Starwood Property Trust Reports Results for the Quarter Ended June 30, 2017

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the three months ended June 30, 2017

(Amounts in thousands)

Investing

Investing

Lending

and Servicing

Property

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

116,993

$

3,619

$

—

$

—

$

120,612

$

—

$

120,612

Interest income from investment
  securities

11,611

38,192

—

—

49,803

(37,433)

12,370

Servicing fees

216

33,663

—

—

33,879

(15,251)

18,628

Rental income

—

12,687

46,279

—

58,966

—

58,966

Other revenues

293

545

221

—

1,059

(66)

993

Total revenues

129,113

88,706

46,500

—

264,319

(52,750)

211,569

Costs and expenses:

Management fees

469

18

—

24,096

24,583

50

24,633

Interest expense

24,486

4,856

10,899

31,351

71,592

(275)

71,317

General and administrative

5,359

22,789

1,000

3,298

32,446

74

32,520

Acquisition and investment
  pursuit costs

385

53

99

—

537

—

537

Costs of rental operations

—

5,232

17,792

—

23,024

—

23,024

Depreciation and amortization

16

4,737

17,279

—

22,032

—

22,032

Loan loss allowance, net

(2,694)

—

—

—

(2,694)

—

(2,694)

Other expense

—

176

(34)

—

142

—

142

Total costs and expenses

28,021

37,861

47,035

58,745

171,662

(151)

171,511

Income (loss) before other income
  (loss), income taxes and non-
  controlling interests

101,092

50,845

(535)

(58,745)

92,657

(52,599)

40,058

Other income (loss):

Change in net assets related to
  consolidated VIEs

—

—

—

—

—

77,761

77,761

Change in fair value of servicing
  rights

—

(13,667)

—

—

(13,667)

5,666

(8,001)

Change in fair value of investment
  securities, net

(149)

12,256

—

—

12,107

(14,600)

(2,493)

Change in fair value of mortgage
  loans held-for-sale, net

(152)

15,558

—

—

15,406

—

15,406

Earnings from unconsolidated entities

1,230

35,892

2,488

—

39,610

(10,145)

29,465

(Loss) gain on sale of investments and
  other assets, net

(3)

5,109

77

—

5,183

—

5,183

Loss on derivative financial
  instruments, net

(14,926)

(2,179)

(20,481)

—

(37,586)

—

(37,586)

Foreign currency gain, net

12,882

11

17

—

12,910

—

12,910

OTTI

(109)

—

—

—

(109)

—

(109)

Other income, net

—

704

—

—

704

(613)

91

Total other income (loss)

(1,227)

53,684

(17,899)

—

34,558

58,069

92,627

Income (loss) before income taxes

99,865

104,529

(18,434)

(58,745)

127,215

5,470

132,685

Income tax provision

(127)

(9,325)

—

—

(9,452)

—

(9,452)

Net income (loss)

99,738

95,204

(18,434)

(58,745)

117,763

5,470

123,233

Net income attributable to non-
  controlling interests

(353)

(30)

—

—

(383)

(5,470)

(5,853)

Net income (loss) attributable to
  Starwood Property Trust, Inc.

$

99,385

$

95,174

$

(18,434)

$

(58,745)

$

117,380

$

—

$

117,380

Reconciliation of Net Income to Core Earnings

For the three months ended June 30, 2017

(Amounts in thousands except per share data)

Investing

Lending

and Servicing

Property

Segment

Segment

Segment

Corporate

Total

Net income (loss) attributable to Starwood
  Property Trust, Inc.

99,385

95,174

(18,434)

(58,745)

117,380

Add / (Deduct):

Non-cash equity compensation expense

821

847

28

3,209

4,905

Management incentive fee

—

—

—

4,335

4,335

Acquisition and investment pursuit costs

—

37

(49)

—

(12)

Depreciation and amortization

16

4,367

17,509

—

21,892

Loan loss allowance, net

(2,694)

—

—

—

(2,694)

Interest income adjustment for securities

(224)

2,296

—

—

2,072

Deferred income tax provision for discrete transactions

—

9,911

—

—

9,911

Other non-cash items

—

45

(589)

—

(544)

Reversal of unrealized (gains) / losses on:

