STARWOOD PROPERTY TRUST, INC. - FORM 8-K - EX-99.1

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8-K - 8-K - STARWOOD PROPERTY TRUST, INC.	f8-k.htm

Exhibit 99.1

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For Immediate Release

Starwood Property Trust Reports Results for the

Quarter and Year Ended December 31, 2017

– Quarterly GAAP Earnings of $0.35 and Core Earnings of $0.55 per Diluted Common Share –

– Deploys $7.3 Billion of Capital During 2017, up 15% from Prior Year –

– Deploys $2.3 Billion of Capital During Fourth Quarter of 2017 –

– Closes $156 Million of $595 Million Affordable Housing Portfolio –

– Subsequent to Year End, Issues $500 Million of Three-Year Unsecured Notes at L+128 bps –

– Declares Dividend of $0.48 per share for the First Quarter of 2018 –

GREENWICH, Conn., February 28, 2018 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fiscal quarter and year ended December 31, 2017. The Company’s fourth quarter 2017 GAAP net income was $92.6 million, or $0.35 per diluted share, and $400.8 million, or $1.52 per diluted share, for the full year. Core Earnings (a non-GAAP financial measure) for the fourth quarter was $144.7 million, or $0.55 per diluted share and $584.2 million, or $2.23 per diluted share, for the full year.

“We are very pleased with our performance in 2017. Each of our business lines continued to perform exceedingly well, demonstrating the strength of our multi-cylinder platform. We grew our diversified portfolio with the deployment of $7.3 billion of capital during the year, including $4.2 billion of originations in our large loan business, an increase of 29% from prior year,” commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

“Our large loan business continues to be our primary line of business, and we ended the quarter with the highest loan balance on the books in the over eight year history of our firm. As we expand our originations team, we have maintained credit quality while reducing the cost of our liabilities to create returns that are at or above historical levels, despite changes in the lending environment. Leveraging our diversified platform, our relationship with Starwood Capital Group, and ample liquidity, we expect to close on a record pipeline of over $2.5 billion of investments in the first quarter.”

Dividend

On February 28, 2018, the Company’s Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending March 31, 2018. The dividend is payable on April 13, 2018 to common stockholders of record as of March 30, 2018.

2018 Outlook

Given its current outlook, the Company is confident that it will generate Core Earnings in excess of the dividend and expects to maintain a $1.92 per share distribution for the full year.

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 at the Company’s website in the Investor Relations section under “Quarterly Results” at www.starwoodpropertytrust.com.

Conference Call and Webcast Information

The Company will host a webcast and conference call on Wednesday, February 28, 2018, at 10:00 a.m. Eastern Time to discuss the quarter’s financial results and recent events. A webcast will be available on the Company’s website at www.starwoodpropertytrust.com. To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register and download and install any necessary audio software.

To Participate in the Telephone Conference Call:

Dial in at least five minutes prior to start time.

Domestic: 1-800-289-0517

International: 1-323-994-2083

Conference Call Playback:

Domestic: 1-844-512-2921

International: 1-412-317-6671

Passcode: 1496293

The playback can be accessed through March 14, 2018.

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. With total capital deployed since inception of over $39 billion, Starwood Property Trust continues to solidify its position as one of the premier real estate finance companies in the country.

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 Statement of Operations by Segment

For the three months ended December 31, 2017

(Amounts in thousands)


