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

Rhea-AI Summary

Starwood Property Trust (NYSE: STWD) reported its Q2 2020 results, achieving a GAAP net income of $139.7 million or $0.49 per diluted share, and Core Earnings of $126.1 million or $0.43 per diluted share. The company highlighted its cautious investment strategy amid the COVID-19 pandemic, maintaining over $800 million in cash and undrawn debt capacity. It has reduced its funding obligations by over $700 million while paying dividends. The company is well-positioned to capitalize on future investment opportunities across its diversified business lines.

Positive

• Q2 2020 GAAP net income of $139.7 million or $0.49 per diluted share.
• Core Earnings of $126.1 million or $0.43 per diluted share.
• Maintains over $800 million in cash and approved, undrawn debt capacity.
• Deleveraged balance sheet by more than $350 million.
• Lowered future funding obligations by over $700 million.

Negative

• Earnings may continue to reduce until capital deployment normalizes.

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

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

All this caution has and will probably continue to reduce our earnings until our capital deployment returns to more normalized levels. Nonetheless, the breadth of our enterprise provides numerous opportunities for us to realize the significant embedded gains in our portfolio if and when we choose to do so. Our complex, but diversified, business lines have performed in line with our expectations. We are very well-positioned to carefully comb through investments in each of our business segments, work with our borrowers, and return to investing globally where the opportunity set is clearly better today than in years past," commented Barry Sternlicht, Chairman and CEO of Starwood Property Trust.

Supplemental Schedules

The Company has published supplemental earnings schedules on its website in order to provide additional disclosure and financial information for the benefit of the Company's stakeholders.  Specifically, these materials can be found on the Company's website in the Investor Relations section under "Quarterly Results" at www.starwoodpropertytrust.com.

Webcast and Conference Call Information 

The Company will host a live webcast and conference call on Wednesday, August 5, 2020, at 10:00 a.m. Eastern Time.  To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software.  The webcast is available at www.starwoodpropertytrust.com in the Investor Relations section of the website.  The Company encourages use of the webcast due to potential extended wait times to access the conference call via dial-in. 

To Participate via Telephone Conference Call:
Dial in at least 15 minutes prior to start time.
Domestic:  1-877-407-9039 
International:  1-201-689-8470

Conference Call Playback:
Domestic:  1-844-512-2921
International:  1-412-317-6671
Passcode:  13706902
The playback can be accessed through August 12, 2020.

About Starwood Property Trust, Inc.

Starwood Property Trust (NYSE: STWD), is a leading diversified finance company with a core focus on the real estate and infrastructure sectors. An affiliate of global private investment firm Starwood Capital Group, the Company has successfully deployed over $63 billion of capital since inception and manages a portfolio of $17 billion across debt and equity investments. Starwood Property Trust's investment objective is to generate attractive and stable returns for shareholders, primarily through dividends, by leveraging a premiere global organization to identify and execute on the best risk adjusted returning investments across its target assets. Additional information can be found at www.starwoodpropertytrust.com.

Forward-Looking Statements

Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are developed by combining currently available information with our beliefs and assumptions and are generally identified by the words "believe," "expect," "anticipate" and other similar expressions.  Although Starwood Property Trust, Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.  Factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, the severity and duration of economic disruption caused by the COVID-19 global pandemic, completion of pending investments and financings, continued ability to acquire additional investments, competition within the finance and real estate industries, availability of financing and other risks detailed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our quarterly report on Form 10-Q for the quarter ended June 30, 2020, as well as other risks and uncertainties set forth from time to time in the Company's reports filed with the SEC.

In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained herein will in fact occur. Except to the extent required by applicable law or regulation, we undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.

