Exhibit 99.1
For Immediate Release
Starwood Property Trust, Inc. Reports Results for the Quarter and Year Ended December 31, 2013
— Quarterly Core Earnings of $0.62 per Diluted Common Share, 29% Increase Year Over Year —
— Full Year Core Earnings of $2.11 per Diluted Common Share —
— Completes $2.1 Billion of Investments in the Fourth Quarter of 2013 —
— Increases Dividend to $0.48 per Share for the First Quarter of 2014 —
GREENWICH, Conn., February 26, 2014 /PRNewswire/ — Starwood Property Trust, Inc. (NYSE: STWD) today announced operating results for the fourth fiscal quarter and year ended December 31, 2013. The Company’s Core Earnings, a Non-GAAP financial measure, were $121.2 million, or $0.62 per diluted share, for the fourth quarter of 2013, compared to $64.5 million, or $0.48 per diluted share, for the fourth quarter of 2012. Core Earnings per diluted share for 2013 increased 12.6% to $2.24, excluding one-time expenses attributable to the April 2013 acquisition of LNR of $0.13 per diluted share, compared to $1.99 per diluted share in 2012.
GAAP net income attributable to the Company for the fourth quarter of 2013 was $95.0 million, or $0.48 per diluted share, compared to $56.3 million, or $0.42 per diluted share, for the fourth quarter of 2012. Net income attributable to the Company for the year ended December 31, 2013 was $305.0 million, or $1.82 per diluted share, compared to $201.2 million, or $1.76 per diluted share for the year ended December 31, 2012. Net income for the year ended December 31, 2013 includes $22.1 million, or $0.13 per diluted share, of one-time expenses attributable to the acquisition of LNR.
Barry Sternlicht, Chairman and CEO of Starwood Property Trust, commented, “2013 was both a transformative and extremely successful year for Starwood Property Trust. During the past year we closed the acquisition of LNR, which added significant scale to our operating platform, diversified our revenue sources and provided a proprietary channel of originations. In late 2013 we completed the successful integration of LNR and are now leveraging LNR’s technological infrastructure and over 475 employees to run STWD’s day-to-day operations. More recently, we created meaningful shareholder value with the spin-off of Starwood Waypoint Residential Trust, our single-family residential business. We also continued to outperform in our lending business and funded $3.8 billion of investments during the year, bringing our total capital deployed since inception to over $10.3 billion.”
Mr. Sternlicht continued, “As we look out into the coming year, we expect to leverage our vast network of relationships in both the United States and Europe to continue sourcing high quality transactions that will support our stable and consistent dividend. We expect to continue to diversify through the addition of new
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lines of business and lending products as we foster Starwood Property Trust’s evolution into the premier real estate finance business that will perform well through all economic cycles. We remain committed to creating shareholder value through our deliberate and disciplined approach to investing.”
Highlights for the Fourth Quarter 2013 by Business Segment
The Company operated in three reportable segments as of December 31, 2013: Real Estate Investment Lending, LNR and Single-Family Residential. The Single-Family Residential segment was spun off to the Company’s shareholders on January 31, 2014, as described in more detail below.
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 fourth quarter of 2013, the Lending Segment originated and/or acquired $1.7 billion of new investments, of which $1.4 billion was funded at closing and/or acquisition. Of the $1.7 billion of new investments, 83% is comprised of LIBOR based floating rate loans, as is over 95% of the Lending Segment’s pipeline. Because the Company is able to match floating rate investments with floating rate debt hedged by interest swaps, and fixed rate investments with fixed rate debt, it remains well positioned to benefit from a rising rate environment.
The carrying value of the Lending Segment total investment portfolio was $5.4 billion as of December 31, 2013. The carrying value of the Lending Segment’s target portfolio was approximately $4.8 billion at December 31, 2013, which is anticipated to generate an annualized leveraged return of 10.8% to 11.8%.
