Starwood Property Trust, Inc. Reports Results for the Quarter And Year Ended December 31, 2012
Starwood Property Trust, Inc. Reports Results for the Quarter And Year Ended
December 31, 2012
- Quarterly Core Earnings of $0.48 per diluted Common Share -
- Over $1.0 Billion of Investment Activity in the Fourth Quarter of 2012 -
- 2012 Core Earnings of $1.99 per diluted Common Share -
- Declares Dividend of $0.44 per Share for First Quarter 2013 -
PR Newswire
GREENWICH, Conn., Feb. 27, 2013
GREENWICH, Conn., Feb. 27, 2013 /PRNewswire/ -- Starwood Property Trust, Inc.
(NYSE: STWD) today announced operating results for the fourth quarter and year
ended December 31, 2012. The Company's Core Earnings, a Non-GAAP financial
measure, were $64.5 million, or $0.48 per diluted share, for the quarter, an
increase of 14% per diluted share compared to $39.8 million, or $0.42 per
diluted share, for the same quarter of 2011. Core Earnings for 2012 were
$228.3 million, or $1.99 per diluted share, an increase of approximately 17%
over the per diluted share amount of $1.70 per diluted share for the same
period in the prior year.
Net income attributable to the Company for the three and twelve months ended
December 31, 2012 was approximately $56.3 million and $201.2 million,
respectively, compared to $41.0 million and $119.4 million, respectively, for
the three and twelve months ended December 31, 2011. Net income per diluted
share outstanding for the fourth quarter 2012 was $0.42, compared to $0.44 in
the fourth quarter 2011. For the year ended December 31, 2012, net income per
diluted share increased over 27% to $1.76 compared to $1.38 for the same
period ended December 31, 2011.
"Starwood Property Trust produced a strong quarter, ending a year of
significant growth for the Company," stated Barry Sternlicht, Chairman and CEO
of Starwood Property Trust. "In 2012, we invested over $2.6 billion,
dramatically expanding our asset base with high quality investments producing
a compelling yield in a highly competitive environment. We are building a
successful brand in the commercial real estate markets as a lender to many
high profile and growing real estate owners and developers. We are valued for
our speed, flexibility, creativity, scale and real estate knowledge, all of
which should contribute to our continued growth and success."
Mr. Sternlicht continued, "In January of 2013, we agreed to purchase LNR
Property. This transformational transaction catapults the Company into a
premier position in commercial real estate finance, introduces new product
lines, more diversity and a unique set of relationships to enable us to
continue to deliver superior risk adjusted returns to our shareholders. LNR
adds significant scale to our operations and should provide Starwood Property
Trust with a proprietary pipeline of additional opportunities in the coming
years. Furthermore, we were able to advance this agreement while at the same
time originating over $1 billion of loans in the fourth quarter. Finally, we
accessed an additional capital source with the completion of a $600 million
convertible notes offering in early 2013 and are excited about the results."
Investment Portfolio
The Company invested over $1.0 billion during the fourth quarter of 2012 and
$2.6 billion for the full year, primarily in the origination and acquisition
of new investments, as well as through additional funding on existing loans,
with the total gross capital deployed since inception approaching $7.0
billion. The net investment balance as of December 31, 2012 was $4.1 billion.
The carrying amount of the Company's target assets held for investment was
approximately $3.4 billion at end of the fourth quarter 2012, which the
Company expects will generate an annualized levered return of between 11.7%
and 12.2% on an annually compounded basis over the life of the investment. The
Company's loan portfolio's loan-to-value remains at 63% due in part to the
rising value of the collateral securing the loans.
The over $1.0 billion of new investments during the fourth quarter of 2012
included the following significant transactions:
October 2012
o $475.0 million co-origination with an affiliate of the Company's external
manager, of a first mortgage and mezzanine financing for the acquisition
and redevelopment of a 10-story retail building in the Times Square area
of Manhattan, New York. Of the total loan amount, $375.0 million was
funded at closing, $281.2 million of which was funded by the Company and
$93.8 million was funded by an affiliate of the Company's external
manager. Subsequent to the closing, a 25 percent participation in both
the first mortgage and mezzanine loans were sold to Vornado Realty Trust
(NYSE: VNO). Additionally, $100.0 million will be funded pro rata by each
party upon reaching certain milestones during the transformation of the
property. The loan has a three-year term with two one-year extensions.
o Originated a $126.0 million first mortgage loan secured by a 25 story
Class A office tower located in San Francisco, California. The loan has an
initial funding of $115.5 million with a future funding obligation of
$10.5 million for tenant improvements and leasing commissions. The loan
has a three-year term with two one-year extensions.
o Purchased a $25.0 million participation in a mezzanine loan secured by 517
owned and ground leased hotel properties comprising approximately 59,423
keys. The loan has a five-year term with no extension options.