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

Contact:
Zachary Tanenbaum
Starwood Property Trust
Phone: 203-422-7788
Email: ztanenbaum@starwood.com

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the three months ended June 30, 2020 (Amounts in thousands)
		Commercial and
		Residential			Infrastructure						Investing
		Lending			Lending			Property			and Servicing									Securitization
		Segment			Segment			Segment			Segment			Corporate			Subtotal			VIEs			Total
Revenues:
Interest income from loans		$	150,136		$	19,126		$	—		$	1,841		$	—		$	171,103		$	—		$	171,103
Interest income from investment securities			17,345			683			—			24,924			—			42,952			(28,308)			14,644
Servicing fees			142			—			—			8,591			—			8,733			(2,075)			6,658
Rental income			690			—			63,566			8,454			—			72,710			—			72,710
Other revenues			54			100			58			280			—			492			(1)			491
Total revenues			168,367			19,909			63,624			44,090			—			295,990			(30,384)			265,606
Costs and expenses:
Management fees			339			—			—			220			22,554			23,113			2			23,115
Interest expense			41,871			9,678			15,942			6,177			27,825			101,493			—			101,493
General and administrative			8,615			4,337			1,281			14,993			3,368			32,594			83			32,677
Acquisition and investment pursuit costs			578			1,100			—			(88)			—			1,590			—			1,590
Costs of rental operations			988			—			24,703			3,941			—			29,632			—			29,632
Depreciation and amortization			430			89			19,153			3,749			—			23,421			—			23,421
Credit loss provision, net			11,294			(1,092)			—			—			—			10,202			—			10,202
Other expense			76			—			26			—			—			102			—			102
Total costs and expenses			64,191			14,112			61,105			28,992			53,747			222,147			85			222,232
Other income (loss):
Change in net assets related to consolidated VIEs			—			—			—			—			—			—			51,261			51,261
Change in fair value of servicing rights			—			—			—			5,328			—			5,328			(7,897)			(2,569)
Change in fair value of investment securities, net			5,454			—			—			7,941			—			13,395			(12,568)			827
Change in fair value of mortgage loans, net			33,010			—			—			1,440			—			34,450			—			34,450
Earnings (loss) from unconsolidated entities			671			(1,118)			—			29,526			—			29,079			(303)			28,776
(Loss) gain on sale of investments and other assets, net			(961)			—			—			7,433			—			6,472			—			6,472
(Loss) gain on derivative financial instruments, net			(11,736)			(437)			(4,614)			(3,828)			4,517			(16,098)			—			(16,098)
Foreign currency gain (loss), net			6,942			310			(48)			(31)			—			7,173			—			7,173
Loss on extinguishment of debt			(22)			—			(2,185)			—			—			(2,207)			—			(2,207)
Other income, net			—			—			191			13			—			204			—			204
Total other income (loss)			33,358			(1,245)			(6,656)			47,822			4,517			77,796			30,493			108,289
Income (loss) before income taxes			137,534			4,552			(4,137)			62,920			(49,230)			151,639			24			151,663
Income tax (provision) benefit			(3,257)			(56)			—			4,611			—			1,298			—			1,298
Net income (loss)			134,277			4,496			(4,137)			67,531			(49,230)			152,937			24			152,961
Net income attributable to non-controlling interests			(4)			—			(5,111)			(8,166)			—			(13,281)			(24)			(13,305)
Net income (loss) attributable to Starwood Property Trust, Inc.		$	134,273		$	4,496		$	(9,248)		$	59,365		$	(49,230)		$	139,656		$	—		$	139,656

Definition of Core Earnings

Core Earnings, a non-GAAP financial measure, is used to compute the Company's incentive fees to its external manager and is an appropriate supplemental disclosure for a mortgage REIT.  For the Company's purposes, Core Earnings is defined as GAAP net income (loss) excluding non-cash equity compensation expense, the incentive fee due to the Company's external manager, acquisition costs from successful acquisitions, depreciation and amortization of real estate and associated intangibles and any unrealized gains, losses or other non-cash items recorded in net income for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income and, to the extent deducted from net income (loss), distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein. The amount is adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash adjustments as determined by the Company's external manager and approved by a majority of the Company's independent directors. 