The $1.7 billion of new investments during the fourth quarter of 2013 included the following significant transactions:
· Co-originated, with Starwood European Real Estate Finance, a £288 million first mortgage loan collateralized by the Heron Tower in London. In conjunction with the loan closing, the Company obtained a LIBOR-based £210 million collateralized term financing facility, and retained a £60 million junior investment
· Refinanced an existing loan into a $106.0 million mezzanine loan secured by the Hyatt Regency in New Orleans, which was funded in two stages
· Originated an $86.0 million first mortgage secured by 432 multifamily units and 23 retail units in San Francisco
· Originated a $150 million first mortgage loan and an $8 million mezzanine loan collateralized by five multifamily condo buildings in the Las Vegas market
· Originated 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
The following is a summary of the Lending Segment’s investments as of December 31, 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 | | $ | 2,650 | | $ | 2,601 | | $ | 1,269 | | $ | 1,332 | | 6.9 | % | 9.1 | % | 10.8 | % |
Subordinated mortgages held for investment | | 542 | | 505 | | 4 | | 501 | | 10.6 | % | 10.9 | % | 12.4 | % |
Mezzanine loans held for investment | | 1,247 | | 1,245 | | — | | 1,245 | | 12.7 | % | 12.7 | % | 12.7 | % |
Preferred equity investments held to maturity | | 288 | | 284 | | — | | 284 | | 9.8 | % | 9.8 | % | 9.8 | % |
CMBS (5) | | 185 | | 199 | | 58 | | 141 | | 9.4 | % | 12.3 | % | 12.3 | % |
Target portfolio of Lending Segment (3) | | $ | 4,912 | | $ | 4,834 | | $ | 1,331 | | $ | 3,503 | | 9.1 | % | 10.8 | % | 11.8 | % |
RMBS available-for-sale at fair value | | 414 | | 296 | | 128 | | 168 | | 9.7 | % | | | | |
Loans transferred as secured borrowings | | 180 | | 180 | | 181 | | (1 | ) | | | | | | |
Equity security | | 15 | | 15 | | — | | 15 | | | | | | | |
Investment in unconsolidated entities | | 50 | | 50 | | — | | 50 | | | | | | | |
Total investments | | $ | 5,571 | | $ | 5,375 | | $ | 1,640 | | $ | 3,735 | | | | | | | |
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(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 December 31, 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. 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. 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 December 31, 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 December 31, 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 full syndication of first mortgages is assumed.
(5) Consists of available-for-sale and held-to-maturity CMBS with carrying values of $115 million and $84 million, respectively.
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 66.3% for the past 18 months. The following table reflects the weighted average LTV ratio of the Lending Segment’s loan portfolio as of December 31, 2013:
Weighted Average LTV of Loan Portfolio (1)
| | First
Mortgages | | Subordinated
Mortgages | | Mezzanine | | Total (2) | |
Beginning LTV | | 0.0 | % | 37.1 | % | 30.5 | % | 12.9 | % |
Ending LTV | | 64.6 | % | 71.7 | % | 67.5 | % | 66.3 | % |
(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 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 house certain activities for which REITs are required
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to operate inside a TRS structure. The TRSs include LNR’s special servicing operations, its conduit loan business and certain other real estate related operations. As of December 31, 2013, $0.9 billion of the LNR Segment’s assets were owned by TRS entities. These entities are taxed as corporations. The remaining $0.5 billion of the LNR Segment’s assets as of December 31, 2013, consisting principally of LNR’s investment securities portfolio, were held by non-TRSs and are therefore subject to more favorable tax treatment.
For the fourth quarter, the LNR Segment contributed GAAP and Core Earnings of $35.7 million and $45.0 million, or $0.18 and $0.23 per diluted share, respectively, each after (i) an income tax provision of $1.5 million and (ii) $7.4 million in shared cost allocations of management fees and corporate interest expense. For the period from April 19, 2013 to December 31, 2013, the LNR Segment contributed GAAP and Core Earnings of $110.7 million and $126.8 million, or $0.66 and $0.76 per diluted share, respectively, each after (i) an income tax provision of $25.6 million and (ii) $18.5 million in shared cost allocations of management fees and corporate interest expense.