November 2012
o Purchased the A-note in a whole loan secured by an office building located
in Washington DC for $45.6 million. The loan has a three-year term with
two one-year extensions.
o Originated a $51.0 million floating rate first mortgage loan secured by an
office complex located in Dallas, TX. The loan has a three-year term with
two one-year extensions.
December 2012
o Originated a $40.3 million first mortgage loan on a partial fee simple
interest and leasehold interest in a Class B+ office building in San
Diego, CA. The loan has a three-year term with two one-year extensions.
o Originated a $25.5 first mortgage loan secured by the fee interests in an
office building located in Austin, Texas. The loan has a three-year term
with two one-year extensions.
o Purchased a $25.0 million participation in a mezzanine loan secured by a
portfolio of 680 lodging facilities. The loan has a seven-year term with
no extension options.
o Originated a $34.5 first mortgage on a lifestyle retail center on 83 acres
in Albuquerque, NM. The loan has a three-year term with two one-year
extensions.
o Originated a $36.6 million floating rate first mortgage for the
refinancing of a data center located in Orlando, FL. The loan has a
three-year term with two one-year extensions.
o Co-originated with an affiliate of the Company's external manager a $48.4
million junior mezzanine loan secured by a portfolio of luxury hotels in
Europe. The loan has a five-year term with no extension options.
Residential Investments
Throughout the fourth quarter, the Company invested $139.8 million in
single-family residential houses ("SFR") and non-performing loans,
representing 1,037 units, bringing aggregate acquisitions at December 31, 2012
to $170.3 million, representing 1,309 units. The expected unlevered return
from this portfolio is between 6.5% and 7.5% with projected IRRs in excess of
the yields on its core investments. The Company is currently in discussions to
obtain a financing facility for its SFR investments. Subsequent to year-end,
the Company invested $66.8 million in 557 single family residential houses.
During the fourth quarter, the Company also acquired additional RMBS positions
with an aggregate face value of $76.8 million at an aggregate discount of
$26.2 million.
Starwood Property Trust, Inc. Investments as of December 31, 2012
(Unaudited, amounts in millions)
Carry Existing Return Optimal
Investment Face Value Leverage Net on Leveraged Leveraged
Amount (1) (2) Investment Asset Return (3) Return
(4)
First mortgages
held for $1,502 $1,462 $640 822 7.1% 9.2% 10.1%
investment
Subordinated
mortgages held for 430 397 53 344 11.5% 12.9% 13.3%
investment
Mezzanine loans
held for 1,080 1,058 159 899 12.2% 13.6% 13.7%
investment
CMBS
available-for-sale 521 529 291 238 7.0% 11.1% 11.9%
at fair value
Total target $3,533 $3,446 $1,143 2,303 9.2% 11.7% 12.2%
portfolio
RMBS
available-for-sale 489 333 163 170 10.5%
at fair value
Loans transferred
in secured 86 86 88 (2)
borrowings
Other investments 222 222 — 222
(5)
Total investments $4,330 $4,087 $1,394 $2,693
(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 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 target investments as of December 31, 2012 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. The 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 with the Securities and Exchange Commission. Levered returns
are based upon management's assumptions, which the Company believes are
reasonable. The levered 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 levered
returns assume interest rates remain at current levels and (ii) the Company
assumes that the leverage levels existing at December 31, 2012 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 that (i) the assumed financing on any investments that
are less than fully leveraged as of December 31, 2012 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.
(5) Includes investments in marketable and other equity securities,
residential real estate, and residential non-performing loan pools.
