Starwood Property Trust, Inc. : Reports Results for the Quarter Ended March 31, 2012
05/08/2012| 07:05am US/Eastern
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GREENWICH, Conn., May 8, 2012 /PRNewswire/ -- Starwood Property Trust, Inc. (NYSE: STWD) (the "Company") today announced operating results for the first fiscal quarter ended March 31, 2012. The Company's Core Earnings, a Non-GAAP financial measure, were $55.0 million, or $0.58 per diluted share, for the quarter, an increase of 75% compared to $31.4 million, or $0.43 per diluted share, for the first quarter of 2011. Core Earnings include $12.2 million, or $0.13 per diluted share, of income related to the prepayment of a $143.9 million loan that primarily represents accelerated discount accretion.
Net income attributable to the Company for the three months ended March 31, 2012 was approximately $50.2 million, compared to $31.4 million for the three months ended March 31, 2011. Net income per diluted share outstanding for the three months ended March 31, 2012 was $0.53, compared to $0.43 for the three months ended March 31, 2011.
"The first quarter of 2012 was extremely productive as we invested over $500 million, bringing the total capital deployed since our inception to over $4.6 billion," said Barry Sternlicht, the Company's Chairman and Chief Executive Officer. "We now hold a $2.8 billion target investment portfolio which we expect to produce an annualized levered return of approximately 12.6% and a loan portfolio with a weighted average LTV that decreased quarter over quarter to 64.1%. Our book value increased with our earnings, the rally in the credit markets and an accretive equity offering. In fact, during the quarter we sold the remainder of our held-for-sale conduit loans and realized a $1.0 million net profit from the transaction. These loans contributed significantly to the volatility in our earnings during the second half of 2011."
Mr. Sternlicht continued, "At the beginning of the second quarter, we successfully completed a capital raise which produced gross proceeds of $457.3 million. We continue to believe that bigger is better since our size should allow us to build an even more diverse investment portfolio, obtain new financing facilities and lower our cost of capital so that we can accretively and efficiently drive shareholder returns. As we move forward, we will maintain our discipline and capitalize on the compelling origination and acquisition opportunities in our pipeline."
Investment Portfolio
During the quarter ended March 31, 2012, the Company originated, acquired or funded $521.5 million of new target investments, bringing the Company's total gross capital deployed since inception to over $4.6 billion and the net investment balance to $3.1 billion as of March 31, 2012. The carrying amount of the Company's target assets held for investment is approximately $2.8 billion at March 31, 2012, which the Company expects will generate an annualized levered return of approximately 12.6% on an annually compounded basis over the life of the investment.
Significant transactions during the first quarter of 2012 included the following:
January 2012
-- Sold 50% of its Euro-denominated loan to a strategic partner, resulting
in proceeds of $28.8 million. The transaction was neutral from an
earnings perspective net of the associated currency hedge gain.
February 2012
-- Acquired for a discounted purchase price of $206.4 million, $222.8
million of CMBS for which the obligors are certain special purpose
entities that were formed to hold substantially all of the assets of a
worldwide hotel operator of hotels, resorts and timeshare properties.
The acquisition was financed using a new $155.4 million facility
provided by the seller.
-- Originated a $40.0 million mezzanine loan secured by a 10-property
portfolio of full-service and extended-stay hotels located in eight
different states.
-- Acquired $95.4 million of B-Notes secured by four resorts in the United
Kingdom. The newly issued B-Notes are part of an overall corporate
refinancing in which the Company had a $143.9 million pre-existing
investment. The Company has hedged the currency risk in this investment.
The Company recognized additional income of approximately $12.2 million
in the first quarter of 2012 from the early prepayment of the existing
investment.
March 2012
-- Acquired for a discounted purchase price of $115.7 million, a $125.0
million participation in a senior loan secured by all the material
assets of a worldwide operator of hotels, resorts and timeshare
properties. The acquisition was financed with an $81.0 million increase
in a financing facility previously provided by the seller.
-- Originated a $59.0 million mortgage loan secured by an office campus
located in Northern California. The terms of the loan provide for up to
$4.0 million of future advances upon the satisfaction of specified
conditions.
-- Sold the remainder of its held-for-sale first mortgage loans targeted
for securitization. As of December 31, 2011, the Company's net equity
investment in these six loans was $36.5 million and the loans had a
carrying value of $128.6 million. The Company realized an aggregate
profit of approximately $1.0 million on the held-for-sale loans and
associated interest rate hedges.