These fourth quarter results compare to GAAP and Core Earnings in the third quarter of $42.1 million (retrospectively adjusted for measurement period adjustments) and $46.2 million, respectively. LNR’s total revenues on a GAAP basis increased $12.3 million, or 15%, in the fourth quarter compared to the third quarter, reflecting higher levels of both servicing fees and interest income on CMBS. However, GAAP and Core Earnings of this segment decreased $6.4 million and $1.2 million, respectively, principally due to a decrease in the fair value of LNR’s domestic servicing intangible. The decrease in the intangible was offset by increases in revenue resulting from higher servicing fees and CMBS interest income as well as lower income tax expense.
At December 31, 2013, the carrying amount of the LNR Segment’s principal assets, consisting of CMBS, servicing intangibles and conduit loans, was $1.0 billion and is summarized below:
LNR Investments as of December 31, 2013
(Amounts in millions)
Investment | | Face
Amount | | Carry
Value/Fair
Value | | Existing
Leverage | | Net
Investment | |
CMBS | | $ | 3,872 | | $ | 550 | | $ | — | | $ | 550 | |
Special servicing intangibles | | N/A | | 258 | | — | | 258 | |
Conduit loans | | 209 | | 207 | | 130 | | 77 | |
Total investments | | $ | 4,081 | | $ | 1,015 | | $ | 130 | | $ | 885 | |
Significant activity during the fourth quarter with respect to these assets includes:
· Net decrease in the fair value of the domestic servicing intangible on a GAAP and Core basis of $18.0 million and $15.8 million, respectively, resulting from the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. As of December 31, 2013, LNR was named special servicer on $16.2 billion of loans and real estate owned (“REO”), which exceeded the Company’s underwriting expectations at the time of the LNR acquisition
· The conduit loan business, including the impact of associated hedging, also continued to outperform underwriting expectations, with net profit of $16.8 million and $18.2 million on a GAAP and Core basis, respectively
· CMBS purchases of $154.2 million, including new issue B-piece purchases of $92.1 million
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· Gains on sales of CMBS of $2.6 million
During the fourth quarter, this segment invested $0.2 billion in CMBS.
Single Family Residential (“SFR”) Segment
As previously announced, on January 31, 2014, the Company completed the spin-off of the SFR segment to its stockholders. The newly formed real estate investment trust, called Starwood Waypoint Residential Trust, is listed on the New York Stock Exchange and trades under the ticker symbol “SWAY.” The Company’s stockholders received one common share of SWAY for every five shares of the Company’s common stock held at the close of business on January 24, 2014. As of December 31, 2013, the Company’s consolidated financial statements reflect SFR segment net assets of $1.0 billion, representing approximately 13% of the Company’s consolidated assets as of such date. The net assets of the SFR segment consisted of approximately 7,200 units of single-family rental homes and residential non-performing mortgage loans (“NPLs”). In accordance with GAAP, the Company will retrospectively reclassify the SFR segment as a discontinued operation in its future comparative consolidated statements of operations beginning with the first quarter of 2014.
SWAY is one of the largest publicly traded investors, owners and operators of U.S. single-family rental homes and NPLs in the United States. As part of the spin-off, the Company contributed $100 million to the unlevered balance sheet of SWAY to fund its growth and operations. In addition, SWAY recently obtained a $500 million secured credit facility. Together, the available cash and credit facility provides SWAY with the financial capacity to support its growth and operating plans.
During the fourth quarter, the Company invested $0.2 billion in single-family rental homes, NPLs, and capital expenditures.
Financing Activities
As of December 31, 2013, the Company had an aggregate outstanding balance of approximately $3.3 billion under eleven financing facilities and two convertible senior notes. During the fourth quarter, the Company:
· Upsized borrowings under its senior secured term loan to $673.5 million from $300.0 million
· Upsized available borrowings under one of its warehouse lines to $225 million from $125 million and reset the term to a new two-year initial term, with three one-year extension options
· Borrowed £210 million under a new repurchase facility to finance the origination of the commercial mortgage loan which refinanced the Heron Tower in London
· Borrowed $58.5 million under a new repurchase facility to finance the purchase of a CMBS investment
On January 27, 2014, the Company amended one of its repurchase facilities to (i) upsize available borrowings to $1.0 billion from $550 million; (ii) extend the maturity date for non-CMBS assets to January 2019 and for CMBS assets to January 2016, each from August 2014, and each assuming initial extension options; (iii) allow for up to four additional one-year extension options with respect to any non-CMBS assets then remaining financed, in an effort to match the term of the maturity dates of these assets; and (iv) amend certain financial covenants to contemplate the spinoff of the SFR segment.