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	139,618	$	—	$	3,102	$	—	$	142,720	$	—	$	142,720
Interest income from investment securities		10,840		—		29,975		—		40,815		(28,047)		12,768
Servicing fees		143		—		24,321		—		24,464		(10,590)		13,874
Rental income		—		59,671		13,168		—		72,839		—		72,839
Other revenues		133		215		344		—		692		(61)		631
Total revenues		150,734		59,886		70,910		—		281,530		(38,698)		242,832
Costs and expenses:
Management fees		528		—		18		42,059		42,605		97		42,702
Interest expense		34,795		14,086		4,916		28,534		82,331		(273)		82,058
General and administrative		5,109		1,263		25,089		2,192		33,653		93		33,746
Acquisition and investment pursuit costs		1,533		(141)		(152)		—		1,240		—		1,240
Costs of rental operations		—		20,365		6,192		—		26,557		—		26,557
Depreciation and amortization		16		21,250		5,206		—		26,472		—		26,472
Loan loss allowance, net		(2,288)		—		—		—		(2,288)		—		(2,288)
Other expense		77		47		22		—		146		—		146
Total costs and expenses		39,770		56,870		41,291		72,785		210,716		(83)		210,633
Income (loss) before other income (loss), income taxes and non-controlling interests		110,964		3,016		29,619		(72,785)		70,814		(38,615)		32,199
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		49,326		49,326
Change in fair value of servicing rights		—		—		(1,359)		—		(1,359)		(1,663)		(3,022)
Change in fair value of investment securities, net		(124)		—		9,070		—		8,946		(8,696)		250
Change in fair value of mortgage loans held-for-sale, net		2,873		—		18,630		—		21,503		—		21,503
Earnings from unconsolidated entities		817		1,097		1,058		—		2,972		(230)		2,742
Gain on sale of investments and other assets, net		—		—		3,495		—		3,495		—		3,495
(Loss) gain on derivative financial instruments, net		(4,988)		(65)		1,120		(2,440)		(6,373)		—		(6,373)
Foreign currency gain (loss), net		5,249		(2)		(10)		—		5,237		—		5,237
Gain on extinguishment of debt		—		—		—		1		1		—		1
Other income, net		—		7		8		1,745		1,760		—		1,760
Total other income (loss)		3,827		1,037		32,012		(694)		36,182		38,737		74,919
Income (loss) before income taxes		114,791		4,053		61,631		(73,479)		106,996		122		107,118
Income tax benefit (provision)		188		(249)		(13,176)		—		(13,237)		—		(13,237)
Net income (loss)		114,979		3,804		48,455		(73,479)		93,759		122		93,881
Net income attributable to non-controlling interests		(355)		—		(800)		—		(1,155)		(122)		(1,277)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	114,624	$	3,804	$	47,655	$	(73,479)	$	92,604	$	—	$	92,604

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. 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 December 31, 2017

(Amounts in thousands except per share data)


					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.	$	114,624	$	3,804	$	47,655	$	(73,479)	$	92,604
Add / (Deduct):
Non-cash equity compensation expense		663		27		915		3,255		4,860
Management incentive fee		—		—		—		21,961		21,961
Acquisition and investment pursuit costs		1,035		(232)		46		—		849
Depreciation and amortization		16		21,528		4,804		—		26,348
Loan loss allowance, net		(2,288)		—		—		—		(2,288)
Interest income adjustment for securities		(208)		—		4,261		—		4,053
Extinguishment of debt, net		—		—		—		15,213		15,213
Other non-cash items		—		(549)		112		—		(437)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		(2,873)		—		(18,630)		—		(21,503)
Securities		123		—		(9,070)		—		(8,947)
Derivatives		4,609		166		(1,595)		2,666		5,846
Foreign currency		(5,249)		2		10		—		(5,237)
Earnings from unconsolidated entities		(817)		(1,097)		(1,058)		—		(2,972)
Purchases and sales of properties		—		—		—		—		—
Recognition of realized gains / (losses) on:
Loans held-for-sale		(543)		—		15,864		—		15,321
Securities		—		—		(4,095)		—		(4,095)
Derivatives		2,297		(666)		3,060		(246)		4,445
Foreign currency		(1,765)		(2)		(208)		—		(1,975)
Earnings from unconsolidated entities		816		—		1,292		—		2,108
Purchases and sales of properties		—		—		(1,451)		—		(1,451)
Core Earnings (Loss)	$	110,440	$	22,981	$	41,912	$	(30,630)	$	144,703
Core Earnings (Loss) per Weighted Average Diluted Share	$	0.42	$	0.09	$	0.16	$	(0.12)	$	0.55

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the year ended December 31, 2017

(Amounts in thousands)