Starwood Property Trust, Inc. Investments as of March 31, 2012
(Unaudited, amounts in thousands)
---
Investment Face Amount Carry Value Existing Net Return on Expected
(1) Leverage Investment Asset Return (3)
(2)
--- --- ---
First mortgages held for investment $1,428,505 $1,375,766 $805,171 $570,595 7.9% 12.9%
Subordinated mortgages held for investment 348,072 313,688 54,199 259,489 11.2% 13.2%
Mezzanine loans held for investment 655,199 644,053 97,346 546,707 11.6% 12.1%
CMBS available-for-sale at fair value 511,112 486,952 271,734 215,218 7.2% 12.3%
------- ------- ------- ------- --- ----
Total target portfolio $2,942,888 $2,820,459 $1,228,450 $1,592,009 9.0% 12.6%
-------- ---
RMBS available-for-sale at fair value 247,042 157,186 80,410 76,776 10.9%
Other Investments and loans held in 94,748 94,434 52,978 41,456
securitization trust
Total Investments $3,284,678 $3,072,079 $1,361,838 $1,710,241
========== ========== ========== ==========
(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 loans held for sale at
fair value consists of the net
unrealized gains on the fair value
of the loans. 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) Expected returns for target
investments as of March 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 levered
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
March 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.
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 March 31, 2012:
Weighted Average LTV of Loan Portfolio (1)
-----------------------------------------
First Subordinated Mezzanine Total (2)
Mortgages Mortgages
--------- ---------
Beginning
LTV 0.0% 44.4% 50.9% 20.2%
Ending LTV 58.4% 75.2% 70.6% 64.1%
(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
held in securitization trust.
(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).
Subsequent to Quarter End Activity
April 2012
-- The Company acquired $75.6 million of CMBS at a discounted price of
$70.7 million, where the obligors are certain special purpose entities
that were formed to hold substantially all of the assets of a worldwide
operator of hotels, resorts and timeshare properties. The acquisition
was financed using a $49.3 million increase in a financing facility
previously provided by the seller.
-- The Company sold 20,000,000 shares of common stock at a net price of
$19.88 per share, resulting in gross proceeds of $397.7 million. On
April 30, 2012, the underwriters exercised their option to purchase
3,000,000 additional shares of common stock at $19.88 per share,
resulting in additional gross proceeds of $59.6 million.
Investment Capacity
As of May 4, 2012, the Company had approximately $185.5 million of available cash and equivalents, approximately $73.4 million of net equity invested in RMBS that are classified as available-for-sale and $372.3 million of approved but undrawn capacity under existing financing facilities. Accordingly, the Company has the capacity to acquire or originate an additional $530.0 million to $700.0 million of new investments. During the remaining three quarters of 2012, the Company expects to receive aggregate cash proceeds from loan and security repayments, net of any required debt repayments, of approximately $191.1 million. In addition, over the short term, the Company expects to obtain additional secured financing facilities to further augment its investment capacity.
Investment Pipeline
As of May 4, 2012, the Company had approximately $424.5 million of loans and investments in various stages of due diligence that are under term sheets. 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 March 31, 2012, the Company had an aggregate outstanding balance of approximately $1.3 billion under its ten financing facilities.
On February 1, 2012, the Company entered into a new $155.4 million master repurchase agreement with Goldman Sachs International and borrowed the entirety of the facility to finance the $206.4 million discounted CMBS purchase described above. Borrowings under the facility accrue interest at a per annum rate of one-month LIBOR plus a spread of 2.9%. The maturity date of the facility is August 2015.
On March 5, 2012, the Company extended from March 16, 2012 to March 15, 2013 the maturity date of its $100.0 million master repurchase and securities contract with an affiliate of Wells Fargo Securities, LLC, used to finance the acquisition and ownership of RMBS. Advances under the facility accrue interest at a per annum interest rate equal to the sum of (i) 30-day LIBOR plus (ii) a margin of 2.10%.
On March 26, 2012, the Company entered into a new $125.0 million financing facility with an affiliate of Citigroup Global Markets Inc. to finance commercial mortgage loans and senior interests in commercial mortgage loans originated or acquired by the Company. Advances under the facility accrue interest at a per annum interest rate equal to the sum of (i) 30-day LIBOR plus (ii) a margin of between 1.75% and 3.75% depending on the (A) asset type, (B) amount advanced and (C) debt yield and LTV ratios of the purchased mortgage loan. The facility has an initial maturity date of March 29, 2014, subject to three one-year extension options, which may be exercised by the Company upon the satisfaction of certain conditions.
Book Value and Fair Value Net of Minority Interest
The fair value of the Company's net assets at March 31, 2012 was approximately $19.52 per fully diluted share. On a fully diluted basis, the Company's GAAP book value at March 31, 2012 was $18.96 per share. Pro forma for the Company's April 2012 equity issuance, the Company's GAAP book value at March 31, 2012 was $19.14 per fully diluted share and the fair value of the Company's net assets at March 31, 2012 was $19.59 per fully diluted share.
