starwood property trust - snl...˜ the newly formed real estate investment trust, called starwood...
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Starwood Property Trust Supplemental Data for Quarter and Year Ended December 31, 2013
2
Special Note Regarding Forward Looking Financial Statements
This presentation contains certain forward-looking statements, including without limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based largely on our current beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors that may cause actual results to vary from our forward-looking statements include, but are not limited to: • factors described in this Annual Report on Form 10-K, including those set forth under the captions “Risk Factors” and “Business”; • defaults by borrowers in paying debt service on outstanding indebtedness; • impairment in the value of real estate property securing our loans • availability of mortgage origination and acquisition opportunities acceptable to us; • our ability to fully integrate LNR Property LLC, a Delaware limited liability company (“LNR”), which was acquired on April 19, 2013, into our business and achieve the
benefits that we anticipate from this acquisition; • potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements; • national and local economic and business conditions; • general and local commercial and residential real estate property conditions; • changes in federal government policies; • changes in federal, state and local governmental laws and regulations; • increased competition from entities engaged in mortgage lending; • changes in interest rates, and; • the availability and costs associated with sources of liquidity
Additional risk factors are identified in our filings with the U.S. Securities Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2013, which is available on our website at http://www.starwoodpropertytrust.com and the SEC’s website at http://www.sec.gov. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. As a result, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events described by our forward-looking statements might not occur. We qualify any and all of our forward-looking statements by these cautionary factors. Please keep this cautionary note in mind as you assess the information given in this presentation.
3
Quarterly Financial Highlights
Financial Results & Earnings Per Share
• Core earnings for the three and twelve months ended December 31, 2013 of $121.2M and $352.6M, or $0.62 and $2.11 per diluted common share, respectively
• GAAP net income for the three and twelve months ended December 31, 2013 of $95.0M and $305.0M, or $0.48 and $1.82 per diluted common share, respectively
˜ Total revenue (1) of $223.2M and $658.4M, respectively
˜ Total expenses (1) of $144.3M and $422.2M, respectively
Book Value and Fair Value per diluted share
• GAAP book value per fully diluted share of $21.83 as of December 31, 2013
• The fair value of the Company's net assets at December 31, 2013 was approximately $22.17 per fully diluted share (2)
• 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
Dividend
• Paid dividend of $0.46 per share of common stock for the quarter ending December 31, 2013
• Declared dividend of $0.48 per share of common stock for the quarter ending March 31, 2014
˜ 8.0% annualized dividend yield based on closing price of $23.93 on February 24, 2014
(1) Before LNR VIEs (2) Excludes appreciation from the SFR segment and assumes debt is valued at its par settlement amount NOTE: For a reconciliation of GAAP net income to Core Earnings, see pages 24 - 25
4
Quarterly Segment Highlights
Real Estate Investment Lending Segment (“Lending Segment”)
• During the fourth quarter, the Lending Segment originated and/or acquired $1.7B of new investments, of which $1.4B was funded at closing and/or acquisition
˜ 83% of new investments are made up of LIBOR based floating rate loans, as is over 95% of the Lending Segment’s pipeline
• The carrying value of the Lending Segment portfolio was $5.4B as of December 31, 2013
˜ The carrying value of the target portfolio was approximately $4.8B, which is anticipated to generate an annualized leveraged return of between 10.8% and 11.8%
LNR Property LLC Segment (“LNR Segment”)
• The carrying value of the LNR Segment’s principal assets, consisting of CMBS, the servicing intangibles and conduit loans, was $1.0B as of December 31, 2013
• During the fourth quarter, the LNR Segment contributed GAAP and Core earnings of $0.18 and $0.23 per diluted share, respectively
Single Family Residential (“SFR”) Segment
• On January 31, 2014, the Company completed the spin-off of the Single Family Residential 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 $1.0B, consisting of approximately 7,200 units of single-family rental housing and residential non-performing mortgage loans (“NPLs”)
