Starwood Property Trust Posts $389.7 Million Loss on Credit Charges

Starwood Property Trust (STWD ) reported its third-quarter results on November 6, 2026: a GAAP net loss attributable to the company of $389.7 million (U.S. dollars), or $1.08 per diluted share, as credit and valuation charges outweighed higher revenue. A year earlier, the company earned $72.6 million, or $0.19 per share. The result leaves a sharp divide between the large accounting loss and positive, but reduced, Distributable Earnings.

Revenue increased to $545.9 million from $488.9 million, while total costs and expenses rose to $839.7 million from $489.4 million. The quarter included a $336.6 million credit-loss provision, against $28.4 million a year earlier, $121.6 million of mortgage-loan fair-value losses after a $52.4 million gain in the 2025 quarter, and $32.2 million of non-cash property impairments. Those charges help explain why stronger interest, servicing and rental income did not translate into bottom-line profit.

The Form 10-Q attributed the credit provision to greater repayment-shortfall risk from higher projected interest rates. Because the loan portfolio is predominantly floating-rate, higher rates raise borrowers’ debt-service burdens. They also push capitalization rates higher and property values lower, pressuring borrowers’ ability to refinance or sell. Credit-loss allowances on funded loans reached $704.2 million at September 30, compared with $440.8 million at December 31, 2025.

There was some improvement in the stock of problem loans. Non-credit-deteriorated loans on nonaccrual fell to $660.7 million from $967.7 million at year-end; no additional non-credit-deteriorated commercial loans entered nonaccrual during the quarter, and a $107.9 million commercial loan returned to accrual status. The provision nevertheless reflects expected losses over the life of the loans, not only loans already on nonaccrual.

Non-GAAP Earnings Fall Below the Dividend

Distributable Earnings, a company-defined non-GAAP measure that removes credit-loss provisions, unrealized valuation changes and other specified items while recognizing realized outcomes, was $116.8 million, or $0.31 per diluted share. That was down from $151.5 million, or $0.40, in the second quarter. Credit reserves and property impairment losses enter the measure only when deemed nonrecoverable on a realization event, generally loan repayment or sale of the underlying asset.

A new supplemental measure, Distributable Earnings prior to realized commercial lending gains and losses, was $155.2 million, or $0.41 per share. It excludes realized gains and losses from resolving nonaccrual commercial loans and selling foreclosed property in the Commercial and Residential Lending Segment. For the third quarter, that meant excluding $38.4 million of realized losses on foreclosed-property sales, measured on the company’s Distributable Earnings basis.

Management and the board consider both measures when assessing performance and setting the dividend. Both per-share measures remained below the quarter’s $0.48 dividend, showing that even after setting aside the large unrealized and credit-related charges, the company’s preferred earnings measures did not cover the distribution.

Investment Expands as Legacy Assets Are Resolved

Starwood invested $3.2 billion in the quarter and $8.2 billion in the first nine months. The company said the $2.4 billion deployed in commercial lending was its highest quarterly amount in four years and brought that portfolio to a record $17.8 billion. Notable originations included a $587.9 million first mortgage secured by an industrial storage portfolio, of which $558.5 million was funded, and a €373.2 million ($428.1 million) first mortgage secured by a French last-mile logistics portfolio, of which $266.0 million was funded.

Work continued on legacy assets. A 500-unit Dallas multifamily property acquired through foreclosure sold for $74.0 million at a $10.8 million GAAP loss, while a 256-unit Phoenix property sold for $22.6 million at an $0.8 million loss. Chairman and CEO Barry Sternlicht said the company still expected “to resolve almost half of the underperforming assets we started the year with.”

Starwood also repurchased approximately 6.7 million common shares for $107.8 million, leaving $262.5 million of capacity under its $400 million repurchase program. President Jeffrey DiModica said approximately $2.1 billion of financing transactions were completed earlier in 2026 at rates and spreads below those available when the results were released.

Cash and restricted cash totaled $712.7 million at September 30, and management assessed current liquidity and access to additional liquidity as sufficient to meet financial obligations for at least the next 12 months.

The quarter therefore pairs an expanding lending portfolio and substantial capital returns with rate-driven credit costs and realized losses on older assets. The central issue for subsequent results is whether earnings from the enlarged portfolio and further legacy-asset resolutions can close the gap between Distributable Earnings and the dividend without another credit charge of this scale.