Starwood Property Trust NYSE: STWD reported first-quarter 2026 distributable earnings of $147 million, or $0.39 per share, as management said results were weighed down by elevated cash balances, non-performing asset resolutions and the ramp-up of its newly acquired net lease platform.
Chief Financial Officer Rina Paniry said distributable earnings would have been $0.47 per share after adjusting for those items. She said the company is continuing to grow its investment base, resolve non-performing assets and optimize the net lease business, adding that its “underlying earnings power continues to build.”
The company deployed $2.5 billion of capital during the quarter, including $1.5 billion in commercial lending, $597 million in infrastructure lending and $128 million in net lease investments. Total undepreciated assets reached a record $31.7 billion at quarter-end. Paniry said Starwood deployed another $1.5 billion after quarter-end, with 70% of that amount in commercial lending.
Commercial Lending Portfolio Grows as Credit Work Continues
Commercial and residential lending contributed $172 million of distributable earnings, or $0.45 per share. In commercial lending, Starwood funded $894 million of $1.5 billion in loan originations and another $278 million of existing loan commitments. After $835 million of repayments, the funded loan portfolio grew to $16.7 billion.
Paniry said the portfolio does not include $1 billion of new originations after quarter-end, which she said brings the loan portfolio to its highest level since inception, nor $2.3 billion of unfunded commitments on existing loans.
The company also continued to work through non-performing assets. During the quarter, Starwood sold a multifamily asset in Conyers, Georgia, that it had foreclosed on in February 2025. Paniry said Starwood repositioned the property during its one-year hold period, reducing delinquency from 16% to 8% and increasing occupancy from 86% to 91%. The sale resulted in a $5 million distributable earnings loss and a small GAAP gain.
Starwood also foreclosed on three 5-rated non-accrual loans: a $248 million mixed-use property in Dallas, a $71 million multifamily property in Phoenix and a $28 million multifamily property in Dallas. Paniry said independent appraisals showed the mixed-use asset, which represented two-thirds of the quarter’s foreclosures, appraised 10% above Starwood’s basis.
The weighted average risk rating on the loan portfolio improved to 2.9 from 3.0. Paniry said Starwood ended the quarter with $676 million of reserves, including $455 million in CECL reserves and $221 million in REO reserves, equal to $1.82 per share of book value.
President Jeff DiModica said Starwood has now resolved more than $300 million of assets that had been a drag on earnings and expects further reductions this year and in 2027. In response to a question from KBW analyst Jason Sabshon, DiModica said the company’s plans contemplate roughly $900 million of resolutions by the end of 2026 and another $500 million in 2027, though he cautioned that timing depends on leases, sales and other asset-level outcomes.
Infrastructure Lending and Servicing Provide Earnings Support
Infrastructure lending contributed $22 million, or $0.06 per share, of distributable earnings. Starwood committed $597 million to new infrastructure loans during the quarter, of which $567 million was funded. After $320 million of repayments, the portfolio increased to a record $3.2 billion.
Paniry said nearly 70% of the quarter’s infrastructure commitments were self-originated, bringing total self-origination volume to $950 million. Starwood also completed its seventh actively managed infrastructure CLO, a $600 million transaction at a spread of SOFR plus 168 basis points. CLOs now represent 75% of infrastructure debt, which Paniry described as durable, non-recourse and non-mark-to-market financing.
The investing and servicing segment contributed $57 million, or $0.15 per share, of distributable earnings. Paniry said special servicer LNR generated $52 million of servicing fees in the quarter, with an active servicing portfolio of $9.9 billion and a named servicing portfolio of $95 billion.
DiModica said the servicing platform continues to serve as a “positive carry credit hedge,” generating higher earnings during periods of stress.
Net Lease Platform Remains Dilutive During Ramp-Up
Starwood’s property segment generated $29 million, or $0.08 per share, of distributable earnings across its major portfolios. In net lease, Paniry said the business remains in its ramp-up phase following its acquisition eight months earlier and was dilutive as expected. She said that if the platform were optimized and at scale, it would have contributed an additional $0.03 of distributable earnings in the quarter.
Net lease acquisitions totaled $128 million in the quarter, with a weighted average lease term of 19.5 years and weighted average rent escalations of 2.5%. The portfolio totaled $2.5 billion at quarter-end, with a weighted average remaining lease term of 17.4 years and no defaults.
Starwood completed two notable financings tied to the net lease business. Paniry said a new $466 million ABS transaction at a weighted average fixed rate of 5.06% replaced $324 million of higher-cost ABS financing that carried a 6.65% weighted average fixed rate. After quarter-end, the company also closed a new five-year, $1 billion warehouse facility with a 40% lower spread and nearly twice the size of the financing assumed at acquisition.
DiModica said the company expects the net lease platform to become accretive in 2027, consistent with its underwriting. Chairman and Chief Executive Officer Barry Sternlicht said the platform has value but added that the current dilution is “not acceptable” if it does not improve, saying Starwood would consider alternatives if needed.
Management Points to Market Volatility, Dividend Coverage Path
DiModica said capital markets have been volatile early in the year, driven largely by geopolitical developments in the Middle East, but described the overall environment as “relatively stable.” He said refinancing volumes are elevated and that the backdrop is constructive for legacy investments and new originations.
Management emphasized Starwood’s diversified structure, with commercial lending representing 52% of the investment base and owned property increasing to 25%. Paniry said, “We are really not a typical mortgage REIT.”
In response to Raymond James analyst Gabe Poggi, who asked about the timeline for reaching the $0.48 level referenced for dividend coverage, Paniry said Starwood is there on a recurring basis today but not on a reported basis. She said Fundamental Income, the net lease platform, is expected to break even around early 2027 and become accretive thereafter, with recurring earnings potentially exceeding the dividend later next year.
DiModica said management has consistently pointed to late 2026 into 2027 for that improvement, citing deployment of cash, further originations and reductions in non-accrual assets. Sternlicht said he was more optimistic, pointing to potential asset resolutions and the possibility of selling assets to redeploy capital at higher returns.
Starwood ended the quarter with $1 billion of liquidity and $9.4 billion of availability across bank financing lines. The company’s debt-to-undepreciated equity ratio was 2.59 times. Paniry also said the board authorized a $400 million share repurchase program on Feb. 26, and Starwood bought 1.1 million shares in March for $20 million at a weighted average price of $17.67.
About Starwood Property Trust NYSE: STWD
Starwood Property Trust NYSE: STWD is a publicly traded real estate investment trust that specializes in originating, acquiring and managing commercial mortgage loans and other real estate-related investments. The company's portfolio spans a variety of asset classes, including senior mortgages, mezzanine debt, preferred equity and direct equity investments in commercial properties. By focusing on both debt and equity capital solutions, Starwood Property Trust seeks to generate attractive risk-adjusted returns for its shareholders through a combination of current income and capital appreciation.
Operating primarily in the United States, Starwood Property Trust deploys capital across a broad range of property types, such as multifamily residential, office, retail, hotel and industrial.
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