Reconciliation of Net Income to Core Earnings For the three months ended June 30, 2020 (Amounts in thousands except per share data)
		Commercial and
		Residential			Infrastructure						Investing
		Lending			Lending			Property			and Servicing
		Segment			Segment			Segment			Segment			Corporate			Total
Net income (loss) attributable to Starwood Property Trust, Inc.		$	134,273		$	4,496		$	(9,248)		$	59,365		$	(49,230)		$	139,656
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units			—			—			5,111			—			—			5,111
Non-cash equity compensation expense			1,436			481			58			1,247			4,130			7,352
Acquisition and investment pursuit costs			206			—			(88)			(72)			—			46
Depreciation and amortization			370			79			19,236			3,337			—			23,022
Credit loss provision, net			11,294			(1,092)			—			—			—			10,202
Interest income adjustment for securities			1,149			—			—			1,627			—			2,776
Extinguishment of debt, net			—			—			—			—			(247)			(247)
Income tax provision (benefit) associated with fair value adjustments			1,914			—			—			(392)			—			1,522
Other non-cash items			4			—			(485)			230			156			(95)
Reversal of GAAP unrealized (gains) / losses on:
Loans			(33,010)			—			—			(1,440)			—			(34,450)
Securities			(5,454)			—			—			(7,941)			—			(13,395)
Derivatives			11,043			420			3,401			3,524			(240)			18,148
Foreign currency			(6,942)			(310)			48			31			—			(7,173)
(Earnings) loss from unconsolidated entities			(671)			1,118			—			(29,526)			—			(29,079)
Recognition of Core realized gains / (losses) on:
Loans			(5,663)			—			—			(1)			—			(5,664)
Securities			—			—			—			(181)			—			(181)
Derivatives			4,522			—			(369)			(10)			—			4,143
Foreign currency			(1,969)			52			(50)			(31)			—			(1,998)
(Loss) earnings from unconsolidated entities			(24)			(733)			—			12,992			—			12,235
Sales of properties			—			—			—			(5,789)			—			(5,789)
Core Earnings (Loss)		$	112,478		$	4,511		$	17,614		$	36,970		$	(45,431)		$	126,142
Core Earnings (Loss) per Weighted Average Diluted Share		$	0.38		$	0.02		$	0.06		$	0.12		$	(0.15)		$	0.43

 

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Statement of Operations by Segment For the six months ended June 30, 2020 (Amounts in thousands)
		Commercial and
		Residential			Infrastructure						Investing
		Lending			Lending			Property			and Servicing									Securitization
		Segment			Segment			Segment			Segment			Corporate			Subtotal			VIEs			Total
Revenues:
Interest income from loans		$	342,517		$	41,539		$	—		$	4,474		$	—		$	388,530		$	—		$	388,530
Interest income from investment securities			35,973			1,384			—			49,724			—			87,081			(57,197)			29,884
Servicing fees			314			—			—			15,033			—			15,347			(3,896)			11,451
Rental income			768			—			127,527			18,561			—			146,856			—			146,856
Other revenues			232			243			180			793			—			1,448			(3)			1,445
Total revenues			379,804			43,166			127,707			88,585			—			639,262			(61,096)			578,166
Costs and expenses:
Management fees			690			—			—			459			62,661			63,810			33			63,843
Interest expense			95,821			22,795			33,063			13,371			56,630			221,680			(162)			221,518
General and administrative			16,747			8,760			2,359			35,677			7,669			71,212			167			71,379
Acquisition and investment pursuit costs			1,438			1,117			12			(68)			—			2,499			—			2,499
Costs of rental operations			1,766			—			47,555			8,525			—			57,846			—			57,846
Depreciation and amortization			845			159			38,441			7,956			—			47,401			—			47,401
Credit loss provision, net			51,511			7,360			—			—			—			58,871			—			58,871
Other expense			153			—			337			—			—			490			—			490
Total costs and expenses			168,971			40,191			121,767			65,920			126,960			523,809			38			523,847
Other income (loss):
Change in net assets related to consolidated VIEs			—			—			—			—			—			—			5,768			5,768
Change in fair value of servicing rights			—			—			—			5,646			—			5,646			(8,608)			(2,962)
Change in fair value of investment securities, net			(22,425)			—			—			(39,275)			—			(61,700)			65,031			3,331
Change in fair value of mortgage loans, net			(2,507)			—			—			20,823			—			18,316			—			18,316
Earnings (loss) from unconsolidated entities			722			(1,118)			—			30,146			—			29,750			(877)			28,873
(Loss) gain on sale of investments and other assets, net			(961)			296			—			7,433			—			6,768			—			6,768
Gain (loss) on derivative financial instruments, net			19,069			(1,438)			(34,837)			(22,934)			33,752			(6,388)			—			(6,388)
Foreign currency loss, net			(27,059)			(163)			(67)			(24)			—			(27,313)			—			(27,313)
Loss on extinguishment of debt			(22)			(170)			(2,185)			—			—			(2,377)			—			(2,377)
Other income, net			—			—			241			89			—			330			—			330
Total other (loss) income			(33,183)			(2,593)			(36,848)			1,904			33,752			(36,968)			61,314			24,346
Income (loss) before income taxes			177,650			382			(30,908)			24,569			(93,208)			78,485			180			78,665
Income tax benefit			1,165			89			—			6,773			—			8,027			—			8,027
Net income (loss)			178,815			471			(30,908)			31,342			(93,208)			86,512			180			86,692
Net income attributable to non-controlling interests			(7)			—			(10,222)			(3,396)			—			(13,625)			(180)			(13,805)
Net income (loss) attributable to Starwood Property Trust, Inc.		$	178,808		$	471		$	(41,130)		$	27,946		$	(93,208)		$	72,887		$	—		$	72,887

