Starwood Property Trust(US:STWD)2022-02-25 12:26markdown Part I [Business](index=5&type=section&id=Item%201.%20Business) STWD is a REIT focused on real estate debt and equity investments, with significant 2021 growth in lending segments - STWD is a Maryland corporation that operates as a **REIT**, focusing on real estate debt and equity investments across the U.S., Europe, and Australia[15](index=15&type=chunk) - The company is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, which is controlled by Chairman and CEO Barry Sternlicht[18](index=18&type=chunk) - STWD operates through four reportable business segments: Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing[16](index=16&type=chunk)[19](index=19&type=chunk) [Commercial and Residential Lending Segment](index=9&type=section&id=Commercial%20and%20Residential%20Lending%20Segment) This largest segment grew to $17.4 billion in 2021, driven by first mortgages, diversified by property type and geography Commercial and Residential Lending Segment Portfolio (in thousands) | Category | Carrying Value (2021) | Carrying Value (2020) | Change | | :--- | :--- | :--- | :--- | | First mortgages | $12,981,196 | $8,930,764 | +$4,050,432 | | Residential loans, held-for-sale | $2,590,005 | $841,963 | +$1,748,042 | | HTM debt securities | $656,915 | $505,673 | +$151,242 | | Mezzanine loans | $417,504 | $620,319 | -$202,815 | | **Total Segment Carrying Value** | **$17,414,418** | **$11,688,293** | **+$5,726,125** | Collateral Property Type Breakdown (by Carrying Value) | Collateral Property Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Office | 29.5% | 35.2% | | Multifamily | 27.3% | 16.1% | | Hotel | 19.0% | 21.6% | | Mixed Use | 11.5% | 8.2% | [Infrastructure Lending Segment](index=11&type=section&id=Infrastructure%20Lending%20Segment) Portfolio grew to $2.1 billion in 2021, focused on natural gas power and oil & gas assets, concentrated in U.S. North East Infrastructure Lending Segment Portfolio (in thousands) | Category | Carrying Value (2021) | Carrying Value (2020) | Change | | :--- | :--- | :--- | :--- | | First priority infrastructure loans and HTM securities | $2,082,927 | $1,458,880 | +$624,047 | | **Total Segment Carrying Value** | **$2,085,604** | **$1,593,756** | **+$491,848** | Collateral Type Breakdown (by Carrying Value) | Collateral Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Natural gas power | 61.0% | 65.8% | | Midstream/downstream oil & gas | 33.2% | 21.9% | [Property Segment](index=12&type=section&id=Property%20Segment) Carrying value around $2.0 billion, with multifamily properties reclassified to Woodstar Fund, remaining assets in Medical Office and Retail - In **2021**, multifamily residential properties were reclassified upon the establishment of the Woodstar Fund, which is now accounted for as an investment company under GAAP and presents its investments at fair value[35](index=35&type=chunk) Property Segment Portfolio (in thousands) | Category | Carrying Value (2021) | Carrying Value (2020) | | :--- | :--- | :--- | | Properties, net | $887,553 | $1,969,414 | | Investments of consolidated affordable housing fund | $1,040,309 | $— | | **Total Segment Carrying Value** | **$1,961,013** | **$2,007,925** | [Investing and Servicing Segment](index=13&type=section&id=Investing%20and%20Servicing%20Segment) Segment grew to $1.7 billion in 2021, primarily driven by CMBS at fair value, with a portfolio of office and retail assets Investing and Servicing Segment Portfolio (in thousands) | Category | Carrying Value (2021) | Carrying Value (2020) | | :--- | :--- | :--- | | CMBS, fair value option | $1,165,395 | $1,112,145 | | Loans held-for-sale, commercial | $286,795 | $90,332 | | Properties, net | $154,331 | $197,843 | | Intangible assets - servicing rights | $58,899 | $54,578 | | **Total Segment Carrying Value** | **$1,720,825** | **$1,516,118** | [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) Company faces risks from external manager dependence, COVID-19, indebtedness, interest rates, LIBOR transition, and REIT status - The company is dependent on its external manager, Starwood Capital Group, and its key personnel. Termination of the management agreement could be costly and difficult[60](index=60&type=chunk)[63](index=63&type=chunk)[73](index=73&type=chunk) - The **COVID-19** pandemic has had and may continue to have an adverse impact on the company's operations and the financial stability of its borrowers and tenants, particularly in the hotel, multifamily, and retail sectors[60](index=60&type=chunk)[80](index=80&type=chunk)[83](index=83&type=chunk) - Significant indebtedness subjects the company to increased risk of loss, and interest rate fluctuations could decrease results of operations. The transition from **LIBOR** to alternative rates like **SOFR** introduces uncertainty and potential costs[60](index=60&type=chunk)[98](index=98&type=chunk)[103](index=103&type=chunk) - Failure to qualify as a **REIT** would subject the company to corporate income tax, substantially reducing cash available for stockholder distributions[62](index=62&type=chunk)[253](index=253&type=chunk) [Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[298](index=298&type=chunk) [Properties](index=58&type=section&id=Item%202.