Book Value and Fair Value Per Share, Net of Minority Interest
The fair value of the Company’s net assets at December 31, 2013 was approximately $22.17 per fully diluted share, excluding appreciation from the SFR segment and assuming debt is valued at its par settlement amount. On a fully diluted basis, the Company’s GAAP book value at December 31, 2013 was $21.83 per share. Excluding the SFR segment, the fair value and GAAP book value would have been $16.76 and $16.42 per diluted share, respectively, as of December 31, 2013.
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Investment Related Activity Subsequent to December 31, 2013
Since December 31, 2013, the Lending Segment originated, acquired, and/or refinanced $1.2 billion of new investments, of which $0.5 billion was funded at closing and/or acquisition, which includes the following:
· Co-originated $407.5 million out of a total of $815.0 million of first mortgage and mezzanine financing which was used to refinance and recapitalize loans the Company had co-originated in October 2012 for the acquisition and redevelopment of a 10-story retail building in the Times Square area of Manhattan, New York. The Company’s balance under the prior loans was $210.9 million. The Company funded $173.2 million at closing and $234.3 remains to be funded
· Originated $197.2 million of first mortgage and mezzanine loans secured by an 89-asset bank branch portfolio in California
· Originated a $450.0 million first mortgage and mezzanine construction financing for the development of a 57 story tower containing luxury condominium residences and ground floor retail space in Manhattan, New York. The Company funded $23.9 million at closing and $426.1 million remains to be funded
Investment Capacity
As of February 21, 2014, the Company had approximately $292.9 million of available cash and equivalents, approximately $103.8 million of net equity invested in RMBS that are classified as available-for-sale and $68.0 million of approved but undrawn capacity under existing financing facilities. Accordingly, the Company has the capacity to acquire or originate an additional $300 million to $525 million of new investments using these liquidity sources. In addition, as of December 31, 2013 the Company had $550.3 of CMBS and is currently evaluating the sale of certain securities in this portfolio that no longer meet its return requirements.
Dividend
On February 24, 2014, the Company’s Board of Directors declared a dividend of $0.48 per share of common stock for the quarter ending March 31, 2014. The dividend is payable on April 15, 2014 to common shareholders of record as of March 31, 2013.
2014 Initial Guidance
For 2014, the Company is estimating Core Earnings in the range of $2.00 to $2.20 per diluted share. This guidance reflects the Company’s estimates on the (i) yield on existing investments; (ii) yield on incremental investments inclusive of the Company’s existing pipeline; (iii) amount and timing of debt and equity capital deployment to fund new investments; (iv) costs of additional debt and equity capital to fund new investments; (v) pace of amortization of the servicing intangible based on the amount and timing of servicing fees on existing contracts; (vi) taxation associated with the TRSs, particularly the LNR TRSs, which house this segment’s servicing and conduit loan operations, both of which generate significant taxable income; and (vii) changes in costs and expenses reflective of the Company’s forecasted operations. 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”.
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Conference Call and Webcast Information
The Company will host a webcast and conference call on Wednesday, February 26, 2014 at 11:00 a.m. Eastern Time to discuss fourth quarter and full year 2013 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: 1-888-631-3392
International: 1-913-312-0649
Conference Call Playback:
Domestic: 1-877-870-5176
International: 1-858-384-5517
Passcode: 7279775
The playback can be accessed through March 12, 2014.
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.