					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Revenues:
Interest income from loans	$	499,806	$	—	$	14,008	$	—	$	513,814	$	—	$	513,814
Interest income from investment securities		46,710		—		134,743		—		181,453		(128,640)		52,813
Servicing fees		711		—		111,158		—		111,869		(50,423)		61,446
Rental income		—		198,466		50,534		—		249,000		—		249,000
Other revenues		686		645		1,794		—		3,125		(310)		2,815
Total revenues		547,913		199,111		312,237		—		1,059,261		(179,373)		879,888
Costs and expenses:
Management fees		1,933		—		72		120,387		122,392		307		122,699
Interest expense		107,167		46,552		19,840		123,201		296,760		(1,094)		295,666
General and administrative		19,981		4,734		94,625		9,911		129,251		336		129,587
Acquisition and investment pursuit costs		3,240		375		(143)		—		3,472		—		3,472
Costs of rental operations		—		72,208		22,050		—		94,258		—		94,258
Depreciation and amortization		66		73,538		19,999		—		93,603		—		93,603
Loan loss allowance, net		(5,458)		—		—		—		(5,458)		—		(5,458)
Other expense		149		110		1,163		—		1,422		—		1,422
Total costs and expenses		127,078		197,517		157,606		253,499		735,700		(451)		735,249
Income (loss) before other income (loss), income taxes and non-controlling interests		420,835		1,594		154,631		(253,499)		323,561		(178,922)		144,639
Other income (loss):
Change in net assets related to consolidated VIEs		—		—		—		—		—		252,434		252,434
Change in fair value of servicing rights		—		—		(30,315)		—		(30,315)		5,992		(24,323)
Change in fair value of investment securities, net		175		—		54,333		—		54,508		(58,319)		(3,811)
Change in fair value of mortgage loans held-for-sale, net		2,324		—		64,663		—		66,987		—		66,987
Earnings (loss) from unconsolidated entities		3,365		(27,685)		68,192		—		43,872		(13,367)		30,505
(Loss) gain on sale of investments and other assets, net		(59)		77		20,481		—		20,499		—		20,499
Loss on derivative financial instruments, net		(35,262)		(32,333)		(2,497)		(2,440)		(72,532)		—		(72,532)
Foreign currency gain, net		33,651		14		6		—		33,671		—		33,671
OTTI		(109)		—		—		—		(109)		—		(109)
Loss on extinguishment of debt		—		—		—		(5,915)		(5,915)		—		(5,915)
Other income, net		—		7		1,105		1,745		2,857		(613)		2,244
Total other income (loss)		4,085		(59,920)		175,968		(6,610)		113,523		186,127		299,650
Income (loss) before income taxes		424,920		(58,326)		330,599		(260,109)		437,084		7,205		444,289
Income tax provision		(143)		(249)		(31,130)		—		(31,522)		—		(31,522)
Net income (loss)		424,777		(58,575)		299,469		(260,109)		405,562		7,205		412,767
Net income attributable to non-controlling interests		(1,419)		—		(3,373)		—		(4,792)		(7,205)		(11,997)
Net income (loss) attributable to Starwood Property Trust, Inc.	$	423,358	$	(58,575)	$	296,096	$	(260,109)	$	400,770	$	—	$	400,770

Reconciliation of Net Income to Core Earnings

For the year ended December 31, 2017

(Amounts in thousands except per share data)


					Investing
	Lending		Property		and Servicing
	Segment		Segment		Segment		Corporate		Total
Net income (loss) attributable to Starwood Property Trust, Inc.	$	423,358	$	(58,575)	$	296,096	$	(260,109)	$	400,770
Add / (Deduct):
Non-cash equity compensation expense		3,016		109		3,406		11,595		18,126
Management incentive fee		—		—		—		42,144		42,144
Acquisition and investment pursuit costs		1,109		(70)		137		—		1,176
Depreciation and amortization		66		74,510		18,245		—		92,821
Loan loss allowance, net		(5,458)		—		—		—		(5,458)
Interest income adjustment for securities		(905)		—		13,697		—		12,792
Extinguishment of debt, net		—		—		—		21,129		21,129
Other non-cash items		—		(2,214)		1,672		—		(542)
Reversal of unrealized (gains) / losses on:
Loans held-for-sale		(2,324)		—		(64,663)		—		(66,987)
Securities		(66)		—		(54,333)		—		(54,399)
Derivatives		33,506		31,676		461		2,666		68,309
Foreign currency		(33,651)		(14)		(6)		—		(33,671)
Earnings from unconsolidated entities		(3,365)		27,685		(68,192)		—		(43,872)
Purchases and sales of properties		—		—		(613)		—		(613)
Recognition of realized gains / (losses) on:
Loans held-for-sale		(1,092)		—		64,814		—		63,722
Securities		—		—		4,237		—		4,237
Derivatives		16,864		(684)		1,809		(739)		17,250
Foreign currency		(14,420)		14		(1,346)		—		(15,752)
Earnings from unconsolidated entities		3,345		3,563		57,066		—		63,974
Purchases and sales of properties		—		(153)		(840)		—		(993)
Core Earnings (Loss)	$	419,983	$	75,847	$	271,647	$	(183,314)	$	584,163
Core Earnings (Loss) per Weighted Average Diluted Share	$	1.60	$	0.29	$	1.04	$	(0.70)	$	2.23