Dividend
On May 8, 2012, the Company's Board of Directors declared a dividend of $0.44 per share of common stock for the quarter ending June 30, 2012. The dividend is payable on July 13, 2012 to common stockholders of record as of June 29, 2012.
The Company has decided to "true up" its required dividend distribution with a fourth quarter extraordinary distribution, if required each year. For 2012, the Board of Directors will determine the amount of the extraordinary dividend in the fourth quarter.
2012 Guidance
For 2012 the Company is estimating Core Earnings in the range of $1.75 to $1.90 per diluted share. This guidance does not include the impact of 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 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".
Conference Call and Webcast Information
The Company will host a webcast and conference call on Tuesday, May 8, 2012 at 10:00 a.m. Eastern Time to discuss first 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: 1-888-349-9587
International: 1-719-457-2625
Conference Call Playback:
Domestic: 1-877-870-5176
International: 1-858-384-5517
Passcode: 5232416
The playback can be accessed through May 22, 2012.
About Starwood Property Trust, Inc.
Starwood Property Trust, Inc. focuses primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial and residential real estate-related investments. Starwood Property Trust, Inc. 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
(Unaudited, amounts in thousands, except per share data)
For the Three-Months
Ended March 31
--------------
2012 2011
---- ----
Net interest margin:
Interest income from mortgage-backed securities $8,675 $6,860
Interest income from loans 69,077 32,717
Interest expense (11,852) (8,144)
------- ------
Net interest margin 65,900 31,433
------ ------
Expenses:
Management fees (including $3,649 and $3,844 for
the three-months ended 15,167 9,346
March 31, 2012 and 2011 of non-cash stock-based
compensation)
Acquisition and investment pursuit costs 861 88
General and administrative (including $116 and $40
for the three-months ended 3,023 2,104
March 31, 2012 and 2011 of non-cash stock-based
compensation)
Total expenses 19,051 11,538
------ ------
Income before other income (expense) and income
taxes 46,849 19,895
Interest income from cash balances 49 144
Other income (expense) 754 (472)
Other-than-temporary impairment ("OTTI"), net of
$1,439 and $0 recognized in (656) (434)
other comprehensive income (loss) for the three
months ended March 31, 2012
and 2011, respectively
Net gains on sales of investments 7,333 8,104
Net realized foreign currency gains (losses) 8,834 (30)
Net losses on currency hedges (6,257) (3,916)
Net gains on interest rate hedges 566 1,450
Net losses on credit hedges - (187)
Net change in unrealized (losses) gains on loans
held-for-sale at fair value (5,760) 3,187
Unrealized foreign currency remeasurement (losses)
gains (1,025) 3,984
------ -----
Income before income taxes 50,687 31,725
Income tax provision (399) -
---- ---
Net Income 50,288 31,725
Net income attributable to non-controlling
interests (129) (278)
---- ----
Net income attributable to Starwood Property Trust,
Inc. $50,159 $31,447
======= =======
Net income per share of common stock:
Basic $0.53 $0.44
Diluted $0.53 $0.43
Distributions declared per common share $0.44 $0.42
===== =====
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 2012 to allow for the exclusion of certain non-cash adjustments as determined by the manager and approved by the Company's independent directors.
March 31, 2012 and 2011 Reconciliation of Net Income to Core Earnings
Three-Months Three-Months
Ended March 31 Ended March 31
-------------- --------------
2012 Per Diluted 2011 Per Diluted
Share Share
---- ----------- ---- -----------
Net income attributable to Starwood
Property Trust, Inc. $50,159 $0.53 $31,447 $0.43
Add back/subtraction for
unrealized loss (gain) on loans
held for 5,760 0.06 (3,187) (0.03)
sale at fair value
Subtraction for unrealized gain on
interest rate hedges (9,779) (0.10) (1,688) (0.02)
Add back for other-than-temporary
impairment 656 0.01 434 0.00
Add back/subtraction for
unrealized foreign currency loss
(gain) 1,025 0.01 (3,984) (0.05)
Add back for unrealized loss on
currency hedges 8,573 0.09 3,916 0.05
Add back for unrealized loss on
credit hedges - - 187 0.00
Add back for management incentive
fee 4,790 0.05 427 0.00
Add back for non-cash stock based
compensation 3,765 0.04 3,884 0.05
Subtraction for loss from effective
hedge termination (1) (9,989) (0.11) - -
------ ----- --- ---
Core Earnings $54,960 $0.58 $31,436 $0.43
(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 remain in
place, the loss has 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 aggregate
$10.0 million of unrealized loss
because it believes this
represented a non-standard
transaction.
SOURCE Starwood Property Trust, Inc.
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