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Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations by Segment
For the three months ended December 31, 2013
(Amounts in thousands)
| | Real Estate
Investment
Lending | | Single
Family
Residential | | LNR | | Subtotal | | LNR VIEs | | Total | |
Revenues: | | | | | | | | | | | | | |
Interest income from loans | | $ | 103,875 | | $ | — | | $ | 4,094 | | $ | 107,969 | | $ | — | | $ | 107,969 | |
Interest income from investment securities | | 15,623 | | — | | 23,470 | | 39,093 | | (17,402 | ) | 21,691 | |
Servicing fees | | — | | — | | 66,589 | | 66,589 | | (17,507 | ) | 49,082 | |
Other revenues | | 307 | | 131 | | 1,910 | | 2,348 | | (297 | ) | 2,051 | |
Rental income | | — | | 7,156 | | — | | 7,156 | | — | | 7,156 | |
Total revenues | | 119,805 | | 7,287 | | 96,063 | | 223,155 | | (35,206 | ) | 187,949 | |
| | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Management fees | | 18,283 | | 4,794 | | 6,335 | | 29,412 | | 58 | | 29,470 | |
Interest expense | | 32,675 | | 2,959 | | 5,037 | | 40,671 | | — | | 40,671 | |
General and administrative | | 5,382 | | (149 | ) | 48,388 | | 53,621 | | 193 | | 53,814 | |
Business combination costs | | — | | — | | — | | — | | — | | — | |
Acquisition and investment pursuit costs | | 1,032 | | 647 | | 226 | | 1,905 | | — | | 1,905 | |
Residential segment, other operating costs | | — | | 10,761 | | — | | 10,761 | | — | | 10,761 | |
Depreciation and amortization | | — | | 3,126 | | 4,038 | | 7,164 | | — | | 7,164 | |
Loan loss allowance | | 8 | | — | | — | | 8 | | — | | 8 | |
Other expense | | — | | — | | 765 | | 765 | | — | | 765 | |
Total costs and expenses | | 57,380 | | 22,138 | | 64,789 | | 144,307 | | 251 | | 144,558 | |
Income before other income (loss), income taxes and non-controlling interests | | 62,425 | | (14,851 | ) | 31,274 | | 78,848 | | (35,457 | ) | 43,391 | |
| | | | | | | | | | | | | |
Other income: | | | | | | | | | | | | | |
Income of consolidated VIEs, net | | — | | — | | — | | — | | 36,465 | | 36,465 | |
Change in fair value of servicing rights | | — | | — | | (18,043 | ) | (18,043 | ) | 10,168 | | (7,875 | ) |
Change in fair value of investment securities, net | | (65 | ) | — | | 6,449 | | 6,384 | | (12,003 | ) | (5,619 | ) |
Change in fair value of mortgage loans held-for-sale, net | | — | | — | | 17,534 | | 17,534 | | — | | 17,534 | |
Earnings (loss) from unconsolidated entities | | 1,288 | | — | | 283 | | 1,571 | | 537 | | 2,108 | |
Gain on sale of investments, net | | 5,373 | | 2,540 | | — | | 7,913 | | — | | 7,913 | |
Gain (loss) on derivative financial instruments, net | | (10,320 | ) | — | | (785 | ) | (11,105 | ) | — | | (11,105 | ) |
Foreign currency gain (loss), net | | 6,941 | | — | | (53 | ) | 6,888 | | — | | 6,888 | |
Other-than-temporary impairment, net | | (561 | ) | (560 | ) | — | | (1,121 | ) | — | | (1,121 | ) |
Other income | | 15 | | 5,304 | | 613 | | 5,932 | | — | | 5,932 | |
Total other income (loss) | | 2,671 | | 7,284 | | 5,998 | | 15,953 | | 35,167 | | 51,120 | |
| | | | | | | | | | | | | |
Income (loss) before income taxes | | 65,096 | | (7,567 | ) | 37,272 | | 94,801 | | (290 | ) | 94,511 | |
Income tax benefit (provision) | | 3,367 | | (183 | ) | (1,546 | ) | 1,638 | | — | | 1,638 | |
Net income (loss) | | 68,463 | | (7,750 | ) | 35,726 | | 96,439 | | (290 | ) | 96,149 | |