• In accordance with GAAP, the Company will retrospectively reclassify the Single Family Residential segment as a discontinued operation in its future comparative consolidated statements of operations beginning with the first quarter of 2014
5
Quarterly Financing Activities
As of December 31, 2013
• The Company had an aggregate outstanding balance of approximately $3.3B under eleven financing facilities and two convertible senior notes
• During the fourth quarter, the Company:
˜ Upsized borrowings under its senior secured term loan to $673.5M from ~$300M
˜ Upsized available borrowings under one of its warehouse lines to $225M from $125M and reset the term to a new two-year initial term, with three one-year extensions
˜ Borrowed £210M under a new repurchase facility to finance the origination of the commercial mortgage loan which refinanced the Heron Tower in London
˜ Borrowed $58.5M under a new repurchase facility to finance the purchase of a CMBS investment
Subsequent to Quarter End
• On January 27, 2014, the Company amended one of its repurchase facilities to:
˜ Upsize available borrowings to $1.0B from $550M
˜ 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
˜ 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
˜ Amend certain financial covenants to contemplate the spinoff of the SFR segment
6
Lending Segment Investment Portfolio as of December 31, 2013
Investment Asset Carry Value
(in millions) Net Investment
(in millions)
Net Investment %
of Total
Fully Extended
WAL (1)
First mortgage loans held for investment $ 2,601 $ 1,332 36% 4.3 Years
Subordinate mortgages held for investment 505 501 13% 4.2 Years
Mezzanine loans held for investment 1,245 1,245 33% 3.7 Years
Preferred Equity Interest 284 284 8% 4.4 Years
CMBS (2) 199 141 4% 4.6 Years
Total core portfolio of Lending Segment 4,834 3,503
RMBS, available for sale at fair value 296 168 5% 6.8 Years
Loans transferred as secured borrowings (3) 180 (1) 0% N/A
Equity security 15 15 0% N/A
Investment in unconsolidated entities 50 50 1% N/A
Total $ 5,375
$ 3,735 100% 4.3 Years (4)
(1) Maximum maturity date assumes all extension options are exercised (2) Consists of available-for-sale and held-to-maturity CMBS with carrying values of $115M and $84M, respectively (3) Includes a $95M participation liability (4) Excludes Loans transferred as secured borrowings, Equity security and Investment in unconsolidated entities
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Do
llar
(Car
ryin
g va
lue
s in
bil
lio
ns)
We
igh
ted
Ave
rage
En
din
g LT
V o
f Lo
an P
ort
foli
o
Quarter Ending
Migration of Weighted Average LTV on Loan Portfolio
First mortgages held forsale at fair value
Mezzanine loans held forinvestment
Subordinated mortgagesheld for investment
First mortgages held forinvestment
64.7%
67.8%
65.7%
66.5%
64.9%
62.8%
63.1%64.0%
64.0%64.1%
65.1%
66.3%
Lending Segment Migration of Weighted Average LTV on Loan Portfolio
7
Note: As of December 31, 2013. Includes on-balance sheet leverage of $2,128M
11%
21%
32%
43%
59%
76%
91%
99% 100% 100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
0-10 % 10-20 % 20-30 % 30-40 % 40-50 % 50-60 % 60-70 % 70-80 % 80-90 % 90-100 %
Am
ou
nts
in M
M
Sum of Loan Assets Segmented by LTVs
Dollar Amount per LTV Bucket Cum. Portfolio Weight
LTV segment
Lending Segment Loan Portfolio Balances Segmented by LTV
8
Note: As of December 31, 2013. Excludes RMBS, public equity and investments accounted for under the cost method. LTVs are calculated based on the Company’s internal valuations
Loans w/balance ≤ $5MM & LTV ≤ 75% bucket includes 10 loans
Lending Segment Loan Level Risk Attachment Points
9
Note: As of December 31, 2013. Excludes RMBS, public equity and investments accounted for under the cost method. LTVs are calculated based on the Company’s internal valuations
Loans w/balance ≤ $5MM & LTV > 75% bucket includes 2 loans
Balance at maturity will be $74.6M. The full repayment of these notes is guaranteed by Centre Reinsurance: AA- (S&P)
Lending Segment Loan Level Risk Attachment Points (continued)
10
Hospitality$1,361,150
25.6%
Industrial$95,084
1.8%Office
$1,447,529 27.2%
Retail$624,226
11.7%Residential
$508,116 9.6%
Multi-family$66,767
1.3%
Other$313,510
5.9%
Mixed Use$898,516
16.9%
Hospitality$1,068,721
29.1%
Industrial$88,809
2.4%
Office$693,787
18.9%
Retail$514,777
14.0%
Residential$380,174
10.3%
Multi-family$13,496
0.4%
Other$214,986
5.9%
Mixed Use$699,769
19.0%
Asset Carry Value
Net Investment
11
Lending Segment Loan Balance by Property Type
Note: All figures (dollar amounts in thousands) as of December 31, 2013. Includes loans held for investment, loans held for sale, CMBS, RMBS, and security held to maturity.
