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Press release from PR Newswire

Starwood Property Trust, Inc. Announces Third Quarter 2010 Results

Tuesday, November 09, 2010

Starwood Property Trust, Inc. Announces Third Quarter 2010 Results16:24 EST Tuesday, November 09, 2010- Achieves $0.56 of Diluted Core Earnings per Share - - Declares $0.40 Dividend for Fourth Quarter -GREENWICH, Conn., Nov. 9, 2010 /PRNewswire-FirstCall/ -- Starwood Property Trust (NYSE: STWD) (the "Company"), a commercial real estate finance company that is structured as a real estate investment trust, today announced operating results for the third quarter 2010.  The Company's Core Earnings(1), a Non-GAAP financial measure, were $27.0 million or $0.56 per share for the quarter ended September 30, 2010.  Net Income attributable to the Company for the same period was $22.7 million or $0.47 per common share. Results included a gain of $9.3 million, or $0.19 per common diluted share, related to the Company's participation in a commercial mortgage securitization. Net interest margin in the third quarter generated from investments was approximately $22.8 million, up from $18 million in the second quarter of 2010. "We're pleased with our continued progress and the quality of our investment portfolio. In a world with little yield, we believe we are providing our shareholders with a diverse and safe investment portfolio generating attractive risk adjusted yields with loan balances on average less than 65% of the value of the underlying collateral value," said Barry Sternlicht, Chairman and CEO.  "This quarter, we also accomplished three milestone events.  First, our external manager hired an experienced 10 person originations team led by Boyd Fellows, Stew Ward, Chris Tokarski and Warren DeHaan in the capacity of President, Chief Financial Officer, Chief Credit Officer and Chief Originations Officer, respectively.   Boyd has also joined the Company's Board of Directors.  We are setting the stage for our second chapter in which we will build a robust originations platform in our quest to become a multi-faceted commercial finance company.  Second, the current pipeline of opportunities originated by Starwood Capital Group's team, the largest in our history, exceeds $1 billion.  Third, we're particularly pleased to continue our track record of increasing our dividend each quarter, announcing a $0.40 dividend for the quarter and reaching $1.60 annualized dividend or the 8% targeted yield which we communicated to our investors at the time of our initial public offering in August 2009. This dividend is fully funded from our earnings."(1) Core Earnings, a non-GAAP financial measure, is used to compute the Company's incentive fees to the 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 we foreclose on any properties underlying our target assets), 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 charges as determined by the Manager and approved by a majority of the Company's independent directors.Investment Portfolio As of September 30, 2010, the Company's total investments were $1.25 billion.  The Company completed approximately $272 million of new investments subsequent to June 30, 2010, $203 million of these new investments were closed in the third quarter and $69 million were closed subsequent to the end of the third quarter. These included the following transactions, certain of which have been previously disclosed by the Company: a $68.6 million subordinated first mortgage loan with a face value of $85 million, secured by a regional mall located in suburban Columbus, Ohio which has an expected unlevered return of 12%. an incremental investment of $37.8 million on a participation in the B-note with a face value of $46.0 million which is secured by four resorts in the United Kingdom and has an expected unlevered return of 13%. a $13.5 million of mezzanine debt on a New York limited service hotel expected to generate an 14% unlevered return. a $9.9 million participation in subordinated note with a face value of $11.7 million, secured by a class A office building located in midtown Manhattan expected to generate an 11% unlevered return.a $15.3 million first mortgage loan secured by a lifestyle shopping center located in New Jersey expected to generate an 8% unlevered return.In addition, the Company acquired $52 million in mortgage backed securities and REIT bonds.  The Company's RMBS investments are used as an alternative to its available cash while the Company identifies appropriate investments.  