%20Properties) The company leases office space in several U.S. cities, with headquarters in Greenwich, CT - The company leases office space in Miami Beach, FL; New York, NY; Los Angeles, CA; Stamford, CT; and Charlotte, NC. Its headquarters is located in Greenwich, CT[299](index=299&type=chunk) [Legal Proceedings](index=58&type=section&id=Item%203.%20Legal%20Proceedings) No material legal proceedings are pending that would adversely affect the company's business - No material legal proceedings are pending against the company[300](index=300&type=chunk) [Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[301](index=301&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=58&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) STWD common stock trades on NYSE, company intends regular quarterly distributions, outperformed mortgage REIT index - The company's common stock is listed on the **NYSE** under the symbol "**STWD**"[303](index=303&type=chunk) - The company intends to pay regular quarterly distributions to maintain its **REIT** status, which requires distributing at least **90%** of its **REIT** taxable income annually[304](index=304&type=chunk) - There were no sales of unregistered equity securities or issuer purchases of common stock during the year ended December **31**, **2021**[310](index=310&type=chunk)[311](index=311&type=chunk) Cumulative Total Return (Based on $100 investment on 12/31/2016) | Date | Starwood Property Trust | Bloomberg REIT Mortgage Index | S&P 500 | | :--- | :--- | :--- | :--- | | 12/31/2016 | $100.00 | $100.00 | $100.00 | | 12/31/2017 | $106.04 | $120.27 | $121.83 | | 12/31/2018 | $107.18 | $116.77 | $116.49 | | 12/31/2019 | $146.56 | $144.35 | $153.17 | | 12/31/2020 | $129.88 | $112.30 | $181.35 | | 12/31/2021 | $176.40 | $132.08 | $233.41 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses business, operations, liquidity; 2021 saw loan growth, Woodstar Fund establishment, and increased net income - In **2021**, the company originated or acquired **$10.0 billion** of commercial loans and acquired **$4.5 billion** of residential loans[328](index=328&type=chunk)[329](index=329&type=chunk) - On November **5**, **2021**, the company established the Woodstar Fund for its multifamily affordable housing portfolio, selling a **20.6%** interest to third-party investors for **$214.2 million** and recognizing a **$1.2 billion** increase in fair value as a cumulative adjustment to stockholders' equity[316](index=316&type=chunk)[317](index=317&type=chunk) Key Financial Results (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Revenues | $1,170,088 | $1,136,155 | $1,196,419 | | Net Income Attributable to STWD | $447,739 | $331,689 | $509,664 | Distributable Earnings per Share | Year | Distributable EPS | | :--- | :--- | | 2021 | $2.63 | | 2020 | $1.98 | | 2019 | $1.80 | [Results of Operations](index=66&type=section&id=Results%20of%20Operations) Net income attributable to STWD increased by $116.1 million in 2021, driven by lending and investing segments Income (Loss) Before Income Taxes by Segment (in thousands) | Segment | 2021 | 2020 | $ Change | | :--- | :--- | :--- | :--- | | Commercial and Residential Lending | $588,239 | $528,925 | +$59,314 | | Infrastructure Lending | $23,943 | $24,267 | -$324 | | Property | $19,754 | $(24,869) | +$44,623 | | Investing and Servicing | $185,091 | $78,574 | +$106,517 | | Corporate | $(315,491) | $(220,839) | -$94,652 | - The Commercial and Residential Lending segment's costs decreased by **$24.1 million** in **2021**, mainly due to a **$50.8 million** decrease in credit loss provision, which reversed from a **$47.2 million** provision in **2020** to a **$3.6 million** reversal in **2021** due to improved macroeconomic forecasts[340](index=340&type=chunk) - The Investing and Servicing segment's other income increased by **$84.7 million** in **2021**, driven by a **$79.6 million** favorable change in the fair value of **CMBS** investments, which had been adversely affected by widening credit spreads in **2020** due to **COVID-19**[357](index=357&type=chunk) [Non-GAAP Financial Measures](index=76&type=section&id=Non-GAAP%20Financial%20Measures) Distributable Earnings, a non-GAAP measure, increased to $2.63 per share in 2021, boosted by Woodstar Fund gain - Distributable Earnings is a non-GAAP measure calculated by excluding items such as non-cash equity compensation, unrealized gains/losses, depreciation, and the **CECL** reserve from **GAAP** net income[388](index=388&type=chunk) Distributable Earnings Reconciliation (in thousands, except per share) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income Attributable to STWD | $447,739 | $331,689 | | Key Adjustments (Net) | $346,377 | $253,610 | | **Distributable Earnings** | **$794,116** | **$585,299** | | **Distributable EPS** | **$2.63** | **$1.98** | - A significant contributor to **2021** Distributable Earnings was a **$196.4 million** realized gain from the sale of a **20.6%** interest in the Woodstar Fund, which