STARWOOD PROPERTY TRUST, INC. [STWD] Filings

10-Q 1 stwd-20230930.htm 10-Q stwd-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34436

__________________________________________________

Starwood Property Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland						27-0247747
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

591 West Putnam Avenue
Greenwich, Connecticut						06830
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s telephone number, including area code:

(203) 422-7700

___________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	STWD	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 3, 2023 was 313,226,048.

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 respective 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 our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, including those set forth under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

•defaults by borrowers in paying debt service on outstanding indebtedness;

•impairment in the value of real estate property securing our loans or in which we invest;

•availability of mortgage origination and acquisition opportunities acceptable to us;

•potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;

•our ability to achieve the benefits that we anticipate from the prior acquisition of the project finance origination, underwriting and capital markets business of GE Capital Global Holdings, LLC;

•national and local economic and business conditions, including as a result of the impact of the COVID-19 pandemic and other public health emergencies;

•the occurrence of certain geo-political events (such as wars, terrorist attacks and tensions between states) that affect the normal and peaceful course of international relations;

•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 and securities investing activities;

•changes in interest rates; and

•the availability of, and costs associated with, sources of liquidity.

In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. Except to the extent required by applicable law or regulation, we undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.

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TABLE OF CONTENTS


		Page
Part I	Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
	Note 1 Business and Organization	11
	Note 2 Summary of Significant Accounting Policies	12
	Note 3 Acquisitions and Divestitures	19
	Note 4 Loans	20
	Note 5 Investment Securities	26
	Note 6 Properties	29
	Note 7 Investments of Consolidated Affordable Housing Fund	31
	Note 8 Investments in Unconsolidated Entities	32
	Note 9 Goodwill and Intangibles	33
	Note 10 Secured Borrowings	35
	Note 11 Unsecured Senior Notes	40
	Note 12 Loan Securitization/Sale Activities	42
	Note 13 Derivatives and Hedging Activity	43
	Note 14 Offsetting Assets and Liabilities	44
	Note 15 Variable Interest Entities	45
	Note 16 Related-Party Transactions	46
	Note 17 Stockholders’ Equity and Non-Controlling Interests	48
	Note 18 Earnings per Share	51
	Note 19 Accumulated Other Comprehensive Income	52
	Note 20 Fair Value	53
	Note 21 Income Taxes	61
	Note 22 Commitments and Contingencies	61
	Note 23 Segment Data	62
	Note 24 Subsequent Events	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	104
Item 4.	Controls and Procedures	106
Part II	Other Information
Item 1.	Legal Proceedings	107
Item 1A.	Risk Factors	107
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	107
Item 3.	Defaults Upon Senior Securities	107
Item 4.	Mine Safety Disclosures	107
Item 5.	Other Information	107
Item 6.	Exhibits	108

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited, amounts in thousands, except share data)


	As of September 30,		As of December 31,
	2023		2022
Assets:
Cash and cash equivalents	$	195,319	$	261,061
Restricted cash	235,951		121,072
Loans held-for-investment, net of credit loss allowances of $271,320 and $99,413	17,234,205		18,401,439
Loans held-for-sale, at fair value	2,602,265		2,784,594
Investment securities, net of credit loss allowances of $12,994 and $3,182 ($129,645 and $142,334 held at fair value)	721,593		815,804
Properties, net	1,405,791		1,449,986
Investments of consolidated affordable housing fund, at fair value	1,979,184		1,761,002
Investments in unconsolidated entities	91,924		91,892
Goodwill	259,846		259,846
Intangible assets ($18,188 and $17,790 held at fair value)	65,989		68,773
Derivative assets	133,016		108,621
Accrued interest receivable	173,260		168,521
Other assets	526,442		297,477
Variable interest entity (“VIE”) assets, at fair value	44,668,904		52,453,041
Total Assets	$	70,293,689	$	79,043,129
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	407,715	$	298,999
Related-party payable	24,282		41,186
Dividends payable	152,737		151,511
Derivative liabilities	85,657		91,404
Secured financing agreements, net	13,557,881		14,501,532
Collateralized loan obligations and single asset securitization, net	3,518,274		3,676,224
Unsecured senior notes, net	2,456,583		2,329,211
VIE liabilities, at fair value	42,997,104		50,754,355
Total Liabilities	63,200,233		71,844,422
Commitments and contingencies (Note 22)
Temporary Equity: Redeemable non-controlling interests	409,659		362,790
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Preferred stock, $0.01 per share, 100,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 per share, 500,000,000 shares authorized, 320,664,108 issued and 313,215,417 outstanding as of September 30, 2023 and 318,123,861 issued and 310,675,170 outstanding as of December 31, 2022	3,205		3,181
Additional paid-in capital	5,855,962		5,807,087
Treasury stock (7,448,691 shares)	(138,022)		(138,022)
Retained earnings	585,756		769,237
Accumulated other comprehensive income	14,114		20,955
Total Starwood Property Trust, Inc. Stockholders’ Equity	6,321,015		6,462,438
Non-controlling interests in consolidated subsidiaries	362,782		373,479
Total Permanent Equity	6,683,797		6,835,917
Total Liabilities and Equity	$	70,293,689	$	79,043,129

________________________________________________________

Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 include assets of $4.3 billion and $4.5 billion, respectively, and liabilities of $3.5 billion and $3.7 billion, respectively, related to consolidated collateralized loan obligations (“CLOs”) and a single asset securitization (“SASB”), which are considered to be VIEs. The CLOs’ and SASB’s assets can only be used to settle obligations of the CLOs and SASB, and the CLOs’ and SASB’s liabilities do not have recourse to Starwood Property Trust, Inc. Refer to Note 15 for additional discussion of VIEs.