Asset Carry Value
Net Investment
12
Lending Segment Loan Balance by Region
Note: All figures as of December 31, 2013. Dollar amounts in thousands. “International” includes Europe, Australia, the Caribbean, Africa, South America, the Middle East and Japan. Includes loans held for investment, loans held for sale, CMBS, RMBS, and security held to maturity
North East$1,109,640
20.9%
Mid Atlantic$483,181
9.1%
South East$938,831
17.7%
South West$318,554
6.0%
Midwest$280,957
5.3%
West$1,364,770
25.7%
International$818,965
15.4%
North East$902,556
24.6%
Mid Atlantic$311,014
8.5%
South East$755,901
20.6%South West
$155,319 4.2%
Midwest$200,116
5.4%
West$878,345
23.9%
International$471,268
12.8%
Lending Segment Key Portfolio Metrics
4Q2013
Hotel Keys 167,661
Resort Keys 3,903
Office SF 22,905,689
Retail SF 18,937,753
Mixed Use SF 2,587,984
Showroom SF 2,683,730
Industrial SF 7,041,459
Apartment Units 3,270
Assisted Living Units 1,238
Medical Office SF 145,963
Media and Entertainment SF 971,851
Data Center SF 132,054
Ground Lease Land SF 326,024
Condominiums Saleable Units 30
Development Site SF 939,434
Car Wash SF 193,020
Note: All figures as of December 31, 2013. Excludes RMBS, public equity and private equity investments
13
At December 31, 2013
Secured Financing Agreements and Liquidity
14
Collateral Asset
Maximum
Facility Size
Principal
Balance Potential (1) Outstanding (2)
Approved
but Undrawn
Lender 1 550 918 550 449 101
Lender 1 175 273 164 128 36
Lender 1 154 211 154 154 0
Lender 2 225 158 101 101 0
Lender 3 51 78 51 51 0
Lender 4 250 171 130 130 0
Lender 5 150 0 0 0 0
Lender 6 348 442 348 348 0
Lender 7 58 84 58 58 0
Lender 8 250 892 169 169 0
Lender 9 672 2,575 672 669 0
TOTAL 2,883$ 5,802$ 2,397$ 2,258$ 137$
Debt Obligations
As of December 31, 2013
$2.9B Total Credit Capacity
$137M Approved but Undrawn
$ millions
(1) Potential borrowings represent the total amount that could be drawn under each facility based on collateral already approved and pledged (2) Does not include ~$1.1B of convertible senior notes; balance outstanding is net of $2.5M of unamortized discount
• As of February 21, 2014, the Company had approximately $293M of available cash and equivalents, approximately $104M of net equity invested in RMBS that are classified as available-for-sale and $68M of approved but undrawn capacity under existing financing facilities
• Accordingly, the Company has the capacity to acquire or originate an additional $300M to $525M of new investments using these liquidity sources
Lending Segment Schedule of Management’s Expected Repayment Dates
Note: As of December 31, 2013. Excludes RMBS, European Debt Fund, Island C-III, and SFR REO & NPL
$-
$200,000,000.00
$400,000,000.00
$600,000,000.00
$800,000,000.00
$1,000,000,000.00
$1,200,000,000.00
$1,400,000,000.00
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Loan Balance at Expected Maturity Equity Balance at Expected Maturity
15
LNR Business Segments Overview
• Largest commercial mortgage special servicer in U.S. (1)
• Industry leader in commercial loan workouts
• Named special servicer on 141 separate CMBS trusts representing an unpaid principal balance (“UPB”) of $132.8B, with $16.2B in special servicing or real estate owned (“REO”)(2)