Loans held-for-sale

152

(15,558)

—

—

(15,406)

Securities

258

(12,256)

—

—

(11,998)

Derivatives

14,482

1,612

20,229

—

36,323

Foreign currency

(12,882)

(11)

(17)

—

(12,910)

Earnings from unconsolidated entities

(1,230)

(35,892)

(2,488)

—

(39,610)

Purchases and sales of properties

—

(613)

—

—

(613)

Recognition of realized gains / (losses) on:

Loans held-for-sale

(152)

18,888

—

—

18,736

Securities

—

396

—

—

396

Derivatives

(66)

(3,069)

(36)

(246)

(3,417)

Foreign currency

377

(68)

16

—

325

Earnings from unconsolidated entities

1,230

2,387

1,791

—

5,408

Purchases and sales of properties

—

2,449

(153)

2,296

Core Earnings (Loss)

$

99,473

$

70,942

$

17,807

$

(51,447)

$

136,775

Core Earnings (Loss) per Weighted Average
  Diluted Share

$

0.38

$

0.27

$

0.07

$

(0.20)

$

0.52

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations by Segment

For the six months ended June 30, 2017

(Amounts in thousands)

Investing

Investing

Lending

and Servicing

Property

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Revenues:

Interest income from loans

$

226,039

$

6,456

$

—

$

—

$

232,495

$

—

$

232,495

Interest income from investment
  securities

24,330

73,028

—

—

97,358

(69,764)

27,594

Servicing fees

426

63,744

—

—

64,170

(31,440)

32,730

Rental income

—

24,876

91,132

—

116,008

—

116,008

Other revenues

372

1,009

266

—

1,647

(185)

1,462

Total revenues

251,167

169,113

91,398

—

511,678

(101,389)

410,289

Costs and expenses:

Management fees

923

36

—

47,958

48,917

100

49,017

Interest expense

44,443

9,214

21,106

62,958

137,721

(544)

137,177

General and administrative

9,570

45,369

2,381

5,468

62,788

161

62,949

Acquisition and investment
  pursuit costs

900

37

271

—

1,208

—

1,208

Costs of rental operations

—

10,719

33,183

—

43,902

—

43,902

Depreciation and amortization

33

9,791

34,436

—

44,260

—

44,260

Loan loss allowance, net

(2,999)

—

—

—

(2,999)

—

(2,999)

Other expense

—

934

(34)

—

900

—

900

Total costs and expenses

52,870

76,100

91,343

116,384

336,697

(283)

336,414

Income (loss) before other income
  (loss), income taxes and non-
  controlling interests

198,297

93,013

55

(116,384)

174,981

(101,106)

73,875

Other income (loss):

Change in net assets related to
  consolidated VIEs

—

—

—

—

—

146,931

146,931

Change in fair value of servicing
  rights

—

(23,304)

—

—

(23,304)

6,870

(16,434)

Change in fair value of investment
  securities, net

23

31,301

—

—

31,324

(34,988)

(3,664)

Change in fair value of mortgage
  loans held-for-sale, net

(152)

26,151

—

—

25,999

—

25,999

Earnings from unconsolidated
  entities

1,700

36,909

4,949

—

43,558

(11,106)

32,452

(Loss) gain on sale of investments
  and other assets, net

(59)

5,109

77

—

5,127

—

5,127

Loss on derivative financial
  instruments, net

(19,461)

(1,482)

(20,992)

—

(41,935)

—

(41,935)

Foreign currency gain, net

17,745

12

17

—

17,774

—

17,774

OTTI

(109)

—

—

—

(109)

—

(109)

Loss on extinguishment of debt

—

—

—

(5,916)

(5,916)

—

(5,916)

Other income, net

—

1,069

—

—

1,069

(613)

456

Total other income (loss)

(313)

75,765

(15,949)

(5,916)

53,587

107,094

160,681

Income (loss) before income taxes

197,984

168,778

(15,894)

(122,300)

228,568

5,988

234,556

Income tax provision

(342)

(8,127)

—

—

(8,469)

—

(8,469)

Net income (loss)

197,642

160,651

(15,894)

(122,300)

220,099

5,988

226,087

Net (income) loss attributable to
  non-controlling interests

(707)

346

—

—

(361)

(5,988)

(6,349)

Net income (loss) attributable
  to Starwood Property
  Trust, Inc.

