STWD - Earnings call transcript Q3 2017 | Starwood Property Trust, Inc.

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Operator

Good day, everyone, and welcome to the Starwood Property Trust Third Quarter 2017 Earnings Call. Today’s conference is being recorded.

For opening remarks, I will now turn the conference over to Zach Tanenbaum, Director of Investor Relations. Please go ahead, sir.

Zachary Tanenbaum

Thank you, operator. to Trust’s welcome call. and morning Starwood earnings Property Good Securities results released quarter its This and the its company supplement financial its Form Exchange for earnings posted with filed morning, the website. XXXX, its the to Commission XX, ended XX-Q and September at are website on the available documents Investor Relations These of section the company www.starwoodpropertytrust.com.

forward-looking to Before certain are the constitute in this of call These statements not could materially more today. statements for the and results those materially that begins, on during could made to update statements. the course in and would SEC expressed discussion information any detailed cause you cause differ are uncertainties implied made and subject to like based to differ forward-looking undertakes the current this I refer call with actual to in those are made filings I statements of the from remind a that made factors historical based maybe on number a company’s everyone statements that expectations and from The forward-looking actual and course of trends may duty or management’s the beliefs described company statements. call. of risks no that to forward-looking results the any

measures Additionally, this conference discussed financial be certain call. non-GAAP on will

www.sec.gov. non-GAAP accessed a at the these for GAAP can financial of information with the Our filings presentation accordance through measures measures of isolation GAAP. prepared this our with information most is comparable Reconciliations not substitute accordance in or presented intended to to be be SEC as in considered with the in financial

the With President; Sternlicht, going the Rina. the segment. President over Paniry, I’m Officer; Financial company’s the me Behlman, Officer; to Real Investing Operating our Jeff Adam to Sossen, that, on and the Barry company’s the Chief Estate company’s Executive turn the company’s Officer; Rina call Joining today of Servicing call Chief and DiModica, Andrew Chief are now

Rina Paniry

everyone. morning, good and Zach, you, Thank

reported This from we our drag earnings million, these shortly. or per million, of slight results share. per was quarter, to our share I investment, previously we the Ten-X Segment. over This discuss a of of converts. the will $X.XX quarter. $X.XX sale Lending $XX We repay the XXXX October despite cash includes $X.XX results core We excess delivered amount that held from that estimate announced our on morning $XXX just my this begin which I of a the with or portion earning impact in discussion will

million, $X.XX quarter, During this $XXX or core per of share. this earnings segment contributed

lending loans new to which $X commercial originated segment, On funded optimal a million loans million XX% and commitments. We to $XXX billion, and of preexisting side the $XXX XX.X% loan LTV. related of $XXX million IRR of we spot this with to an LIBOR related

an ended book quarter of line XX%. the lending expectations. less billion $X.X commercial with Our for than the totaled Repayments with LTV in at quarter $XXX our million

has to net side On loans an we our $XXX the average portfolio The million. quarter, non-agency this residential of of million X.X%. bringing acquired LTV of and yields to $XXX portfolio our total equity million unlevered current XX% and segment, $XXX this

increase Our our annually. a portfolio earnings commercial core loan rates $X.XX book be rising to of floating rate. positively We basis continues estimate interest with XX% being XXX to correlated point add of LIBOR that would in

debt merged core leased at segment, million The during were we impact has The days in Jeff Bass Pro entity. that to acquired retail detail before XX, carry on This of that Because will properties recorded transaction, property. investment. a $XXX built-in not this holds loss escalations. Because terms total Property held an fund earnings their relates fixed with Cabela’s earnings result XX-year it it GAAP, REIT regional segment. companies. five non-investment GAAP was the you to remarks. of discuss accounting investment new its The acquisition Property blended more leases assets asset results, must down related the the assets segment we versus follow rent Pro to the to I of by quarter, master is fund back state added underlying we net Overall, centers other in Next accounting sale when quarter. bringing where in and little $XXX a a and from of $X.X the concurrently XX% portfolio value XX-year unrealized we of rate properties In this quarter-end, million mark-to-market $X.XX assets a our of a earnings. Bass traditional reduction portfolio closed cost million under part from contributed this triple leaseback as under billion. Barry distribution On September This in mall or to for $XX tenants the by and million, vehicle the discuss were which share. and X.XX%. Cabela’s acquisition levered our model will a last $X.XX interest is recognize core did for core a more our fair historical the recorded $XX that per portfolio, principally typically model a holds the and recently company

earnings of fund’s that The was reflect based liquidation fund that recorded in movements market and is lender the an XX% markdown our the P&L. assumed are our property. the by share as of result, a GAAP on As P&L reflected appraisal

per core $XXX. have mark-to-market the our to square adjustment, occupied properties with NOI markdown to these Despite back the markdown, As was added unrealized continue and positive other foot XX% generate earnings. sales are