• Legacy whole loans, CMBS and CDO investments including controlling class positions that form the basis for a material portion of LNR’s special servicing rights
• Current securities portfolio includes interests in 37%(3) of outstanding CMBS transactions through 2008 and 46%(3) of all transactions between 2005 and 2008
• Conduit loan origination platform
• Has originated 242 loans for ~$2.5B since inception (in 2011)(2)
• Largest independent primary and special servicer in Europe (Hatfield Philips)
• LNR European Investment fund is a European commercial real estate (“CRE”) debt fund that is in harvest mode
• Nation’s leading real estate exchange selling residential and commercial real estate via auction
US Special Servicer
LNR Europe
US Investment Securities Portfolio
Starwood Mortgage Capital
Auction.com
(1) Source: Morningstar as of December 2013, adjusted for $3.2 billion in assets that CWCapital is in the process of liquidating. This market share data assumes the full liquidation of these assets, some of which have not yet closed
(2) As of December 31, 2013 (3) As of December 31, 2013; percentage based on unpaid principal balance
LNR Business Segments Overview
16
US Special Servicing
Named special servicer on 141 CMBS trusts representing a UPB of $132.8B, with $16.2B in special servicing or REO(1)
• Most experienced special servicer with 34.7%(2) market share of all CMBS loans in active special servicing; 26%(3) market share of all outstanding CMBS loans
• Since inception, LNR has resolved nearly 5,000 distressed commercial real estate loans and REO properties representing over ~$52.1B of original principal loan balance
• Dedicated Asset Services group with 222 professionals
US Special Servicer Market Share(2) LNR Special Servicer Portfolio(1)
(1) As of December 31, 2013 (2) Source: Morningstar as of December 2013, adjusted for $3.2 billion in assets that CWCapital is in the process of liquidating. This market share data assumes the full liquidation of these assets, some of which
have not yet closed (3) Source: Fitch CMBS special servicing index of CMBS loans as of September 2013; based on UPB of named SS
($ billions)
Deals 141
Unpaid Balance 132.8$
Loan Count 10,251
SS Loan Count 576
SS Loan Balance 8.5$
REO Loan Count 438
REO Loan Balance 7.7$
Active CMBS Portfolio
Active Special Servicing
Portfolio
U.S. Special Servicing
17
Adjusted
Rank Company Market Share (%)
1 LNR Partners Inc. 34.7%
2 CWCapital Asset Management 33.7%
3 C-III Asset Management 17.0%
4 Torchlight Loan Services 3.7%
5 Situs 3.4%
6 Midland Loan Services 2.3%
7 Keycorp Real Estate Capital 1.8%
8 Wells Fargo Bank 1.3%
9 Five Mile Capital 1.2%
10 Berkedia Commercial Mortgage 0.8%
Special Servicing Primer and Fee Rate Summary
• LNR is a rated Special Servicer (Fitch: CSS1-; S&P: Strong)
• Generally, control of a CMBS trust is held by the “first loss” position (the most subordinate bond holder), so named because this bond will be the first to absorb realized losses in the deal. The holder of this class has the ability to appoint the Special Servicer on the deal who is then responsible for addressing performing loan requests and non-performing loan workouts and liquidations.
– LNR invests in bonds further up the capital stack in CMBS trusts to either preserve its controlling position in a deal or to gain the controlling position in a deal to appoint LNR as Special Servicer.
