

 

 

1,268

 

 

 —

 

 

 —

 

 

 —

 

 

1,268

 

 

 —

 

 

1,268

Other expense

 

 

 —

 

 

100

 

 

 —

 

 

 —

 

 

100

 

 

 —

 

 

100

Total costs and expenses 

 

 

56,687

 

 

73,350

 

 

65,613

 

 

106,867

 

 

302,517

 

 

456

 

 

302,973

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

 

 

198,387

 

 

103,429

 

 

(9,767)

 

 

(106,867)

 

 

185,182

 

 

(92,670)

 

 

92,512

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net assets related to consolidated VIEs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

46,540

 

 

46,540

Change in fair value of servicing rights

 

 

 —

 

 

(19,704)

 

 

 —

 

 

 —

 

 

(19,704)

 

 

774

 

 

(18,930)

Change in fair value of investment securities, net

 

 

(244)

 

 

(44,069)

 

 

 —

 

 

 —

 

 

(44,313)

 

 

46,385

 

 

2,072

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

 

 

 —

 

 

20,126

 

 

 —

 

 

 —

 

 

20,126

 

 

 —

 

 

20,126

Earnings from unconsolidated entities

 

 

1,692

 

 

2,663

 

 

4,858

 

 

 —

 

 

9,213

 

 

(669)

 

 

8,544

Gain on sale of investments and other assets, net

 

 

155

 

 

 —

 

 

 —

 

 

 —

 

 

155

 

 

 —

 

 

155

Gain (loss) on derivative financial instruments, net

 

 

12,842

 

 

(15,190)

 

 

(2,117)

 

 

 —

 

 

(4,465)

 

 

 —

 

 

(4,465)

Foreign currency (loss) gain, net

 

 

(19,662)

 

 

2,330

 

 

(34)

 

 

 —

 

 

(17,366)

 

 

 —

 

 

(17,366)

Other income, net

 

 

 —

 

 

77

 

 

9,102

 

 

1,550

 

 

10,729

 

 

 —

 

 

10,729

Total other (loss) income

 

 

(5,217)

 

 

(53,767)

 

 

11,809

 

 

1,550

 

 

(45,625)

 

 

93,030

 

 

47,405

Income (loss) before income taxes 

 

 

193,170

 

 

49,662

 

 

2,042

 

 

(105,317)

 

 

139,557

 

 

360

 

 

139,917

Income tax provision

 

 

(75)

 

 

(725)

 

 

 —

 

 

 —

 

 

(800)

 

 

 —

 

 

(800)

Net income (loss) 

 

 

193,095

 

 

48,937

 

 

2,042

 

 

(105,317)

 

 

138,757

 

 

360

 

 

139,117

Net (income) loss attributable to non-controlling interests

 

 

(698)

 

 

71

 

 

 —

 

 

 —

 

 

(627)

 

 

(360)

 

 

(987)

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

 

$

192,397

 

$

49,008

 

$

2,042

 

$

(105,317)

 

$

138,130

 

$

 —

 

$

138,130

 

 

10

 


 

Reconciliation of Net Income to Core Earnings

For the six months ended June 30, 2016

(Amounts in thousands except per share data)

 

    

 

    

Investing

    

 

    

 

    

 

 

 

Lending

 

and Servicing

 

Property

 

 

 

 

 

 

Segment

 

Segment

 

Segment

 

Corporate

 

Total

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

 

$

192,397

 

49,008

 

$

2,042

 

$

(105,317)

 

$

138,130

Add / (Deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash equity compensation expense

 

 

1,286

 

 

2,487

 

 

62

 

 

10,907

 

 

14,742

Management incentive fee

 

 

 —

 

 

 —

 

 

 —

 

 

7,467

 

 

7,467

Acquisition and investment pursuit costs

 

 

 —

 

 

815

 

 

694

 

 

 —

 

 

1,509

Depreciation and amortization

 

 

 —

 

 

5,127

 

 

31,089

 

 

 —

 

 

36,216

Loan loss allowance, net

 

 

1,268

 

 

 —

 

 

 —

 

 

 —

 

 

1,268

Interest income adjustment for securities

 

 

(504)

 

 

6,746

 

 

 —

 

 

 —

 

 

6,242

Other non-cash items

 

 

 —

 

 

17

 

 

(10,814)

 

 

 —

 

 

(10,797)

Reversal of unrealized (gains) / losses on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

 —

 

