Starwood Property Trust (NYSE:STWD) Q4 2025 Earnings call February 25, 2026 10:00 AM ET Speaker5Greetings, welcome to the Starwood Property Trust fourth quarter 2025 earnings call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Zach Tanenbaum, Director of Investor Relations. Thank you. You ma ...

Financial Data and Key Metrics Changes - The company reported distributable earnings (DE) of $1.49 per share and GAAP net income of $0.19 per share, with lower GAAP earnings impacted by $0.04 of depreciation and $0.03 of dilution from new acquisitions [5][6] - Total assets reached a record $29.9 billion at quarter-end, reflecting a strong diversification across business lines [6][12] - The company ended the quarter with $2.2 billion of total liquidity and maintained a stable debt-to-undepreciated equity ratio of 2.5 times [12][13] Business Line Data and Key Metrics Changes - Commercial and residential lending contributed $159 million of DE, with commercial lending originating $1.4 billion of loans [6][10] - The property segment, including the new net lease platform, reported DE of $28 million, with the acquisition of Fundamental Income Properties contributing $10 million of DE for the partial quarter [8][9] - Infrastructure lending saw a record commitment of $791 million, maintaining a steady portfolio balance of $3.1 billion [11][12] Market Data and Key Metrics Changes - The company noted improving stability in credit market performance, with expectations for rates to fall into the low 3% range by late 2026 [14][15] - The U.S. office exposure decreased to 8% of total assets, down from 9% in the previous quarter [17] - The multifamily market is experiencing a bifurcated recovery, with significant variations in rent growth across different cities [49][50] Company Strategy and Development Direction - The company aims to leverage its diversified business model to maintain flexibility and durability in various market conditions [15][20] - The acquisition of Fundamental is seen as a strategic move to enhance long-term growth, despite short-term dilution [24][25] - The focus remains on scaling the new net lease business and enhancing recurring cash flow through long-term leases [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, anticipating a normalization of earnings as new investments are deployed [5][35] - The company expects to navigate through current challenges and emerge with stronger fundamentals by 2026 [28][29] - Management highlighted the importance of maintaining a fortress balance sheet to capitalize on future opportunities [30][31] Other Important Information - The company executed $3.9 billion of capital markets transactions, including term loan repricings and high-yield issuances, which improved the average corporate debt maturity to 3.8 years [13] - The company is investing in technology and artificial intelligence to enhance operational efficiency and decision-making [22] Q&A Session Summary Question: Near-term DE expectations and dividend coverage - Management indicated that earnings are expected to ramp up steadily, with a focus on deploying capital effectively [34][35] Question: Credit migration and reserve building - Management noted that while some loans have been downgraded, they do not expect significant losses and are closely monitoring the situation [36][38] Question: REO and non-accruals resolution timeline - A three-year plan is in place to resolve REO and non-accruals, with expectations for a steady cadence of dispositions [41] Question: Multifamily market outlook - Management expressed cautious optimism for the multifamily sector, anticipating a drop in supply and potential rent increases in 2026 [49][50] Question: Competition and market dynamics - Management acknowledged increased competition in the market but emphasized their strong origination pipeline and ability to maintain trend returns [59][64]

Financial Data and Key Metrics Changes - The company reported distributable earnings (DE) of $156 million or $0.45 per share, while GAAP net income was $112 million or $0.33 per share [5] - The company committed $2.3 billion towards new investments, marking the highest quarter in nearly three years [5] - The overall loan book grew by $859 million, reaching $14.5 billion at quarter end [6][23] - The CECL reserve decreased by $26 million to a balance of $456 million, representing 4.2% of the lending and REO portfolios [10] Business Line Data and Key Metrics Changes - Commercial and residential lending contributed DE of $179 million or $0.51 per share, with $1.4 billion of loans originated [6] - The residential lending portfolio ended the quarter at $2.4 billion, with repayments totaling $55 million [10] - The investing and servicing segment contributed DE of $50 million or $0.14 per share, with an active servicing portfolio of $9.6 billion [12] - Infrastructure lending committed a record $677 million of loans, with a portfolio totaling $2.8 billion at quarter end [13] Market Data and Key Metrics Changes - The company noted that the CMBS single asset single borrower market has pulled back, creating opportunities for well-capitalized lenders [16] - The company has seen a significant increase in debt and equity deals in the market, with 50% more deals compared to the same period last year [16] - The U.S. office exposure declined to just 9% [24] Company Strategy and Development Direction - The company aims to achieve investment grade status and is exploring various investment opportunities, including a potential acquisition of a RESI originator [35][72] - The focus is on three investment themes: data centers, Europe, and multifamily assets [22] - The company plans to maintain a strong dividend, having paid it for 45 consecutive quarters [19] Management's Comments on Operating Environment and Future Outlook - Management anticipates a weakening economy but believes it will lead to lower interest rates, which will benefit the property segment [28][32] - The company is optimistic about transaction volumes re-accelerating despite current market uncertainties [33] - Management expressed confidence in their ability to navigate the current environment, citing a strong balance sheet and liquidity [44] Other Important Information - The company completed a $500 million issuance of senior unsecured sustainability notes, enhancing its liquidity position [14] - The company has significant credit capacity across its business lines, with $9.5 billion of availability [15] Q&A Session Summary Question: Progress on resolving nonperforming loans - Management indicated that there are several apartment deals likely to be sold at their basis this year, with ongoing efforts to resolve other assets [49][50] Question: Opportunities in residential credit - Management acknowledged the potential in residential credit and is exploring various opportunities, including the possibility of acquiring an originator [70][72] Question: Corporate M&A outlook - Management expressed optimism about potential M&A opportunities as some companies may face challenges in the current environment [76][78] Question: Timing of loan closings and interest income - Management expects an increase in interest income in the upcoming quarters due to a strong pipeline of loan closings [82]