• As a Special Servicer, LNR generates fee income from a variety of sources. The fee rates summarized below are a general guideline. Actual fees can vary due to specific circumstances, the individual Pooling and Servicing Agreement, and negotiations with the borrower:
Default Interest – 4% to 5% over note rate
Modification Fee – 1% of the loan balance
Extension Fee – 1% of the loan balance
Late Fees – 5% of payment
Assumption Fee – 1% of the outstanding loan balance
Consent Fee – $500 to $5,000
Borrower Paid Fees
CMBS Trust Paid Fees
Inventory Fee – 0.25% - 0.35% per annum of the outstanding loan balance
Workout Fee – 1% of each future payment
Liquidation Fee – 1% of net proceeds
Special Servicing Primer and Fee Rate Summary
18
Balance Sheet by Segment as of December 31, 2013
$ thousands
Real Estate
Investment Lending
Single Family
ResidentialLNR Subtotal LNR VIEs Total
Assets:
Cash and cash equivalents $ 232,270 44,807 40,274 317,351 276 317,627
Restricted cash 36,593 251 32,208 69,052 - 69,052
Loans held-for-investment, net 4,350,937 - 12,781 4,363,718 - 4,363,718
Loans held-for-sale - - 206,672 206,672 - 206,672
Loans transferred as secured borrowings 180,414 - - 180,414 - 180,414
Investment securities 794,147 - 550,282 1,344,429 (409,322) 935,107
Intangible assets – servicing rights - - 257,736 257,736 (80,563) 177,173
Investment in residential real estate - 749,214 - 749,214 - 749,214
Investment in non-performing residential loans - 215,371 - 215,371 - 215,371
Investments in unconsolidated entities 50,167 - 76,170 126,337 (3,383) 122,954
Goodwill - - 140,437 140,437 - 140,437
Derivative assets 3,138 - 4,631 7,769 - 7,769
Accrued interest receivable 35,501 - 2,129 37,630 - 37,630
Other assets 31,020 8,045 57,620 96,685 (872) 95,813
Variable interest entity assets, at fair value - - - - 103,151,624 103,151,624
Total Assets $ 5,714,187 1,017,688 1,380,940 8,112,815 102,657,760 110,770,575
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities 66,127 23,056 135,882 225,065 309 225,374
Related-party payable 11,245 - 6,548 17,793 - 17,793
Dividends payable 90,171 - - 90,171 - 90,171
Derivative liabilities 24,149 - 43 24,192 - 24,192
Secured financing agreements, net 2,127,717 - 129,843 2,257,560 - 2,257,560
Convertible senior notes, net 997,851 - - 997,851 - 997,851
Loan transfer secured borrowings 86,238 - - 86,238 - 86,238
Loan participation liability 95,000 - - 95,000 - 95,000
Variable interest entity liabilities, at fair value - - - - 102,649,263 102,649,263
Total Liabilities $ 3,498,498 23,056 272,316 3,793,870 102,649,572 106,443,442
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Preferred stock - - - - - -
Common stock 1,961 - - 1,961 - 1,961
Additional paid-in capital 1,987,133 1,004,846 1,308,500 4,300,479 - 4,300,479
Treasury stock (10,642) - - (10,642) - (10,642)
Accumulated other comprehensive income 68,092 - 7,357 75,449 - 75,449
Accumulated earnings (deficit) 132,625 (10,111) (207,233) (84,719) - (84,719)
Total Starwood Property Trust, Inc. Stockholders’ Equity 2,179,169 994,735 1,108,624 4,282,528 - 4,282,528
Non-controlling interests in consolidated subsidiaries 36,520 (103) - 36,417 8,188 44,605
Total Equity 2,215,689 994,632 1,108,624 4,318,945 8,188 4,327,133
Total Liabilities and Equity $ 5,714,187 1,017,688 1,380,940 8,112,815 102,657,760 110,770,575
19
Results of Operations by Segment Three Months ended December 31, 2013
$ thousands
Real Estate
Investment Lending
Single Family
ResidentialLNR Subtotal LNR VIEs Total
Revenues
Interest income from loans $ 103,875 $ - $ 4,094 $ 107,969 $ - $ 107,969
Interest income from investment securi ties 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 adminis trative 5,382 (149) 48,388 53,621 193 53,814