$

196,935

$

160,997

$

(15,894)

$

(122,300)

$

219,738

$

—

$

219,738

Reconciliation of Net Income to Core Earnings

For the six months ended June 30, 2017

(Amounts in thousands except per share data)

Investing

Lending

and Servicing

Property

Segment

Segment

Segment

Corporate

Total

Net income (loss) attributable to Starwood Property
  Trust, Inc.

196,935

160,997

(15,894)

(122,300)

219,738

Add / (Deduct):

Non-cash equity compensation expense

1,570

1,476

49

4,961

8,056

Management incentive fee

—

—

—

9,805

9,805

Acquisition and investment pursuit costs

—

42

11

—

53

Depreciation and amortization

33

8,841

34,880

—

43,754

Loan loss allowance, net

(2,999)

—

—

—

(2,999)

Interest income adjustment for securities

(472)

4,365

—

—

3,893

Deferred income tax provision for discrete transactions

—

9,911

—

—

9,911

Other non-cash items

—

818

(1,169)

5,916

5,565

Reversal of unrealized (gains) / losses on:

Loans held-for-sale

152

(26,151)

—

—

(25,999)

Securities

86

(31,301)

—

—

(31,215)

Derivatives

18,503

501

20,219

—

39,223

Foreign currency

(17,745)

(12)

(17)

—

(17,774)

Earnings from unconsolidated entities

(1,700)

(36,909)

(4,949)

—

(43,558)

Purchases and sales of properties

—

(613)

—

—

(613)

Recognition of realized gains / (losses) on:

Loans held-for-sale

(152)

29,620

—

—

29,468

Securities

—

10,989

—

—

10,989

Derivatives

14,857

(751)

122

(246)

13,982

Foreign currency

(13,204)

(898)

16

—

(14,086)

Earnings from unconsolidated entities

1,680

2,853

3,563

—

8,096

Purchases and sales of properties

—

2,449

(153)

—

2,296

Core Earnings (Loss)

$

197,544

$

136,227

$

36,678

$

(101,864)

$

268,585

Core Earnings (Loss) per Weighted Average
 Diluted Share

$

0.76

$

0.52

$

0.14

$

(0.39)

$

1.03

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet by Segment

As of June 30, 2017

(Amounts in thousands)

Investing

Investing

Lending

and Servicing

Property

and Servicing

Segment

Segment

Segment

Corporate

Subtotal

VIEs

Total

Assets:

Cash and cash equivalents

$

664

$

36,185

$

12,744

$

207,719

$

257,312

$

4,582

$

261,894

Restricted cash

15,573

14,846

12,880

—

43,299

—

43,299

Loans held-for-investment, net

6,207,067

4,008

—

—

6,211,075

—

6,211,075

Loans held-for-sale

318,634

291,482

—

—

610,116

—

610,116

Investment securities

735,086

1,009,151

—

—

1,744,237

(995,303)

748,934

Properties, net

—

285,190

1,675,308

—

1,960,498

—

1,960,498

Intangible assets

—

97,727

121,007

—

218,734

(27,368)

191,366

Investment in unconsolidated
  entities

31,261

89,211

127,795

—

248,267

(18,728)

229,539

Goodwill

—

140,437

—

—

140,437

—

140,437

Derivative assets

16,538

3,372

26,168

—

46,078

—

46,078

Accrued interest receivable

32,866

480

—

—

33,346

—

33,346

Other assets

46,365

59,345

58,932

1,768

166,410

(2,762)

163,648

VIE assets, at fair value

—

—

—

—

—

53,902,715

53,902,715

Total Assets

$

7,404,054

$

2,031,434

$

2,034,834

$

209,487

$

11,679,809

$

52,863,136

$

64,542,945

Liabilities and Equity

Liabilities:

Accounts payable, accrued
  expenses and other liabilities

$

23,813

$

56,451

$

67,088

$

23,126

$

170,478

$

971

$

171,449

Related-party payable

—

90

—

22,688

22,778

—

22,778

Dividends payable

—