Starwood Q2 Earnings Top Estimates With Record Infrastructure Lending 

Starwood Property Trust’s second quarter earnings exceeded analyst estimates powered by growth in its infrastructure lending business.

The mortgage real estate investment trust reported second quarter net income of $129.8 million, up 66 percent from $77.9 million in the year-ago period. Its earnings per share of $0.43 beat analyst estimates of $0.40 while quarterly revenue was $444.28 million versus Wall Street projections of $198.73 million.

Starwood achieved record performance in infrastructure lending during the quarter, netting $699 million in new commitments with $642 million funded. 

The record infrastructure lending output for Starwood comes nearly seven years after it established the platform by acquiring General Electric’s business for $2.56 billion. 

Barry Sternlicht, chairman of Starwood Property Trust, said on a second quarter earnings call Thursday  the infrastructure lending business no longer has a heritage loan loan with the portfolio “completely recycled” and is earnings “mid double digits yield “ of equity.

Jeff DiModica, president of Starwood Property Trust, said wider spreads on infrastructure have stayed “about the same” since interest rates spiked in early 2022, compared with  its commercial real estate loan book that saw a more dramatic change. 

“We’re getting close on commercial real estate to back to where we were, but we got whipsawed a bit and at the same time we got much higher coupons for making a loan on commercial real estate assets so our returns ended up about the same over that period,” DiModica said. “The infrastructure business was very different.”

Starwood’s latest earnings results were announced two weeks after acquiring net lease platform Fundamental Income Properties for $2.2 billion in another move that positions it to diversify beyond its CRE lending business, which comprises around half its current portfolio. 

Sternlicht said he hopes the Fundamental platform will enable Starwood to grow earnings “materially” over time with the benefit of a “much more secure income stream.” He added that the let leasing business will also provide a real estate depreciation option that could enable faster growth for the company. 

On the CRE lending front. Starwood originated $4.2 billion through the first two quarters and DiModica projects it will close the year to its previous record $10 billion of originations in 2021 if the Federal Reserve starts to change course from its higher-for-longer interest rate environment.

“We’re on pace even without that great environment  to have close to a record year,” DiModica said. “We have upside from here, not downside, as rates potentially go lower and we move further away from the beginning of that 22 rate hike cycle.”

Andrew Coen can be reached at acoen@commercialobserver.com.