 

Reconciliation of Net Income to Core Earnings For the six months ended June 30, 2020 (Amounts in thousands except per share data)
		Commercial and
		Residential			Infrastructure						Investing
		Lending			Lending			Property			and Servicing
		Segment			Segment			Segment			Segment			Corporate			Total
Net income (loss) attributable to Starwood Property Trust, Inc.		$	178,808		$	471		$	(41,130)		$	27,946		$	(93,208)		$	72,887
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units			—			—			10,222			—			—			10,222
Non-cash equity compensation expense			2,548			947			131			2,510			10,016			16,152
Management incentive fee			—			—			—			—			15,799			15,799
Acquisition and investment pursuit costs			564			—			(177)			(72)			—			315
Depreciation and amortization			725			130			38,617			7,144			—			46,616
Credit loss provision, net			51,511			7,360			—			—			—			58,871
Interest income adjustment for securities			1,273			—			—			7,942			—			9,215
Extinguishment of debt, net			—			—			—			—			(493)			(493)
Income tax benefit associated with fair value adjustment			(3,907)			—			—			(1,834)			—			(5,741)
Other non-cash items			7			—			(976)			478			312			(179)
Reversal of GAAP unrealized (gains) / losses on:
Loans			2,507			—			—			(20,823)			—			(18,316)
Securities			22,425			—			—			39,275			—			61,700
Derivatives			(19,520)			1,433			33,970			22,537			(27,889)			10,531
Foreign currency			27,059			163			67			24			—			27,313
(Earnings) loss from unconsolidated entities			(722)			1,118			—			(30,146)			—			(29,750)
Recognition of Core realized gains / (losses) on:
Loans			(3,499)			(62)			—			16,558			—			12,997
Securities			—			—			—			(4,393)			—			(4,393)
Derivatives			7,772			118			(404)			(6,097)			—			1,389
Foreign currency			(6,240)			(142)			(69)			(24)			—			(6,475)
(Loss) earnings from unconsolidated entities			(580)			(733)			—			16,730			—			15,417
Sales of properties			—			—			—			(5,789)			—			(5,789)
Core Earnings (Loss)		$	260,731		$	10,803		$	40,251		$	71,966		$	(95,463)		$	288,288
Core Earnings (Loss) per Weighted Average Diluted Share		$	0.88		$	0.04		$	0.14		$	0.24		$	(0.32)		$	0.98

 