As anticipated, principal repayments of $115 million were received during the third quarter. Subsequent to the end of the third quarter, the Company completed two additional investments totaling $69 million. These investments included:a $42 million subordinated first mortgage loan secured by four retail centers located in Pennsylvania and Ohio expected to generate a 16% levered return.a $27 million first mortgage loan secured by a limited service hotel located in New York City expected to generate a 9% unlevered return.As of September 30, 2010, the Company's portfolio of target investments, net of leverage, was $645 million which is generating in excess of a 12.5% levered return. (see note (2) below)  The Company's current levered portfolio of target investments of $694 million is generating in excess of a 12.8% return.  The Company believes that it can enhance these returns by obtaining leverage on certain of its unlevered investments.  The table summarizing the Company's investment portfolio follows:Starwood Property Trust, Inc. Investments as of September 30, 2010 ($ amounts in thousands) Investment Property Type Face Amount Carry Value % Owned Financing (1) Net Investment Expected Return (2) Loans, first mortgages      Levered Assorted $       431,450$     432,040$       262,076$        169,96412.6%      Unlevered Assorted 80,45466,375-66,37511.5%511,904498,415100%262,076236,33912.3% Loans, subordinated debt      Levered Assorted 111,089112,39273,65538,73710.7%      Unlevered Assorted 329,883265,080-265,08012.7%440,972377,472100%73,655303,81712.4% CMBS - AFS Assorted 275,362276,47081%*171,305105,16513.2% Total Target Portfolio 1,228,2381,152,357507,036645,32112.5% RMBS - AFS Assorted 90,77478,804100%-78,804 Other Investments Assorted 15,02915,715100%-15,715$    1,334,041$  1,246,876$       507,036$        739,840 * Reflects one joint venture in which the Company has a 75% ownership interest (1) Current financings are secured, fixed rate borrowings (or swapped to fixed rate) as further disclosed in the Company's filings.(2) Returns are the annualized effective rate of return earned over the life of the investment (i.e. IRR) determined after the effects of existing leverage, and calculated on a weighted average basis.  The levered return includes 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. The levered return for the target investments held at September 30, 2010 is presented solely for informational purposes and will not equal income recognized in prior or future periods.Financing ActivitiesIn August 2010, the Company participated in a commercial mortgage securitization which generated non-recourse match funded financing for the Company.  It contributed the five senior loans, or A notes (the "Securitized Loans"), with a book value of approximately $80 million to the securitization and received approximately $92 million in proceeds, while retaining $94 million of junior interests.  Each of the five Securitized Loans was either originated or acquired by the Company as part of a first mortgage loan.  In connection with the securitization, two of the first mortgage loans were each split by the Company into an A note and a B note and the Company recorded a secured financing liability for $54 million with an effective interest cost of approximately 3.5% since the contribution of these Securitized Loans was not recognized as a sale pursuant to GAAP.  The remaining three first mortgage loans had been previously acquired by the Company at a discount and prior to the acquisition had each been split into A notes, B notes and C notes.  The contribution of these three Securitized Loans qualified for sales accounting treatment pursuant to GAAP, resulting in a gain of $9.3 million, or $0.19 per diluted share, which is included in realized gain on the sale of investments in the Company's consolidated statement of operations for the quarter ended September 30, 2010.On August 6, 2010, the Company closed a $350 million secured, partial recourse financing facility with Wells Fargo Bank, National Association (the "Financing Facility").  The Financing Facility matures in August 2013 but is extendible by the Company for two additional one year periods through August 2015.  At the end of the quarter, there was $5 million drawn on the Financing Facility. For additional information on the Financing Facility, please refer to the Company's Form 8-K filed with the Securities and Exchange Commission on August 12, 2010.In addition, the Company is currently in discussions to implement additional financing facilities in the near term.LiquidityAs of September 30, 2010, the Company had approximately $217 million of cash and over $185 million of net equity invested in mortgage backed securities and other investments that are classified as available for sale.DividendAs previously announced for the quarter ended September 30, 2010, the Company declared a dividend of $0.33 per share which was paid on October 15, 2010 to shareholders of record on September 30, 2010.On November 9, 2010, the Company declared a dividend of $0.40 per share for the quarter ending December 31, 2010, payable on January 17, 2011 to common shareholders of record as of December 31, 2010.Book Value and Fair ValueThe Company's GAAP book value per share at September 30, 2010 was $19.09.  