 

(20,126)

 

 

 —

 

 

 —

 

 

(20,126)

Securities

 

 

244

 

 

44,069

 

 

 —

 

 

 —

 

 

44,313

Derivatives

 

 

(14,183)

 

 

14,398

 

 

2,117

 

 

 —

 

 

2,332

Foreign currency

 

 

19,662

 

 

(2,330)

 

 

34

 

 

 —

 

 

17,366

Earnings from unconsolidated entities

 

 

(1,692)

 

 

(2,663)

 

 

(4,858)

 

 

 —

 

 

(9,213)

Recognition of realized gains / (losses) on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

 —

 

 

18,471

 

 

 —

 

 

 —

 

 

18,471

Securities

 

 

 —

 

 

(7,877)

 

 

 —

 

 

 —

 

 

(7,877)

Derivatives

 

 

25,875

 

 

(9,816)

 

 

(70)

 

 

 —

 

 

15,989

Foreign currency

 

 

(25,771)

 

 

2,193

 

 

(34)

 

 

 —

 

 

(23,612)

Earnings from unconsolidated entities

 

 

2,296

 

 

1,755

 

 

2,333

 

 

 —

 

 

6,384

Core Earnings (Loss)

 

$

200,878

 

$

102,274

 

$

22,595

 

$

(86,943)

 

$

238,804

Core Earnings (Loss) per Weighted Average Diluted Share

 

$

0.84

 

$

0.43

 

$

0.09

 

$

(0.36)

 

$

1.00

 

 

11

 


 

 

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of June 30, 2016

(Amounts in thousands)

 

 

    

 

    

Investing

    

 

    

 

    

 

    

Investing

    

 

 

 

Lending

 

and Servicing

 

Property

 

 

 

 

 

and Servicing

 

 

 

 

Segment

 

Segment

 

Segment

 

Corporate

 

Subtotal

 

VIEs

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,803

 

$

69,803

 

$

18,723

 

$

187,335

 

$

403,664

 

$

1,156

 

$

404,820

Restricted cash

 

 

17,359

 

 

16,092

 

 

7,680

 

 

 —

 

 

41,131

 

 

 —

 

 

41,131

Loans held-for-investment, net

 

 

5,687,399

 

 

6,053

 

 

 —

 

 

 —

 

 

5,693,452

 

 

 —

 

 

5,693,452

Loans held-for-sale

 

 

 —

 

 

237,106

 

 

 —

 

 

 —

 

 

237,106

 

 

 —

 

 

237,106

Loans transferred as secured borrowings

 

 

93,268

 

 

 —

 

 

 —

 

 

 —

 

 

93,268

 

 

 —

 

 

93,268

Investment securities

 

 

784,463

 

 

1,050,909

 

 

 —

 

 

 —

 

 

1,835,372

 

 

(936,569)

 

 

898,803

Properties, net

 

 

 —

 

 

220,340

 

 

1,012,515

 

 

 —

 

 

1,232,855

 

 

 —

 

 

1,232,855

Intangible assets

 

 

 —

 

 

154,975

 

 

51,650

 

 

 —

 

 

206,625

 

 

(29,572)

 

 

177,053

Investment in unconsolidated entities

 

 

30,873

 

 

55,432

 

 

122,130

 

 

 —

 

 

208,435

 

 

(7,894)

 

 

200,541

Goodwill

 

 

 —

 

 

140,437

 

 

 —

 

 

 —

 

 

140,437

 

 

 —

 

 

140,437

Derivative assets

 

 

32,446

 

 

2,736

 

 

7,510

 

 

 —

 

 

42,692

 

 

 —

 

 

42,692

Accrued interest receivable

 

 

29,028

 

 

1,008

 

 

 —

 

 

 —

 

 

30,036

 

 

 —

 

 

30,036

Other assets

 

 

12,234

 

 

74,481

 

 

32,544

 

 

1,163

 

 

120,422

 

 

(2,372)

 

 

118,050

VIE assets, at fair value

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

80,076,117

 

 

80,076,117

Total Assets

 

$

6,814,873

 

$

2,029,372

 

$

1,252,752

 

$

188,498

 

$

10,285,495

 

$

79,100,866

 

$

89,386,361

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

9,352

 

$

58,583

 

$

48,600

 

$

23,295

 

$

139,830

 

$

782

 

$

140,612

Related-party payable

 

 

 —

 

 

555

 

 

 —