Loan to Value of Portfolio
The following table reflects the weighted average loan-to-value ("LTV") ratio
of the Company's loan portfolio as of December 31, 2012:
Weighted Average LTV of Loan Portfolio (1)
First Subordinated Mezzanine Total (2)
Mortgages Mortgages
Beginning LTV 0.0% 44.6% 47.0% 23.2%
Ending LTV 58.9% 73.6% 64.6% 63.0%
(1) Underlying property values are determined by the Company's management
based on its ongoing asset assessments, and loan balances 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. Excludes CMBS, RMBS, and Other Investments and loans
transferred in secured borrowings.
(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 Transaction
In January 2013, the Company entered into an agreement to acquire all the
outstanding equity interests of LNR Property LLC ("LNR"). LNR is a diversified
real estate investment, management, finance and development company whose
principal line of business is serving as a special servicer for CMBS
transactions. Under the terms of the transaction, the Company will acquire the
following LNR business segments for a total cash purchase price of $843
million. The remainder of the LNR businesses, totaling approximately $206
million, will be acquired by an investment fund controlled by an affiliate of
the Company's external manager:
o U.S. Special Servicer—A U.S. special servicer of commercial loans with
approximately $133.6 billion in loans under management and real estate
owned as of December 31, 2012;
o U.S. Investment Securities Portfolio—a portfolio of whole loans, CMBS and
collateralized debt obligation ('CDO') investments;
o Archetype Mortgage Capital —a commercial real estate conduit loan
origination platform;
o Archetype Financial Institution Services—an acquirer, manager, and
servicer of portfolios of small balance commercial loans;
o LNR Europe—consists of Hatfield Philips, a wholly-owned subsidiary that is
an independent primary and special servicer in Europe, and a
non-controlling interest in LNR European Investment Fund, a European CRE
debt fund; and
o Auction.com—50 percent of LNR's interest in a real estate exchange selling
residential and commercial real estate via auction.
The acquisition of LNR has not yet been completed, and accordingly the Annual
Report on Form 10-K and the consolidated financial statements do not reflect
the results of LNR's business.
Investment Related Activity Subsequent to Quarter-End
Since January 1, 2013, the Company originated and/or acquired $113.0 million
of new investments, which includes the origination of an $86.0 million first
mortgage construction financing for the development of 30 luxury condominium
residences and a ground floor retail space in Manhattan, New York. Of this
total loan amount, $50.6 million was funded at closing.
Investment Capacity
As of February 23, 2013, the Company had approximately $175.2 million of
available cash and equivalents, approximately $163.0 million of net equity
invested in RMBS that are classified as available-for-sale and $578.4 million
of approved but undrawn capacity under existing financing facilities.
Accordingly, the Company has the capacity to acquire or originate an
additional $750.0 million to $1.25 billion of new investments.
Investment Pipeline
As of February 23, 2013, the Company had approximately $1.35 billion of loans
and investments in various stages of due diligence that are under term
sheets. These loans and investments, combined with near-term funding
requirements for existing loans, would require a near term net equity
investment of approximately $650 million, with additional future fundings of
approximately $850 million over the next 48 months. Although the Company
expects that it will be able to close a majority of these opportunities in the
next 45 to 60 days, there can be no assurance in this regard.
Financing Activities
As of December 31, 2012, the Company had an aggregate outstanding balance of
approximately $1.3 billion under its 10 financing facilities. The sale of
senior notes (A-Notes) has become an increasingly important part of the
Company's financing strategy since it provides the Company with match termed
non-recourse financing. Accordingly, during the fourth quarter of 2012, the
Company sold five separate loans or loan participations with an aggregate
carrying value of $314.5 million.
On October 10, 2012, the Company completed an underwritten public offering of
18,400,000 shares of common stock at a price of $22.74 for total estimated
gross proceeds of approximately $418.4 million.
On February 15, 2013, the Company issued $600.0 million of 4.55% Convertible
Senior Notes due 2018, resulting in net proceeds to the Company of $587.7
million.
Book Value and Fair Value Net of Minority Interest
The fair value of the Company's net assets at December 31, 2012 was
approximately $20.57 per fully diluted share. On a fully diluted basis, the
Company's GAAP book value at December 31, 2012 was $19.90 per share.
Dividend
On February 27, 2013, the Company's Board of Directors declared a dividend of
$0.44 per share of common stock for the quarter ending March 31, 2013. The
dividend is payable on April 15, 2013 to common stockholders of record as of
March 29, 2013.
