Earnings per Share

3 Months Ended

Mar. 31, 2017

17. Earnings per Share

The following table provides a reconciliation of net income and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):


	For the Three Months Ended
	March 31,
	2017		2016
Basic Earnings
Income attributable to STWD common stockholders	$	102,358	$	26,657
Less: Income attributable to participating shares		(899)		(708)
Basic earnings	$	101,459	$	25,949

Diluted Earnings
Basic — Income attributable to STWD common stockholders	$	102,358	$	26,657
Less: Income attributable to participating shares		(899)		(708)
Add: Undistributed earnings to participating shares		—		—
Less: Undistributed earnings reallocated to participating shares		—		—
Diluted earnings	$	101,459	$	25,949

Number of Shares:
Basic — Average shares outstanding		258,997		236,556
Effect of dilutive securities — Convertible Notes		3,220		—
Effect of dilutive securities — Contingently issuable shares		121		121
Effect of dilutive securities — Unvested non-participating shares		103		82
Diluted — Average shares outstanding		262,441		236,759

Earnings Per Share Attributable to STWD Common Stockholders:
Basic	$	0.39	$	0.11
Diluted	$	0.39	$	0.11

As of March 31, 2017 and 2016, participating shares of 1.9 million and 1.5 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.

Additionally, as of March 31, 2017, there were 61.6 million potential shares of common stock contingently issuable upon the conversion of the Convertible Notes. The Company has asserted its intent and ability to settle the principal amount of the Convertible Notes in cash. As a result, this principal amount, representing 58.4 million shares at March 31, 2017, was not included in the computation of diluted EPS. However, as discussed in Note 10, the conversion options associated with the 2018 Notes and 2019 Notes are “in-the-money” as the if-converted values of the 2018 Notes and 2019 Notes exceeded their principal amounts by $27.1 million and $45.6 million, respectively, at March 31, 2017. The dilutive effect to EPS is determined by dividing this “conversion spread value” by the average share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the Convertible Notes, upon an assumed conversion. In calculating the dilutive effect of these shares, the treasury stock method was used and resulted in a dilution of 3.2 million shares for the three months ended March 31, 2017. The conversion options associated with the 2017 Notes and 2023 Notes are “out-of-the-money” because the if-converted values of the 2017 Notes and 2023 Notes were less than their principal amount by $23.7 million and $32.1 million, respectively, at March 31, 2017; therefore, there was no dilutive effect to EPS for the 2017 Notes and 2023 Notes.