Acquis i tion and investment pursuit costs 1,032 647 226 1,905 - 1,905
Res identia l segment, other operating costs - 10,761 - 10,761 - 10,761
Depreciation and amortization - 3,126 4,038 7,164 - 7,164
Loan loss a l lowance 8 - - 8 - 8
Other expense - - 765 765 - 765
Total costs and expenses 57,380 22,138 64,789 144,307 251 144,558
Other income
Income of consol idated VIEs , net - - - - 36,465 36,465
Change in fa i r va lue of servicing rights - - (18,043) (18,043) 10,168 (7,875)
Change in fa i r va lue of investment securi ties (65) - 6,449 6,384 (12,003) (5,619)
Change in fa i r va lue of mortgage loans held-for-sa le - - 17,534 17,534 - 17,534
Earnings from unconsol idated enti ties 1,288 - 283 1,571 537 2,108
Gain/loss on sa le of investments 5,373 2,540 - 7,913 - 7,913
Gain/loss on derivative financia l instruments (10,320) - (783) (11,105) - (11,105)
Foreign currency ga in/loss , net 6,941 - (53) 6,888 - 6,888
OTTI (561) (560) - (1,121) - (1,121)
Other income 15 5,304 613 5,932 - 5,932
Total other income 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 provis ion (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/(loss ) attributable to non-control l ing
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
20
Results of Operations by Segment Twelve Months ended December 31, 2013
$ 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
Acquisition and investment pursuit costs 2,819 2,752 829 6,400 - 6,400
Business combination costs 17,958 - - 17,958 - 17,958
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
Other income
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 (148) - 22,657 22,509 (31,393) (8,884)
Change in fair value of mortgage loans held-for-sale - - 43,849 43,849 - 43,849
Earnings from unconsolidated entities 4,776 - 4,502 9,278 (437) 8,841
Gain/loss on sale of investments 25,063 5,818 - 30,881 - 30,881
Gain/loss on derivative financial instruments (13,259) - 2,089 (11,170) - (11,170)
Foreign currency gain/loss, net 10,478 - (95) 10,383 - 10,383
OTTI (1,014) (560) - (1,574) - (1,574)
Other income 15 8,624 1,037 9,676 - 9,676
Total other income 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 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
21
Results of Operations by Segment Twelve Months ended December 31, 2012
$ thousands
Real Estate
Investment Lending Single Family Residential Total
Revenues:
Interest income from loans ................................................... $ 251,561 $ - $ 251,561
Interest income from investment securities ......................... 57,321 - 57,321
Other revenues ..................................................................... 260 12 272
Rental income ...................................................................... - 431 431
Total revenues .................................................................... 309,142 443 309,585
Costs and expenses:
Management fees ................................................................ 58,799 9 58,808
Interest expense .................................................................... 47,125 - 47,125
General and administrative ................................................. 12,069 47 12,116
Acquisition and investment pursuit costs ............................ 3,422 888 4,310
Residential segment, other operating costs .......................... - 1,533 1,533
Depreciation and amortization ............................................. - 213 213
Loan loss allowance ............................................................. 2,061 - 2,061
Total costs and expenses .................................................... 123,476 2,690 126,166
Income (loss) before other income (loss), income taxes
and non-controlling interests ........................................ 185,666 (2,247) 183,419
Other income (loss):