was treated as realized for Distributable Earnings purposes[395](index=395&type=chunk)[397](index=397&type=chunk) [Liquidity and Capital Resources](index=85&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources include cash, credit facilities, and capital market issuances, with $15.2 billion in secured borrowings - Primary sources of liquidity include cash, credit agreements, repurchase agreements, **CLOs**, senior notes, mortgage debt, and equity/debt offerings[439](index=439&type=chunk) Secured Borrowings Summary as of Dec 31, 2021 (in thousands) | Facility Type | Outstanding Balance | Maximum Facility Size | | :--- | :--- | :--- | | Repurchase Agreements | $9,542,034 | $15,155,439 | | Other Secured Financing (incl. CLOs/SASB) | $5,746,227 | $7,072,942 | | **Total Secured Borrowings** | **$15,288,261** | **$22,228,381** | - As of December **31**, **2021**, the company had future loan funding commitments of **$2.2 billion** for commercial loans and **$1.3 billion** in residential loan purchase commitments[864](index=864&type=chunk) 2021 Dividend Tax Treatment (per share) | Category | Amount per Share | | :--- | :--- | | Total Dividend Paid | $2.3245 | | Ordinary Taxable Dividends | $1.2600 | | Total Capital Gain Distribution | $1.0645 | [Quantitative and Qualitative Disclosures About Market Risk](index=94&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Company manages credit, interest rate, and foreign currency risks, with LIBOR transition and hedging strategies in place - The company actively manages credit risk by monitoring collateral performance and borrower financial health, especially in light of the economic impact of the **COVID-19** pandemic[494](index=494&type=chunk)[496](index=496&type=chunk) Interest Rate Sensitivity Analysis (in thousands) | Change in Index Rates | Estimated Annual Change in Net Investment Income | | :--- | :--- | | +1.0% | $(11,885) | | +0.5% | $(10,533) | | -0.5% | $1,174 | | -1.0% | $(5,128) | - The company is transitioning its **LIBOR**-indexed instruments to alternative reference rates like **SOFR** and **SONIA**, with many loan and credit facility agreements already updated[501](index=501&type=chunk)[502](index=502&type=chunk) - As of December **31**, **2021**, net asset exposure to **GBP** and **EUR** has been substantially hedged with foreign currency forward contracts[513](index=513&type=chunk) [Financial Statements and Supplementary Data](index=98&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Includes audited financial statements, notes, and schedules, with an unqualified auditor opinion on financials and internal controls - This item includes the audited consolidated financial statements, notes, and supplementary schedules for the fiscal year ended December **31**, **2021**[517](index=517&type=chunk)[518](index=518&type=chunk) - The independent auditor, Deloitte & Touche **LLP**, issued an unqualified opinion on the financial statements and the company's internal control over financial reporting[520](index=520&type=chunk)[521](index=521&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=178&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[901](index=901&type=chunk) [Controls and Procedures](index=178&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that disclosure controls and procedures were effective as of the end of the period[903](index=903&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective as of December **31**, **2021**, a conclusion audited and affirmed by their independent registered public accounting firm[905](index=905&type=chunk)[907](index=907&type=chunk) [Other Information](index=178&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[909](index=909&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=179&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, officers, and governance is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the **2022** Proxy Statement[913](index=913&type=chunk) [Executive Compensation](index=179&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the **2022** Proxy Statement[916](index=916&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=179&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the **2022** Proxy Statement[917](index=917&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=179&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the **2022** Proxy Statement[918](index=918&type=chunk) [Principal Accountant Fees and Services](index=179&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the **2022** Proxy Statement[919](index=919&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=180&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) Lists financial statements, schedules (Real Estate, Mortgage Loans), and exhibits filed as part of the Form 10-K report - This item lists all documents filed as part of the report, including financial statements, schedules, and exhibits such as the Management Agreement and various Indentures[921](index=921&type=chunk)[922](index=922&type=chunk) [Form 10-K Summary](index=182&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for its Form 10-K - None[925](index=925&type=chunk)