On a fully diluted basis, the Company's GAAP book value at September 30, 2010 was $18.81 per share.  The fair value of the Company's financial assets at September 30, 2010 was approximately $33 million in excess of the carrying value of the Company's investment portfolio as of the same date which represents a premium of $0.69 per share over the Company's GAAP book value as September 30, 2010, or $19.77 per share.Conference Call and Webcast Information The Company will host a webcast and conference call on Wednesday, November 10, 2010 at 10:00 a.m. Eastern Time to discuss third quarter 2010 results and recent events.  A webcast will be available on the Company's website at www.starwoodpropertytrust.com. To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register and download and install any necessary software. To Participate in the Telephone Conference Call:Dial in at least five minutes prior to start time.Domestic:  877-407-0784International: 201-689-8560Conference ID:  358460Conference Call Playback through November 24, 2010:Domestic:  877-870-5176International:  858-384-5517Conference ID: 358460About Starwood Property Trust, Inc.Starwood Property Trust, Inc. is a commercial real estate finance company that focuses primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate-related debt investments. Starwood Property Trust, Inc. is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.Forward Looking StatementsStatements 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 and Section 21E of the Securities Exchange Act of 1934.  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, and other risks detailed from time to time in the Company's reports filed with the SEC.Starwood Property Trust, Inc. and SubsidiariesCondensed Consolidated Statement of Operations(Unaudited, amounts in thousands, except share and per share data) For the Three-Month Periods Ended September 30, 2010 For the Nine-Month Periods Ended September 30, 2010Net interest margin:Interest income from mortgage-backed securities$                                           6,348$                                   15,382Interest income from loans21,45147,777Interest expense(4,977)(9,961)Net interest margin22,82253,198Expenses:Management fees (including $1,749 and $4,617 of non-cash stock-based compensation, respectively.)6,86016,622General and administrative (including $30 and $68 of non-cash stock-based compensation, respectively.)1,7755,219Total expenses8,63521,841Income before other income (expense) and taxes 14,18731,357Interest income from cash balances2331,073Other income4242Realized gain on sale of investments10,01610,014Realized foreign currency gain1717Realized loss on derivatives(24)(24)Unrealized loss on currency hedges(5,326)(9,020)Unrealized foreign currency remeasurement gain4,3067,702Income before taxes23,45141,161Income tax provision168208Net Income23,28340,953Net income attributable to non-controlling interests6001,480Net income attributable to Starwood Property Trust, Inc.$                                         22,683$                                   39,473Net income per share of common stock:Basic$                                             0.47$                                       0.83Diluted$                                             0.47$                                       0.81Weighted average number of shares of common stock outstanding:Basic47,837,61647,750,058Diluted48,626,55048,626,550Distributions declared per common share$                                             0.33$                                       0.80Additional information can be found on the Company's website at www.starwoodpropertytrust.com.Definition of Core EarningsCore Earnings, a non-GAAP financial measure, is used to compute the Company's incentive fees to the 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 we foreclose on any properties underlying our target i), 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 charges as determined by the Manager and approved by a majority of the Company's independent directors. Reconciliation of Net Income to Core EarningsAmounts in Thousands Except Per Share Data3rd Quarter 20102nd Quarter 20101st Quarter 2010Net income attributable to Starwood Property Trust, Inc.$    22,683$     10,849$      5,941     Add back for non-cash stock-based compensation1,7791,3461,560     Add back for net unrealized foreign currency loss1,020298-     Add back for Incentive Fee1,556--Core Earnings$    27,038$     12,493$      7,501Fully diluted per share$        0.56$         0.26$        0.15SOURCE Starwood Property Trust, Inc.For further information: Investor Relations, +1-203-422-8100, investorrelations@stwdreit.com