Starwood Property Trust(US:STWD)2024-02-22 11:52Part I Business Starwood Property Trust is a diversified real estate investment trust (REIT) operating across four primary business segments - Starwood Property Trust is a Maryland corporation that commenced operations in August 2009 and is organized to qualify as a REIT, externally managed by an affiliate of Starwood Capital Group212324 - The company's business is structured into four reportable segments: Commercial and Residential Lending, Infrastructure Lending, Property Segment, and Investing and Servicing Segment2225 Commercial and Residential Lending Segment Portfolio (As of Dec 31, 2023) | Investment Category | Carrying Value ($ thousands) | | :--- | :--- | | First mortgages | $14,947,446 | | Loans held-for-sale, residential | $2,604,594 | | HTM debt securities | $590,274 | | Properties, net | $431,155 | | RMBS, fair value option | $449,909 | | Total Segment Investments | $19,272,118 | Infrastructure Lending Segment Portfolio (As of Dec 31, 2023) | Investment Category | Carrying Value ($ thousands) | | :--- | :--- | | First priority infrastructure loans and HTM securities | $2,535,047 | | Investments in unconsolidated entities | $52,691 | | Credit loss allowance | ($20,345) | | Total Segment Investments | $2,567,393 | Property Segment Portfolio (As of Dec 31, 2023) | Investment Category | Carrying Value ($ thousands) | | :--- | :--- | | Woodstar Fund | $2,012,833 | | Properties, net | $555,455 | | Properties held-for-sale, net | $290,937 | | Total Segment Investments | $2,883,785 | Investing and Servicing Segment Portfolio (As of Dec 31, 2023) | Investment Category | Carrying Value ($ thousands) | | :--- | :--- | | CMBS, fair value option | $1,147,550 | | Intangible assets - servicing rights | $57,249 | | Properties, net | $59,774 | | Total Segment Investments | $1,354,105 | - The company faces competition from a wide range of public and private investment vehicles, many of which are larger and may have greater access to capital56 Risk Factors The company faces risks from its external manager, high indebtedness, interest rate sensitivity, and real estate market volatility - The company is dependent on its external Manager, an affiliate of Starwood Capital Group, and its key personnel, which creates potential conflicts of interest697178 - Significant indebtedness of approximately $19.7 billion as of December 31, 2023, subjects the company to increased risk of loss and potential defaults96 - The company is exposed to interest rate fluctuations, which can affect investment yields, financing costs, and the value of its assets100101 - The company's real estate investments are illiquid and subject to market risks, with difficult conditions in the office sector due to remote work trends117120122 - The Infrastructure Lending Segment's portfolio is concentrated in the power and midstream oil and gas industries, subjecting it to industry-specific risks195202 - The Investing and Servicing Segment's special servicing business exposes the company to risks related to declining servicing fees and competition208209 - Failure to qualify as a REIT would subject the company to corporate income tax, substantially reducing cash available for distribution to stockholders235247248 - Cybersecurity risks could lead to data loss, business interruptions, and financial losses, with threats increasing in frequency and severity273274 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None283 Cybersecurity The company manages cybersecurity through a comprehensive program with Board oversight and has identified no material threats in the last fiscal year - The company has not identified any risks from known cybersecurity threats in the last fiscal year that have materially affected its operations284 - Cybersecurity is managed within an enterprise risk management framework featuring a comprehensive program to identify, protect, detect, and respond to threats285 - Oversight is provided by the Board of Directors and Audit Committee, with the Chief Information Officer leading the overall cybersecurity function287288 - The company employs a multi-layered security approach, including employee training, annual risk assessments, and third-party monitoring290291292 Properties The company leases office space in multiple U.S. locations, with headquarters in Greenwich, CT - The Company leases office space in multiple U.S. locations, with its headquarters in Greenwich, CT, and a detailed property list is in Schedule III293 Legal Proceedings The company reports no material pending legal proceedings - No material legal proceedings are pending against the company294 Mine Safety Disclosures This item is not applicable to the company - Not applicable295 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (STWD) is listed on the NYSE, with regular distributions planned to maintain its REIT status - The company's common stock trades on the NYSE under the symbol "STWD"297 - As a REIT, the company is generally required to distribute at least 90% of its taxable income annually and intends to pay regular quarterly distributions298 - As of February 16, 2024, there were 313,375,899 shares of common stock outstanding5299 - There were no sales of unregistered equity securities or company purchases of its common stock during the year ended December 31, 2023303304 [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Net income decreased to $339.2 million in 2023 due to fair value changes and higher credit loss provisions, despite increased interest income - The economic environment in 2023 