Change in fair value of investment securities, net ............... 295 - 295
Change in fair value of mortgage loans held-for-sale .......... (5,760) - (5,760)
Earnings from unconsolidated entities ................................. 5,086 - 5,086
Gain on sale of investments, net .......................................... 24,836 696 25,532
Loss on derivative financial instruments, net ....................... (14,157) - (14,157)
Foreign currency gain, net ................................................... 15,120 - 15,120
OTTI .................................................................................... (4,402) - (4,402)
Other income (expense), net ................................................ (126) (302) (428)
Total other income (loss) ............................................... 20,892 394 21,286
Income (loss) before income taxes .................................... 206,558 (1,853) 204,705
Income tax provision ........................................................... (871) (152) (1,023)
Net income (loss) ................................................................ 205,687 (2,005) 203,682
Net income attributable to non-controlling interests ........... (2,487) - (2,487)
Net income (loss) attributable to Starwood Property
Trust, Inc. ....................................................................... $ 203,200 $ (2,005) $ 201,195
22
Cash Flow for Twelve Months ended December 31, 2013
$ thousands
GAAP Adjustments Pre-Consolidation
Net cash provided by operating activities 326,314 90 326,404
Cash Flows from Investing Activities:
Purchase of LNR, net of cash acquired (586,383) (366) (586,749)
Purchase of investment securities (479,843) (180,652) (660,495)
Proceeds from sales of investment securities 463,428 13,993 477,421
Proceeds from principal collections on investment securities 70,417 29,411 99,828
Origination and purchases of loans held for investment (2,663,267) - (2,663,267)
Proceeds from principal collections on loans held for investment 769,650 - 769,650
Proceeds from sales of loans held for investment 435,818 - 435,818
Acquisition and improvement of real estate (642,099) - (642,099)
Proceeds from sale of real estate 13,617 - 13,617
Purchase of other assets (2,157) - (2,157)
Purchase of non performing loans (186,263) - (186,263)
Proceeds from sale of non performing loans 25,954 - 25,954
Investment in unconsolidated entities (30,562) - (30,562)
Distribution of capital from unconsolidated entities 6,515 - 6,515
Payments for purchases and terminations of derivatives (17,389) - (17,389)
Proceeds from sales and terminations of derivatives 10,289 - 10,289
Return of investment basis in purchased derivative asset 1,948 - 1,948
Decrease (increase) in restricted cash (17,275) - (17,275)
Net cash used in investing activities (2,827,602) (137,614) (2,965,216)
Cash Flows from Financing Activities:
Borrowings under secured financing agreements 4,391,114 - 4,391,114
Borrowings under convertible debt offering 1,037,926 - 1,037,926
Principal repayments on borrowings under secured financing arrangements (3,884,972) - (3,884,972)
Payment of deferred financing costs (26,309) - (26,309)
Proceeds from securing borrowings 95,000 - 95,000
Proceeds from common stock offering 1,513,519 - 1,513,519
Payment of underwriting and offering costs (1,390) - (1,390)
Payment of dividends (300,973) - (300,973)
Contributions from non-controlling interest owners 1,599 - 1,599
Distributions to non-controlling interest owners (48,104) - (48,104)
Issuance of debt of consolidated VIEs 13,993 (13,993) -
Repayment of debt of consolidated VIEs (180,652) 180,652 -
Distributions of cash from consolidated VIEs 29,411 (29,411) -
Net cash provided by financing activities 2,640,162 137,248 2,777,410