2013 Guidance
For 2013, the Company is estimating Core Earnings in the range of $1.90 to
$2.00 per diluted share. This guidance does not include the impact of the LNR
acquisition or any incremental (i) investments beyond the Company's existing
pipeline or (ii) capital markets transactions. In addition, this guidance
reflects the Company's estimates on the (i) yield on existing investments;
(ii) amount and timing of capital deployment and (iii) cost of and continued
access to additional financing. All guidance is based on the Company's
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.
The Company expects that the acquisition of LNR will be accretive to both
earnings and cash flow in 2013 and 2014.
Supplemental Schedules
The Company has published supplemental earnings schedules in order to provide
additional disclosure and financial information for the benefit of the
Company's stakeholders. These can be found at the Company's website in the
Investor Relations section under "Financial Information".
Conference Call and Webcast Information
The Company will host a webcast and conference call on Wednesday, February 27,
2013 at 10:00 a.m. Eastern Time to discuss fourth quarter 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: 1-888-670-2260
International: 1-913-312-1462
Conference Call Playback:
Domestic: 1-877-870-5176
International: 1-858-384-5517
Passcode: 4266810
The playback can be accessed through March 13, 2013.
About Starwood Property Trust, Inc.
Starwood Property Trust, Inc. (the "Company") 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 refers to commercial mortgage loans, other commercial real estate debt
investments, CMBS, and other commercial real estate-related debt investments
as the Company's target assets. The Company also invests in residential
mortgage-backed securities ("RMBS") and residential real estate owned, and may
invest in non-performing loans, commercial properties subject to net leases
and 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.
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
For the Three-Months For the Twelve-Months
Ended December 31, Ended December 31,
2012 2011 2012 2011
Net interest margin:
Interest income from $ $ $ $
mortgage-backed securities 15,015 5,442 55,419 25,618
Interest income from loans 72,483 53,712 251,561 179,355
Interest expense (12,780) (7,059) (47,125) (28,782)
Net interest margin 74,718 52,095 259,855 176,191
Expenses:
Management fees (including
$3,788, $3,225, and $2,803 and
for the three-months ended
December 31, 2012, 2011, and
2010 and $15,714, $13,493, and 14,233 9,885 56,906 38,899
$7,420 for the twelve-months
ended December 31, 2012, 2011
and 2010 of non-cash stock-based
compensation, respectively)
Acquisition and investment 1,573 751 4,310 2,571
pursuit costs
General and administrative
(including $78, $86 and $34 for
the three-months ended December
31, 2012, 2011, 2010 and $488,
$250, and $102 for the 3,278 2,409 12,116 9,450
twelve-months ended December 31,
2012, 2011, and 2010 of non-cash
stock-based compensation,
respectively)
Loan loss allowance 2,061 — 2,061 —
Total expenses 21,145 13,045 75,393 50,920
Income before other income 53,573 39,050 184,462 125,271
(expense) and income taxes
Other income 511 1,327 3,615 3,075
Other-than-temporary impairment
("OTTI"), net of $2,854, $1,310,
and $0 recognized in other (1,674) (3,380) (4,402) (6,001)
comprehensive income for the
twelve-months ended December 31,
2012, 2011, 2010
Net gains on sales of 6,385 158 25,532 20,994
investments
Net realized foreign currency 56 (839) 8,571 (902)
gains (losses)
Net (losses) gains on currency (4,788) 2,109 (15,180) 4,491)
hedges
Net gains (losses) on interest 415 (1,148) 1,023 (27,130)
rate hedges
Net (losses) gains on credit — (1,372) — 2,358
hedges
Net change in unrealized gains
(losses) on loans held-for-sale — 7,485 (5,760) 5,760)
at fair value
Unrealized gain on securities 295 — 295 —
Unrealized foreign currency 3,842 (2,273) 6,549 (6,518)
remeasurement gains (losses)
Income before income taxes 58,615 41,117 204,705 121,398
Income tax provision 183 49 1,023 790
Net Income 58,432 41,068 203,682 120,608
Net income attributable to (2,099) (40) (2,487) (1,231)
non-controlling interests
Net income attributable to $ $ $ $
Starwood Property Trust, Inc. 56,333 41,028 201,195 119,377
Net income per share of common
stock:
Basic $ $ $ $
0.42 0.44 1.76 1.38
Diluted $ $ $ $
0.42 0.44 1.76 1.38
Distributions declared per $ $ $ $
common share 0.54 0.44 1.86 1.74
Additional information can be found on the Company's website at
www.starwoodpropertytrust.com
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. The definition of Core Earnings was amended effective
for the first quarter of 2012 to allow for the exclusion of certain non-cash
adjustments as determined by the manager and approved by the Company's
independent directors.