was marked by market volatility, inflation, and rising interest rates, impacting borrower performance and real estate values309310311 Consolidated Results of Operations Summary ($ in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | $2,049,908 | $1,464,716 | $1,170,088 | | Total Costs and Expenses | $2,098,318 | $1,272,951 | $989,057 | | Income before income taxes | $417,475 | $997,538 | $501,095 | | Net income attributable to STWD | $339,213 | $871,475 | $447,739 | - For 2023 vs 2022, the Commercial and Residential Lending segment's revenues increased by $536.2 million, but costs rose by $660.2 million due to higher interest expense and credit loss provisions323324 - The Property Segment's other income decreased by $496.4 million in 2023, mainly due to lower unrealized gains from the Woodstar Fund338 - Distributable Earnings, a non-GAAP measure, was $662.6 million ($2.05 per diluted share) for 2023, down from $726.3 million ($2.28 per diluted share) for 2022381382 Secured Borrowings Summary (As of Dec 31, 2023) | Facility Type | Outstanding Balance ($ thousands) | Maximum Facility Size ($ thousands) | | :--- | :--- | :--- | | Repurchase Agreements | $10,652,359 | $17,580,715 | | Other Secured Financing | $6,796,632 | $8,774,471 | | Total | $17,448,991 | $26,355,186 | - Critical accounting estimates include the allowance for credit losses under the CECL model, which increased to $333.1 million at year-end 2023 from $112.5 million at year-end 2022458459461 Quantitative and Qualitative Disclosures About Market Risk The company actively manages credit, interest rate, liquidity, and currency risks through hedging and asset-liability matching - The company is subject to interest rate risk and mitigates it by seeking to match-fund assets and liabilities and using interest rate derivatives479 Interest Rate Sensitivity Analysis (Annual Change in Net Investment Income) | Change in Index Rates | Estimated Impact ($ thousands) | | :--- | :--- | | 1.00% Decrease | $(47,391) | | 0.50% Decrease | $(23,696) | | 0.25% Decrease | $(11,848) | | 0.25% Increase | $12,042 | - The company manages foreign currency risk by matching the currency of its foreign assets to borrowings, with substantially all net asset exposure hedged484488 - The company is exposed to real estate risk from property value fluctuations and credit risk from borrowers' ability to operate underlying properties476489 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, which received an unqualified opinion from its auditor Consolidated Balance Sheet Highlights ($ in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $69,504,196 | $79,043,129 | | Loans held-for-investment, net | $17,574,249 | $18,401,439 | | Total Liabilities | $62,481,214 | $71,844,422 | | Secured financing agreements, net | $13,867,996 | $14,501,532 | | Total STWD Stockholders' Equity | $6,251,089 | $6,462,438 | Consolidated Statement of Operations Highlights ($ in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $2,049,908 | $1,464,716 | | Interest Expense | $1,436,107 | $797,121 | | Credit loss provision, net | $243,728 | $46,657 | | Net income attributable to STWD | $339,213 | $871,475 | | Diluted EPS | $1.07 | $2.74 | Consolidated Statement of Cash Flows Highlights ($ in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $528,597 | $213,741 | | Net cash provided by (used in) investing activities | $855,074 | $(2,950,306) | | Net cash (used in) provided by financing activities | $(1,454,563) | $2,797,879 | - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and internal controls495505 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None862 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023864 - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2023, which was supported by an unqualified audit opinion866868 - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023869 Other Information The company reports no other information and no new director or officer trading arrangements in Q4 2023 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023870 Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable to the company - Not applicable871 Part III Directors, Executive Officers and Corporate Governance Director, officer, and corporate governance details are incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 Annual Meeting of Shareholders7873 - The company has adopted a Code of Business Conduct and Ethics and a Code of Ethics for its Principal Executive Officer and Senior Financial Officers874 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Proxy Statement - All information required for this item is incorporated by reference from the 2024 Proxy Statement7876 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2024 Proxy Statement - All information required for this item is incorporated by reference from the 2024 Proxy Statement7877 Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the 2024 Proxy Statement7878 Principal Accountant Fees and Services Information regarding principal accountant fees is incorporated by reference from the company's 2024 Proxy Statement - All information required for this item is incorporated by reference from the 2024 Proxy Statement7879 Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This item lists all financial statements, schedules, and exhibits filed with the report881 - Key exhibits filed include the Management Agreement, various indentures for senior and convertible notes, and equity compensation plans882883884 Form 10-K Summary The company indicates that there is no Form 10-K summary - None886