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of December 31, 2017

(Amounts in thousands)


					Investing						Investing
	Lending		Property		and Servicing						and Servicing
	Segment		Segment		Segment		Corporate		Subtotal		VIEs		Total
Assets:
Cash and cash equivalents	$	14,580	$	10,388	$	39,446	$	299,308	$	363,722	$	5,726	$	369,448
Restricted cash		21,555		12,491		10,289		4,490		48,825		—		48,825
Loans held-for-investment, net		6,558,699		—		3,796		—		6,562,495		—		6,562,495
Loans held-for-sale		613,287		—		132,456		—		745,743		—		745,743
Loans transferred as secured borrowings		74,403		—		—		—		74,403		—		74,403
Investment securities		694,012		—		1,024,143		—		1,718,155		(999,952)		718,203
Properties, net		—		2,364,806		282,675		—		2,647,481		—		2,647,481
Intangible assets		—		116,081		95,257		—		211,338		(28,246)		183,092
Investment in unconsolidated entities		45,028		110,704		50,759		—		206,491		(20,988)		185,503
Goodwill		—		—		140,437		—		140,437		—		140,437
Derivative assets		6,487		26,775		636		—		33,898		—		33,898
Accrued interest receivable		46,650		68		243		786		47,747		—		47,747
Other assets		5,648		71,929		59,676		3,755		141,008		(2,868)		138,140
VIE assets, at fair value		—		—		—		—		—		51,045,874		51,045,874
Total Assets	$	8,080,349	$	2,713,242	$	1,839,813	$	308,339	$	12,941,743	$	49,999,546	$	62,941,289
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	23,054	$	62,890	$	74,426	$	23,536	$	183,906	$	1,211	$	185,117
Related-party payable		20		—		31		42,318		42,369		—		42,369
Dividends payable		—		—		—		125,916		125,916		—		125,916
Derivative liabilities		20,386		13,063		85		2,666		36,200		—		36,200
Secured financing agreements, net		3,466,487		1,621,885		411,526		296,858		5,796,756		(23,700)		5,773,056
Unsecured senior notes, net		—		—		—		2,125,235		2,125,235		—		2,125,235
Secured borrowings on transferred loans, net		74,185		—		—		—		74,185		—		74,185
VIE liabilities, at fair value		—		—		—		—		—		50,000,010		50,000,010
Total Liabilities		3,584,132		1,697,838		486,068		2,616,529		8,384,567		49,977,521		58,362,088
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock		—		—		—		2,660		2,660		—		2,660
Additional paid-in capital		1,818,559		957,329		659,062		1,280,296		4,715,246		—		4,715,246
Treasury stock		—		—		—		(92,104)		(92,104)		—		(92,104)
Accumulated other comprehensive income (loss)		57,914		12,076		(66)		—		69,924		—		69,924
Retained earnings (accumulated deficit)		2,609,050		(14,335)		687,015		(3,499,042)		(217,312)		—		(217,312)
Total Starwood Property Trust, Inc. Stockholders’ Equity		4,485,523		955,070		1,346,011		(2,308,190)		4,478,414		—		4,478,414
Non-controlling interests in consolidated subsidiaries		10,694		60,334		7,734		—		78,762		22,025		100,787
Total Equity		4,496,217		1,015,404		1,353,745		(2,308,190)		4,557,176		22,025		4,579,201
Total Liabilities and Equity	$	8,080,349	$	2,713,242	$	1,839,813	$	308,339	$	12,941,743	$	49,999,546	$	62,941,289

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. - FORM 8-K - EX-99.1 - February 28, 2018

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