Starwood Property Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheet by Segment As of June 30, 2020 (Amounts in thousands)
		Commercial and
		Residential			Infrastructure						Investing
		Lending			Lending			Property			and Servicing									Securitization
		Segment			Segment			Segment			Segment			Corporate			Subtotal			VIEs			Total
Assets:
Cash and cash equivalents		$	13,959		$	299		$	30,237		$	35,855		$	266,333		$	346,683		$	1,051		$	347,734
Restricted cash			114,656			34,160			7,537			20,044			—			176,397			—			176,397
Loans held-for-investment, net			8,960,410			1,459,239			—			1,153			—			10,420,802			—			10,420,802
Loans held-for-sale			432,786			44,876			—			194,097			—			671,759			—			671,759
Investment securities			1,120,624			40,312			—			1,094,613			—			2,255,549			(1,503,524)			752,025
Properties, net			27,283			—			1,998,759			198,281			—			2,224,323			—			2,224,323
Intangible assets			—			—			43,580			67,567			—			111,147			(34,854)			76,293
Investment in unconsolidated entities			49,853			24,744			—			47,114			—			121,711			(16,798)			104,913
Goodwill			—			119,409			—			140,437			—			259,846			—			259,846
Derivative assets			47,875			—			348			586			42,096			90,905			—			90,905
Accrued interest receivable			55,877			3,163			—			520			13,589			73,149			(1,401)			71,748
Other assets			29,864			5,616			81,859			57,321			9,512			184,172			(25)			184,147
VIE assets, at fair value			—			—			—			—			—			—			64,175,387			64,175,387
Total Assets		$	10,853,187		$	1,731,818		$	2,162,320		$	1,857,588		$	331,530		$	16,936,443		$	62,619,836		$	79,556,279
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities		$	27,941		$	10,285		$	45,277		$	36,400		$	91,765		$	211,668		$	54		$	211,722
Related-party payable			—			—			—			5			20,936			20,941			—			20,941
Dividends payable			—			—			—			—			138,778			138,778			—			138,778
Derivative liabilities			2,260			1,620			—			—			—			3,880			—			3,880
Secured financing agreements, net			4,749,321			1,221,001			1,792,818			683,466			389,714			8,836,320			—			8,836,320
Collateralized loan obligations, net			929,307			—			—			—			—			929,307			—			929,307
Unsecured senior notes, net			—			—			—			—			1,932,560			1,932,560			—			1,932,560
VIE liabilities, at fair value			—			—			—			—			—			—			62,617,975			62,617,975
Total Liabilities			5,708,829			1,232,906			1,838,095			719,871			2,573,753			12,073,454			62,618,029			74,691,483
Equity:
Starwood Property Trust, Inc. Stockholders' Equity:
Common stock			—			—			—			—			2,916			2,916			—			2,916
Additional paid-in capital			1,473,921			504,262			137,777			(228,654)			3,306,266			5,193,572			—			5,193,572
Treasury stock			—			—			—			—			(133,024)			(133,024)			—			(133,024)
Accumulated other comprehensive income (loss)			42,930			—			—			(64)			—			42,866			—			42,866
Retained earnings (accumulated deficit)			3,627,392			(5,350)			(40,699)			1,222,945			(5,418,381)			(614,093)			—			(614,093)
Total Starwood Property Trust, Inc. Stockholders' Equity			5,144,243			498,912			97,078			994,227			(2,242,223)			4,492,237			—			4,492,237
Non-controlling interests in consolidated subsidiaries			115			—			227,147			143,490			—			370,752			1,807			372,559
Total Equity			5,144,358			498,912			324,225			1,137,717			(2,242,223)			4,862,989			1,807			4,864,796
Total Liabilities and Equity		$	10,853,187		$	1,731,818		$	2,162,320		$	1,857,588		$	331,530		$	16,936,443		$	62,619,836		$	79,556,279

 

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

SOURCE Starwood Property Trust, Inc.

FAQ

What were the Q2 2020 results for Starwood Property Trust (STWD)?

In Q2 2020, Starwood Property Trust reported a GAAP net income of $139.7 million and Core Earnings of $126.1 million.

How much cash does Starwood Property Trust (STWD) currently hold?

Starwood Property Trust currently holds over $800 million in cash and approved, undrawn debt capacity.

What impact did COVID-19 have on Starwood Property Trust’s (STWD) business strategy?

Starwood Property Trust adopted a cautious investment approach during COVID-19, focusing on solidifying its balance sheet.

What is the future outlook for Starwood Property Trust (STWD)?

The company is positioned to capitalize on investment opportunities when the market stabilizes.