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SP

STARWOOD PROPERTY TRUST, INC. (STWD)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 DE per share held at $0.48 while GAAP EPS was $0.15; revenues declined sequentially and year-over-year, driven by higher credit loss provisions and fair value impacts, partially offset by strong Investing & Servicing and Property contributions .
  • Liquidity remained robust at $1.8B, leverage fell to 2.1x (lowest in 4+ years), and the company executed $2.3B of corporate debt in Q4, extending average maturity to 3.5 years; dividend held at $0.48 for the 62nd straight quarter .
  • Management plans to “go fully on offense” in 2025, targeting the most loan originations since 2021 and has already closed ~$1.5B in Q1; they also aim to cut the nonaccrual/REO drag by half in 2025 and again in 2026 .
  • Catalysts: increased investment pace across lending cylinders, continued growth in special servicing and conduit, and progress on asset resolutions (e.g., DC office-to-multifamily conversion) could support earnings normalization and potential rating trajectory improvement .

What Went Well and What Went Wrong

What Went Well

  • Strong balance sheet and capital access: Executed $2.3B of corporate debt at record low spreads and extended average maturity to 3.5 years; liquidity stood at $1.8B and leverage at 2.1x . “We raised almost $800 million in incremental proceeds…leaving us with significant investable firepower as we enter 2025” .
  • Multi-cylinder platform resilience: Largest named special servicer in the U.S. ($110B) and largest non-bank CMBS conduit contributor in 2024; Property segment booked a $60mm fair value uplift (net of NCI) and NOI grew 9% for the affordable portfolio .
  • Offense in 2025: “We expect to significantly increase our pace of investment in 2025 and have already closed $1.5 billion so far this year” (Barry Sternlicht) . “Our business plan for 2025 is to write the most loans we have in any year since our inception other than 2021” (Jeff DiModica) .

What Went Wrong

  • Credit costs elevated: Q4 credit loss provision was $52.4mm; CECL reserve increased by $36mm to $482mm, reflecting continued office/multifamily stress (foreclosed three multifamily loans) .
  • Revenue and margins down: Revenues fell to $454.4mm (Q4) vs $479.5mm (Q3) and $522.3mm (Q4’23); net margin compressed to ~11.4% from ~15.9% in Q3 and ~13.6% in Q4’23 .
  • Macro headwinds and fair value impacts: Significant unrealized items (e.g., foreign currency loss, derivatives) weighed on GAAP results; management reiterated challenges in office and life sciences exposures (one Boston Seaport life sciences loan downgraded; market oversupplied) .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$522.3 $489.8 $479.5 $454.4
GAAP EPS ($)$0.22 $0.24 $0.23 $0.15
Distributable EPS ($)$0.58 $0.48 $0.48 $0.48
Net Income ($USD Millions, attrib. to STWD)$71.0 $77.9 $76.1 $51.6
Margin MetricQ4 2023Q2 2024Q3 2024Q4 2024
Net Income Margin (%)13.6% (calc: $71.0/$522.3) 15.9% (calc: $77.9/$489.8) 15.9% (calc: $76.1/$479.5) 11.4% (calc: $51.6/$454.4)

Segment DE contributions (company-defined non-GAAP):

Segment DE ($USD Millions)Q2 2024Q3 2024Q4 2024
Commercial & Residential Lending$188.9 $189.9 $192.7
Infrastructure Lending$23.6 $22.8 $21.8
Property$14.0 $13.8 $13.5
Investing & Servicing (REIS)$37.1 $38.1 $48.9
Corporate$(105.9) $(105.7) $(110.2)
Total DE$157.8 $159.0 $166.7

KPIs and operating metrics:

KPIQ2 2024Q3 2024Q4 2024
Liquidity ($B)$1.2 $1.8 $1.8
Adjusted Debt to Undepreciated Equity (x)2.29x 2.14x 2.1x
CECL Reserve ($MM)$380 $445 $482
Named Servicing Portfolio ($B)$98 $107 $110
Conduit Securitizations (# / $MM)3 / $363 4 / $398 5 / $595
Corporate Debt ExecutedRepriced TLB to S+275 Issued $400mm 6% unsecured notes $2.3B executed; avg maturity 3.5 yrs
Undepreciated Book Value per Share ($)N/A$20.22 $19.94