Net income attributable to non-controlling interests | | (1,466 | ) | — | | — | | (1,466 | ) | 290 | | (1,176 | ) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | $ | 66,997 | | $ | (7,750 | ) | $ | 35,726 | | $ | 94,973 | | $ | — | | $ | 94,973 | |
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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 the three months ended December 31, 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. | | $ | 66,997 | | $ | (7,750 | ) | $ | 35,726 | | $ | 94,973 | |
| | | | | | | | | |
Add / (Deduct): | | | | | | | | | |
Non-cash equity compensation expense | | 3,403 | | — | | — | | 3,403 | |
Management incentive fee | | 4,257 | | — | | 2,494 | | 6,751 | |
Change in Control Plan | | — | | — | | 6,579 | | 6,579 | |
Depreciation and amortization | | — | | 3,125 | | 417 | | 3,542 | |
Loan loss allowance | | 8 | | — | | 447 | | 455 | |
Interest income adjustment for securities | | (395 | ) | — | | 6,573 | | 6,178 | |
(Gains) losses on: | | | | | | | | | |
Loans held for sale | | — | | — | | 8,438 | | 8,438 | |
Securities | | 160 | | — | | (10,229 | ) | (10,069 | ) |
Impairment of real estate | | — | | (536 | ) | — | | (536 | ) |
Gain on foreclosure of non-performing loans | | — | | 3,320 | | — | | 3,320 | |
Derivatives | | 10,546 | | — | | (7,015 | ) | 3,531 | |
Foreign currency | | (6,941 | ) | — | | — | | (6,941 | ) |
Earnings from unconsolidated entities | | — | | — | | (621 | ) | (621 | ) |
U.S. special servicing intangible | | — | | — | | 2,175 | | 2,175 | |
Core Earnings (Loss) | | $ | 78,035 | | $ | (1,841 | ) | $ | 44,984 | | $ | 121,178 | |
| | | | | | | | | |
Core Earnings (Loss) per Weighted Average Diluted Share | | $ | 0.40 | | $ | (0.01 | ) | $ | 0.23 | | $ | 0.62 | |
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Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations by Segment
For the year ended December 31, 2013
(Amounts in thousands)
| | Real Estate
Investment
Lending | | Single
Family
Residential | | LNR | | Subtotal | | LNR VIEs | | Total | |
Revenues | | | | | | | | | | | | | |
Interest income from loans | | $ | 335,078 | | $ | — | | $ | 9,562 | | $ | 344,640 | | $ | — | | $ | 344,640 | |
Interest income from investment securities | | 57,802 | | — | | 54,020 | | 111,822 | | (37,510 | ) | 74,312 | |
Servicing fees | | — | | — | | 179,015 | | 179,015 | | (54,289 | ) | 124,726 | |
Other revenues | | 598 | | 311 | | 6,111 | | 7,020 | | (892 | ) | 6,128 | |
Rental income | | — | | 15,889 | | — | | 15,889 | | — | | 15,889 | |
Total revenues | | 393,478 | | 16,200 | | 248,708 | | 658,386 | | (92,691 | ) | 565,695 | |
| | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Management fees | | 62,787 | | 11,329 | | 13,907 | | 88,023 | | 122 | | 88,145 | |
Interest expense | | 99,469 | | 6,546 | | 12,334 | | 118,349 | | — | | 118,349 | |
General and administrative | | 16,783 | | 1,564 | | 132,713 | | 151,060 | | 523 | | 151,583 | |
Business combination costs | | 17,958 | | — | | — | | 17,958 | | — | | 17,958 | |
Acquisition and investment pursuit costs | | 2,819 | | 2,752 | | 829 | | 6,400 | | — | | 6,400 | |
Residential segment, other operating costs | | — | | 21,383 | | — | | 21,383 | | — | | 21,383 | |
Depreciation and amortization | | — | | 6,107 | | 9,701 | | 15,808 | | — | | 15,808 | |
Loan loss allowance | | 1,923 | | — | | — | | 1,923 | | — | | 1,923 | |
Other expense | | 150 | | — | | 1,148 | | 1,298 | | — | | 1,298 | |
Total costs and expenses | | 201,889 | | 49,681 | | 170,632 | | 422,202 | | 645 | | 422,847 | |