December 31, 2012 Reconciliation of Net Income to Core Earnings
(Amounts in thousands except per share data)
Three-Months Twelve-Months
Ended December 31, Ended December 31,
2012 2012
Reported Per Reported Per
Amount Diluted Amount Diluted
Share Share
Net income attributable to Starwood $ 56,333 $ 0.42 $ 201,195 $ 1.75
Property Trust, Inc.
Add back for net change in unrealized
loss on loans held for sale at fair — 0.00 5,760 0.05
value
Subtract for unrealized gain on (252) 0.00 (10,243) (0.09)
interest rate hedges
Add back for other-than-temporary 1,674 0.01 4,402 0.04
impairment ("OTTI")
Subtract for unrealized foreign (3,842) (0.03) (6,549) (0.06)
currency gain
Add back for unrealized loss on 4,143 0.03 17,463 0.15
currency hedges
Subtract for unrealized gain on (295) (0.00) (295) (0.00)
securities
Add back for management incentive fee 384 0.00 7,870 0.07
Add back for non-cash stock based 3,866 0.03 16,163 0.14
compensation
Subtract for realized OTTI for sold (32) 0.00 (137) 0.00
securities
Add back for depreciation expense 135 0.00 213 0.00
Add back for loan loss allowance 2,061 0.02 2,061 0.02
Add back/subtract for gain (loss) 317 0.00 (9,597) (0.08)
from effective hedge termination (1)
Core Earnings $ 64,492 $ 0.48 $ 228,306 $ 1.99
(1) In February 2012, the Company's GBP-denominated loan prepaid. At the
time of purchase, the Company hedged its exposure to fluctuations in the
GBP/USD exchange rate through a series of foreign exchange forward contracts.
As a result of the loan being prepaid in February 2012, the foreign exchange
forward contracts, which were in a loss position of approximately $10.0
million, were no longer necessary hedges. The Company determined it was more
cost effective to lock-in the amount of the loss on the contracts by entering
into new derivative contracts with a separate counterparty than to terminate
the contracts. Because the original contracts remained in place, the loss had
not been "realized" (as that term is defined in GAAP) even though the Company
has effectively locked-in the loss. In accordance with the Company's amended
definition of Core Earnings, management determined to reduce Core Earnings for
the first quarter by an aggregate $10.0 million of unrealized loss because it
believes this represented a non-standard transaction. Adjustments subsequent
to the first quarter of 2012 are being made such that the appropriate amount
of Core Earnings is reported as these offsetting contracts mature.
December 31, 2011 Reconciliation of Net Income to Core Earnings
(Amounts in thousands except per share data)
Three-Months Twelve-Months
Ended December 31, Ended December 31,
2011 2011
Reported Per Diluted Reported Per Diluted
Amount Share Amount Share
Net income attributable to
Starwood Property Trust, $ 41,028 $ 0.44 $ 119,377 $ 1.38
Inc.
Add back for net change in
unrealized gain on loans (7,485) (0.08) (5,760) (0.07)
held for sale at fair value
Add back for unrealized loss
on interest rate 188 0.00 11,287 0.13
hedges
Add back for
other-than-temporary 3,380 0.04 6,001 0.08
impairment
("OTTI")
Add back unrealized foreign 2,272 0.02 6,518 0.08
currency loss
Subtraction for unrealized (3,081) (0.03) (5,755) (0.07)
gain on currency hedges
Add back for unrealized loss 161 0.00 — 0.00
on credit hedges
Add back for management — 0.00 1,178 0.01
incentive fee
Add back for non-cash stock 3,311 0.03 13,743 0.16
based compensation
Core Earnings $ 39,774 $ 0.42 $ 146,589 $ 1.70
Contact: Investor Relations
Phone: 203-422-7788
Email: investorrelations@stwdreit.com
SOURCE Starwood Property Trust, Inc.
Website: http://www.starwoodpropertytrust.com
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