However, and newly utilized their debt. CapEx for expected extended the for be on flow amortization to free principal is cash

the earnings to distributions are until related this investment operating not recognizing LTVs will We to resumed. be core

including office of with to is our segment, generating capital this now Investing and which Our very and consistent continue and Segment, of remainder yield represents GAAP X% cash-on-cash $X.XX blended The the $X.XX assets our our primarily in Woodstar XX.X% perform contributed weighted loss turn well, of $XXX Dublin, investment, X% of our medical total quarter of unrealized of share. inclusive I the average quarter core of $XX million million, this commitments from of equity. in which investment funded assets earnings occupancy aggregate or Servicing XX%. and XX% a of is Ten-X. and to due per of returns $XX to increase the The million, will now sale a last our portfolios

we we $XX may you Ten-X. recall, related GAAP last million a As warrants in the quarter, to gain hold recorded

quarter, a This for million the gain of stock portion GAAP recorded common our investment. $XX we

is current gain quarter. the the a by taxes totals income million excludes realized and For The in which core was equity we of acquiring interest reflected $XX of the core entity the XX% that gain, purposes, million. retained entirety offset $XX in

in portfolio our acquire and capitalized on in from that Trust. we also harvest properties opportunities the We gains CMBS CMBS to

the assets. During these we related quarter, recognized to core net of $X gains million

recognized P&L mark-to-market our as GAAP in positive of on to result our a also $XX million CMBS, BBs. adjustment our We related principally a tightening spreads

front, servicing the saw two saw transfers the we the than lower of last in in servicing quarters. each On we

We also decline saw quarter’s fewer resolution, which drove fees. in this servicing

And say $X.X quarter, I servicer on with we words balance continues bringing trusts deals about totaling to few a our billion portfolio to obtained segment, collateral, $XX During will of a before which two XXX our billion. servicing of name new perform assignments this well. conduit, leaving the

loans securitization of million transactions. $XXX securitized we into quarter, This

the fourth our a excluding ratio brief term similar of undepreciated equity and I our X.X We quarter. modest ended times, or off of a of will times XX conclude equity form include about We would comments see undrawn debt and dividend. to were X.X undepreciated leverage with to fourth in of volumes debt the sheet to with few X.X the weighted expect months $X.X in ratio debt debt capacity, recapitalization If quarter sold, a we billion to cash. quarter average A-notes times. be balance

believe larger portfolio As meaningful our going and equity that a this more become our continues property forward. to metrics depreciated of are them on than equity part undepreciated basis we’ll we you on therefore based to present GAAP book,

metric debt-to-equity not called would using approach. new have historical changed Our this

on For to turn of over yesterday’s for XX Jeff comments. a quarter, X.X% $XX.XX. represents With be the record we call declared This of December shareholders share to on I’ll paid January on an yield dividend his annualized which price $X.XX XX. dividend, the closing have that, fourth will

Jeffrey DiModica

on markets continue capital We’ve in company increased this as Rina. ran our the XXXX rates. with We’ve treat significantly our well. always of right-side balance and focus us the lower and much Thanks, to the left, as capacity at borrowing sheet

bond while balance debt five-year able loan secured unsecured We ratio off sheet our we significantly and tightening traded group. The X.XX to below today maintaining and convertible will issue have rotation December been last where at issued unsecured on space investment-grade with spread bonds peer cheaper is in offset leverage companies and X.XX% capital unsecured advantage, others inside in great our with unsecured debt. debt continue trade. to structure our issued line many able a towards that of where we Being

we As XXXX recently off October Rina said, bonds convertible of our paid cash.

expect rate term our us and continue to both competitively unencumber would more a asset very by investments. bid which liabilities equity accretively variety and issuing higher to fixed allow debt our unsecured debt, We out to powerful on and of is cost new

at expect origination elevated first powder year. been in Rina strong XX%, we our And in to another or continue had us history, quarter repayments quarter book payments first lending dry was of our billion through XXXX. since our Our loan it we to as segment of those quarter $X.X is significant this invest. XXXX, quarter. payoff, Lending the the today near-term and $X.X had ample has largest volume up the mentioned, giving loans XXXX highest billion

ability to continue so to We accretively recycle higher and expect are assets or these returns. our in at confident do equal to

to fully my the increase an add years this closed million to and opportunity our largest of quarter. IRR XX%. to is to shaping date recycle up volumes three-plus lending here to advantage with loan that as in optimal origination accretively quarter QX and $XXX We continue capital will staff be did take about and we origination

have spreads lending our undoubtedly lending base discipline we in have While tightened, book. maintained

and one our for our is more of which for our offer believe No and expertise, XX% loan overall. less Our scale, XX months quarter XX%, XX% LTV, versus opportunity book our XX% made $XX loan XX% is lending to an over lending We capital. is in in book ago. than is important LTV X% the mortgages is book we today loan over which outsized the continues our up of office, than Construction million. XX.X% and first construction our portfolio MSA

the extremely writing of less and in we construction in every loans. at make, than discriminating are We X% loans we look loan so more