| | | | | | | | | | | | | |
Income (loss) before other income (loss), income taxes and non-controlling interests | | 191,589 | | (33,481 | ) | 78,076 | | 236,184 | | (93,336 | ) | 142,848 | |
Other income (loss): | | | | | | | | | | | | | |
Income of consolidated VIEs, net | | — | | — | | — | | — | | 116,377 | | 116,377 | |
Change in fair value of servicing rights | | — | | — | | (15,868 | ) | (15,868 | ) | 9,024 | | (6,844 | ) |
Change in fair value of investment securities, net | | (148 | ) | — | | 22,657 | | 22,509 | | (31,393 | ) | (8,884 | ) |
Change in fair value of mortgage loans held-for-sale, net | | — | | — | | 43,849 | | 43,849 | | — | | 43,849 | |
Earnings from unconsolidated entities | | 4,776 | | — | | 4,502 | | 9,278 | | (437 | ) | 8,841 | |
Gain on sale of investments, net | | 25,063 | | 5,818 | | — | | 30,881 | | — | | 30,881 | |
Gain (loss) on derivative financial instruments, net | | (13,259 | ) | — | | 2,089 | | (11,170 | ) | — | | (11,170 | ) |
Foreign currency gain (loss), net | | 10,478 | | — | | (95 | ) | 10,383 | | — | | 10,383 | |
Other-than-temporary impairment, net | | (1,014 | ) | (560 | ) | — | | (1,574 | ) | — | | (1,574 | ) |
Other income | | 15 | | 8,624 | | 1,037 | | 9,676 | | — | | 9,676 | |
Total other income (loss) | | 25,911 | | 13,882 | | 58,171 | | 97,964 | | 93,571 | | 191,535 | |
| | | | | | | | | | | | | |
Income (loss) before income taxes | | 217,500 | | (19,599 | ) | 136,247 | | 334,148 | | 235 | | 334,383 | |
Income tax benefit (provision) | | 1,722 | | (195 | ) | (25,580 | ) | (24,053 | ) | — | | (24,053 | ) |
Net income (loss) | | 219,222 | | (19,794 | ) | 110,667 | | 310,095 | | 235 | | 310,330 | |
Net income attributable to non-controlling interests | | (5,065 | ) | — | | — | | (5,065 | ) | (235 | ) | (5,300 | ) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | $ | 214,157 | | $ | (19,794 | ) | $ | 110,667 | | $ | 305, 030 | | $ | — | | $ | 305, 030 | |
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Reconciliation of Net Income to Core Earnings
For the year ended December 31, 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. | | $ | 214,157 | | $ | (19,794 | ) | $ | 110,667 | | $ | 305, 030 | |
| | | | | | | | | |
Add / (Deduct): | | | | | | | | | |
Non-cash equity compensation expense | | 16,273 | | — | | — | | 16,273 | |
Management incentive fee | | 7,070 | | — | | 4,503 | | 11,573 | |
Change in Control Plan | | — | | — | | 22,382 | | 22,382 | |
Depreciation and amortization | | — | | 6,106 | | 763 | | 6,869 | |
Loan loss allowance | | 1,923 | | — | | 447 | | 2,370 | |
Interest income adjustment for securities | | (1,227 | ) | — | | 11,253 | | 10,026 | |
(Gains) losses on: | | | | | | | | | |
Loans held for sale | | — | | — | | 2,427 | | 2,427 | |
Securities | | (303 | ) | — | | (21,639 | ) | (21,942 | ) |
Derivatives | | 12,290 | | — | | (1,966 | ) | 10,324 | |
Foreign currency | | (10,663 | ) | — | | — | | (10,663 | ) |
Earnings from unconsolidated entities | | — | | — | | (2,053 | ) | (2,053 | ) |
Core Earnings (Loss) | | $ | 239,520 | | $ | (13,688 | ) | $ | 126,784 | | $ | 352,616 | |
Core Earnings (Loss) per Weighted Average Diluted Share | | $ | 1.43 | | $ | (0.08 | ) | $ | 0.76 | | $ | 2.11 | |
Additional information can be found on the Company’s website at www.starwoodpropertytrust.com
Contact: Investor Relations
Phone: 203-422-7788
Email: investorrelations@stwdreit.com
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