Net increase in cash and cash equivalents 138,874 (276) 138,598
Effect of exchange rate changes on cash 1,082 - 1,082
Cash and cash equivalents, beginning of period 177,671 - 177,671
Cash and cash equivalents, end of period 317,627 (276) 317,351
23
Reconciliation of Net Income to Core Earnings Three and Twelve Months ended December 31, 2013
$ thousands
Real Estate
Investment
Lending
Single Family
ResidentialLNR Total
Real Estate
Investment
Lending
Single Family
ResidentialLNR Total
Revenues $ 119,805 7,287 96,063 $ 223,155 $ 393,478 16,200 248,708 $ 658,386
Costs and expenses (57,381) (22,138) (64,789) (144,307) (201,889) (49,681) (170,632) (422,202)
Other (loss ) income 2,671 7,284 5,998 15,953 25,911 13,882 58,171 97,964
Income (loss ) before income taxes 65,096 (7,567) 37,272 94,801 217,500 (19,599) 136,247 334,148
Income tax provis ion 3,367 (183) (1,546) 1,638 1,722 (195) (25,580) (24,053)
Income attributable to non-control l ing interests (1,466) 0 0 (1,466) (5,066) - - (5,065)
Net income (loss) attributable to Starwood Property Trust, Inc. $ 66,997 (7,750) 35,726 $ 94,973 $ 214,157 (19,794) 110,667 $ 305,030
Add / (Deduct):
Non-cash equity compensation expense 3,402 0 0 3,403 16,273 - 0 16,273
Management incentive fee 4,257 0 2,494 6,751 7,070 - 4,503 11,573
Change in Control Plan - - 6,579 6,579 - - 22,382 22,382
Depreciation and amortization - 3,125 417 3,542 - 6,106 763 6,869
Loan loss a l lowance 8 - 447 455 1,923 - 447 2,370
Interest income adjustment for securi ties (395) - 6,573 6,178 (1,227) - 11,253 10,026
Unreal ized (Gains) / losses on: - - - - - - - -
Loans held for sa le - - 8,438 8,438 - - 2,427 2,427
Securi ties 160 - (10,229) (10,069) (303) - (21,639) (21,942)
Impairment of rea l estate - (536) - (536) - (0) - (0)
Gain on foreclosure of non-performing loans - 3,320 - 3,320 - - - -
Derivatives 10,546 - (7,015) 3,531 12,290 - (1,966) 10,324
Foreign currency (6,941) - - (6,941) (10,663) - - (10,663)
Earnings from unconsol idated enti ties - - (621) (621) - - (2,053) (2,053)
U.S. specia l servicing intangible - - 2,175 2,175 - - - -
Core Earnings (Loss) $ 78,035 (1,841) 44,984 $ 121,178 $ 239,520 (13,688) 126,784 $ 352,616
Core Earnings (Loss) per Weighted Average Diluted Share 0.40 (0.01) 0.23 0.62 1.43 (0.08) 0.76 2.11
Three Months Ended December 31, 2013 Twelve Months Ended December 31, 2013
24
Reconciliation of Net Income to Core Earnings Three and Twelve Months ended December 31, 2012
$ thousands
Real Estate
Investment Lending
Single Family
ResidentialTotal
Real Estate
Investment Lending
Single Family
ResidentialTotal
Revenues $ 87,578 383 $ 87,961 $ 307,238 444 $ 307,682
Costs and expenses (33,179) (2,088) (35,267) (120,920) (3,345) (124,265)
Other income 5,526 396 5,921 20,894 394 21,287
Income (loss) before income taxes 59,925 (1,310) 58,615 207,212 (2,508) 204,704
Income tax provision (31) (152) (183) (871) (152) (1,023)
Income attributable to non-controlling interests (2,099) - (2,099) (2,487) - (2,487)
Net income (loss) attributable to Starwood Property Trust, Inc. $ 57,795 (1,462) $ 56,333 $ 203,854 (2,660) $ 201,194
Add / (Deduct):
Non-cash equity compensation expense 3,866 - 3,866 16,162 - 16,162
Management incentive fee 384 - 384 7,871 - 7,871
Depreciation and amortization - 135 135 - 213 213
Loan loss allowance 2,061 - 2,061 2,061 - 2,061
Unrealized (Gains) / losses on: - - - - - -
Loans held for sale - - - 5,760 - 5,760
Securities 1,347 - 1,347 3,970 - 3,970
Derivatives 65 - 65 (19,840) - (19,840)
Foreign currency 301 - 301 10,914 - 10,914
Core Earnings (Loss) $ 65,819 (1,327) $ 64,492 $ 230,752 (2,447) $ 228,305
Core Earnings (Loss) per Weighted Average Diluted Share 0.49 (0.01) 0.48 2.01 (0.02) 1.99
Three Months Ended December 31, 2012 Twelve Months Ended December 31, 2012
25