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited, amounts in thousands, except per share data)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Interest income from loans	$	457,299	$	328,354	$	1,344,056	$	823,123
Interest income from investment securities	20,133		19,019		57,689		48,308
Servicing fees	8,630		8,427		22,228		30,972
Rental income	33,091		32,932		97,687		96,036
Other revenues	2,394		1,809		5,970		11,680
Total revenues	521,547		390,541		1,527,630		1,010,119
Costs and expenses:
Management fees	27,143		27,356		97,661		114,275
Interest expense	368,357		222,423		1,066,990		501,492
General and administrative	46,691		45,495		131,955		134,821
Acquisition and investment pursuit costs	211		1,213		625		2,152
Costs of rental operations	11,777		12,206		34,910		32,094
Depreciation and amortization	12,271		12,611		37,010		36,498
Credit loss provision, net	52,634		15,343		217,753		20,123
Other expense	516		—		1,490		1,313
Total costs and expenses	519,600		336,647		1,588,394		842,768
Other income (loss):
Change in net assets related to consolidated VIEs	43,763		37,146		139,024		72,268
Change in fair value of servicing rights	(68)		515		398		1,234
Change in fair value of investment securities, net	283		(83)		353		(1,683)
Change in fair value of mortgage loans, net	(66,806)		(87,474)		(111,247)		(326,737)
Income from affordable housing fund investments	16,908		117,527		253,696		658,733
(Loss) earnings from unconsolidated entities	(1,309)		(2,044)		11,378		911
Gain on sale of investments and other assets, net	10,616		13,453		15,486		112,059
Gain on derivative financial instruments, net	94,883		206,070		118,431		461,921
Foreign currency loss, net	(56,646)		(107,318)		(18,293)		(213,201)
Loss on extinguishment of debt	(1,072)		(212)		(2,256)		(1,035)
Other loss, net	(2,521)		(56,391)		(31,686)		(90,963)
Total other income	38,031		121,189		375,284		673,507
Income before income taxes	39,978		175,083		314,520		840,858
Income tax benefit	11,399		48,755		18,997		48,999
Net income	51,377		223,838		333,517		889,857
Net income attributable to non-controlling interests	(3,942)		(29,276)		(65,265)		(158,409)
Net income attributable to Starwood Property Trust, Inc.	$	47,435	$	194,562	$	268,252	$	731,448

Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic	$	0.15	$	0.62	$	0.85	$	2.35
Diluted	$	0.15	$	0.61	$	0.85	$	2.30

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, amounts in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	51,377	$	223,838	$	333,517	$	889,857
Other comprehensive loss (net change by component):
Available-for-sale securities	(3,241)		(6,194)		(6,841)		(18,177)

Other comprehensive loss	(3,241)		(6,194)		(6,841)		(18,177)
Comprehensive income	48,136		217,644		326,676		871,680
Less: Comprehensive income attributable to non-controlling interests	(3,942)		(29,276)		(65,265)		(158,409)
Comprehensive income attributable to Starwood Property Trust, Inc.	$	44,194	$	188,368	$	261,411	$	713,271

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

For the Three Months Ended September 30, 2023 and 2022

(Unaudited, amounts in thousands, except share data)


	Temporary Equity		Common stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income		Total Starwood Property Trust, Inc. Stockholders’ Equity		Non- Controlling Interests		Total Permanent Equity
			Shares	Par Value				Shares	Amount
Balance, June 30, 2023	$	408,034	320,217,189	$	3,202	$	5,842,813	7,448,691	$	(138,022)	$	689,146	$	17,355	$	6,414,494	$	370,449	$	6,784,943

Proceeds from DRIP Plan	—		13,598	—		278		—	—		—		—		278		—		278
Proceeds from employee stock purchase plan	—		21,088	—		347		—	—		—		—		347		—		347


Share-based compensation	—		319,593	3		10,618		—	—		—		—		10,621		—		10,621
Manager fees paid in stock	—		92,640	—		1,906		—	—		—		—		1,906		—		1,906
Net income	3,114		—	—		—		—	—		47,435		—		47,435		828		48,263
Dividends declared, $0.48 per share	—		—	—		—		—	—		(150,825)		—		(150,825)		—		(150,825)
Other comprehensive loss, net	—		—	—		—		—	—		—		(3,241)		(3,241)		—		(3,241)


Distributions to non-controlling interests	(1,489)		—	—		—		—	—		—		—		—		(8,495)		(8,495)
Balance, September 30, 2023	$	409,659	320,664,108	$	3,205	$	5,855,962	7,448,691	$	(138,022)	$	585,756	$	14,114	$	6,321,015	$	362,782	$	6,683,797

Balance, June 30, 2022	$	322,753	316,660,535	$	3,167	$	5,766,533	7,448,691	$	(138,022)	$	733,348	$	28,970	$	6,393,996	$	380,391	$	6,774,387


Proceeds from DRIP Plan	—		10,568