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Corporate debt maturities2025-2026After Q3: repay Dec 2024 and Mar 2025 notes; next maturity July 2026 “After repaying the remaining $250 million next month, we will have no other 2025 maturities and our next corporate debt maturity is not until July 2026” Maintained/clarified timeline
Investment paceFY 2025Increase originations as markets thaw “Write the most loans…other than 2021” and already closed $1.5B in Q1 Raised pace/execution underway
Dividend per share2H 2024 / Q4Board declared $0.48 for each of next two quarters (Q3 & Q4 2024) Paid $0.48 in Q4; 62nd straight quarter Maintained
Leverage targetOngoing2.29x (lowest in 2+ years) 2.1x (cycle low) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Macro, tariffs, inflationFed lag in CPI rent; rate path supportive of CRE normalization Rate cuts/thawing CRE; liquidity returning Tariffs inflationary; macro uncertain; but positioning is strong Cautious macro, improving liquidity
OfficeForeclosed DC office; conversion to multifamily; expect recovery above basis Downgraded Dallas office; Dublin office issues; patient resolutions DC conversion underway; clarity on repo deleveraging; limited margin call exposure Active workout, controlled risk
Multifamily supply/rentsHUD rent rollout; expense tailwinds; sponsors investing equity Rent increases, hurricane impacts manageable; continued rollouts Expect rent increases in 2025; foreclosed 3 loans; selling REOs at basis Favorable long-term fundamentals; near-term clean-up
Energy infrastructure lendingThird CLO; strong returns; LTVs falling Fourth CLO; 65% CLO financing; mid-teens returns Tailwinds from power demand; faster growth planned Expanding
CMBS conduit & special servicingConduit profitability, LNR active servicing +30% 12 securitizations YTD; named servicing $107B 5 securitizations in Q4; largest named servicer $110B Growing
Data center lendingN/AN/AFirst large data center loan; 2 more in pipeline; infra sleeve expansion Emerging growth
GSE multifamilyN/AN/AEvaluating licenses/JVs; high cost of entry; cautious underwriting Evaluating

Management Commentary

  • Strategic posture: “Having a low leverage multi-cylinder platform has allowed us to invest every quarter for 15 years…we expect to significantly increase our pace of investment in 2025 and have already closed $1.5 billion so far this year” (Chairman & CEO) .
  • Capital markets: “We extended the average term on our corporate debt from 2.2 to 3.5 years…at the tightest floating rate spreads in our company’s history” (President) .
  • Resolution plan: “We have a plan to reduce this portfolio [nonaccrual/REO]…by half in 2025 than by half again in 2026” .
  • Platform strengths: “Our special servicer…the largest named servicer in the U.S.…and our conduit…the largest non-bank contributor into CMBS in 2024” (President) .
  • Asset conversion: “We are beginning interior demolition on a $115 million office building…converting it into…multifamily…returning a gain to shareholders upon completion” (President) .

Q&A Highlights

  • Woodstar costs & valuation: Elevated Q4 rental operations costs linked to hurricane maintenance; not run rate. Debt has ~2.5 years remaining; appraisal-driven DCF cap rate implies comfort vs recent trades; rents expected to rise with holdback implementation in 2025 .
  • Valuation premium and M&A: Management believes STWD should trade at a premium vs “peers” due to diversified fee businesses and forward book value growth; inorganic opportunities considered but cautious on office-heavy portfolios .
  • Life sciences exposure: Minimal; one Boston Seaport loan under $100mm; oversupply pressures and AI may reduce lab space needs; pursuing leases near ~$90/sf to exit .
  • GSE multifamily strategy: Explored acquisitions/JVs but wary of underwriting and cost; would prefer credit terms aligned with STWD standards; cost of entry high .
  • DC/VA office outlook: Government lease dynamics uncertain; some assets well-leased; repo/debt largely paid down on those loans, reducing liquidity risk .

Estimates Context

  • Wall Street consensus via S&P Global for Q4 2024 was unavailable due to SPGI rate-limit errors at retrieval time; therefore, we could not compare actuals to consensus in this report. Where estimates are required, we default to S&P Global; in this case, consensus data was unavailable.

Key Takeaways for Investors

  • Balance sheet strength and funding flexibility position STWD to scale originations in 2025 while keeping leverage low, supporting dividend coverage and potential earnings normalization .
  • Near-term earnings headwinds from credit costs and fair value items are being actively managed; plan to halve nonaccrual/REO exposure in 2025 and again in 2026 is a material lever to reduce drag .
  • Structural advantages: Largest named special servicer and high-performing conduit provide fee resilience and positive carry through the cycle; energy infrastructure lending delivers mid-teens levered returns with term, non-MTM financing .
  • Asset conversion and selective dispositions at/above basis (e.g., DC office-to-multifamily, Portland multifamily sale, Napa hotel repayment) demonstrate workout discipline and potential for realized gains over time .
  • Macro narrative: While tariffs/inflation introduce uncertainty, liquidity is returning across CRE markets; tighter spreads and improving refinancing windows support increased investing pace and resolutions .
  • Trading implications (short term): Watch for announcements on originations, CLOs, and resolutions; execution toward the 2025 growth plan and visible progress on nonaccrual reductions could be stock catalysts .
  • Thesis considerations (medium term): Diversified “multi-cylinder” model, ample liquidity, and intentional shift to more unsecured funding underpin potential rating trajectory and long-term ROE consistency across cycles .

Appendix: Additional Q4 Press Releases

  • Capital markets optimization (Dec 2024): Repriced/upsized term loans, new unsecured notes, revolver amendment; created ~$783mm incremental capital and extended corporate debt tenor to 3.5 years .
  • Q4/YE press release: GAAP net income $51.6mm; DE $166.7mm; invested $1.6B in quarter, $5.1B for the year; current liquidity $1.8B; dividend $0.48 per share .

Notes: All figures are company-reported GAAP or company-defined non-GAAP (Distributable Earnings); segment details and reconciliations provided in Exhibits to Form 8-K press releases and call transcripts -.