as room So the lowest years to been it’s the book HVCRE since of by present plan that coming our pullback traditional ample our to Switching residential construction lending opportunity our funded non-agency entire four strategy percentage to by loans is the started a securitize We balance to majority loans we gears today and and year-end. of the This of in these the we of grow quarters. despite as created $XXX portfolio our in opportunities the platform, in be lenders, themselves of loans QX provides XXXX. loan ago. us the expect months million balance over

to experiential today, higher we expect non-agency debt Based retail. the Fortunately, and our We’ve across these about forma pro our of on are on before performance loans preference stack. to the continue talked for earn securitization IRRs spreads done where credit full-term deals than tighten our underwriting. strong getting

years since As fishing the XX help of for performance XXXX expect will sense and across with now credit believe Pro boating also Rina in a continue flow company combined Bass hunting the company. be three industrial XX and that guarantee and of realized Cabela’s to Cabela’s to The protected, be acquisition in cash will Pro’s escalation, with produced shooting. through XX% in of operating has exceptionally and program income We triple synergies makes rent company. Bass combined and bigger diversified segments combined an accounted there the being with merger its and that and more acquired and we strategic durable locations cycles stable Cabela’s great inflation Pro. card in net drive said, substantial it’s leased master Bass retail from a commensurate corporate for September,

we of of We these investment to believe and on where increase a expect to this at able the over accretive properties day earn over purchase properties an we at investment are sell materially earn with return an financed And return will would on to from cash XX-year one lower XX% We cash is basis. XX-year expect a than price accretive during our that debt of time. period. CMBS costs and cash XX% cash that one-off

retail customer would from be they that Bass the on an the own the This definition loyal and it you the spends great across $X segment the program. real now patronage is experiential active loyalty Some credit of Pro of extremely store average surprised never complete have property almost puts three or estate to exhibits, that entered our REIT card and this over is and with purchase, in restaurants enter. time With value learn our Cabela’s billion. the hours

Additionally, If is appraisal for are taking today, further portfolio what Property retail portfolio, X% the an write-down upside type. segment our GAAP portfolio we segment marked income, with Dublin of just providing portfolio portfolio, the to portfolio woodstar duration, and Rina investment much we that unrealized closing medical QX are write-down exactly the return believe property property JV, an of conservatively similar process months. cash less than significant our which our a contribution XX.X% we this process, current of hoped and more cash in multifamily that if or to significant rest performed on – and driven and mark to the office will greater size each when has En significant I extraordinarily we note appreciation. have would those gained began of accretive described, diversification than in multifamily market Property The done in property assets. our depreciation, we each office REIT portfolio, well over our we increase level quarter. has masse, across that that accounts coming

is two this our origination remiss significant our by continues estate stable that a for addition on perform mention Mortgage be competitive keeping grow Capital, Ten-X I our at investment on We kickers we value diversified financial borrowing quarter, liabilities over our With the continue Barry. have also gain that, of basis In business would was we conduit Grail grade. loan to in spectrum are took carried way. equity to our peers possible to group an we on believe that on become time costs, book that in credit ago, someday you to cycles real finance run which weeks unsecured well of zero lower versus our earnings portfolio goal and We We of the the laser-focus leverage statements. and well. to this our for witnessed that a than businesses turn increasingly significantly our investments, well Starwood to and CMBS continuing of CMBS maintaining pretty us not across we to increasing too. noticed I’ll long-term yield years Holy CMBS seek Many a will outperforms and our the starved will business that our have it story, company. our add equity and set tightening to debt, perform lower we’re significant complimentary believe past very months. investments. our incorporate secured on a credit We mentioned few yield good we’ve think the environment. world lending to Barry and spread The have call, continue over

Barry Stuart Sternlicht

Thank Zach. you, Jeff. Rina. you, you, Thank Thank

had I really bullish obviously, a was I think, last fairly quarter. and quarter we solid

loan LTV the just results loan because the So book, two then kind obviously our and of in be history reached I company’s highest can you you if the it struck as was would can its firm the team’s the over credit was yield on last optimism And The book. size equity that’s optimism five XXXX, the REIT, the in the – the in pipeline you facts of reflect XX.X%, doesn’t portfolio, an three going it’s actually are maybe add assets on quarter. see today portfolio And by and X.X. book, and dividend forward. dividend obviously, we XX%, the on was equity it’s fascinating we of really this probably reviewed evolution remarkable, the in the years fallen XX.X%. which the those in sub-X, the see of the

servicing in stock gaps over a – diversified we’ve lines continues they evolve again declines, new and Brown’s think manufacturing kudos to the exceptional had book to a it’s successfully We book business. that the business, I XX year. Larry as value. into these business to quarter especially the So to continues times conduit extraordinary will time their an And the fill team turn order

return in had business said, So to those outperform the also its And we’ll shares. growing we exceed have expectation on businesses XX double-digit very and resi and loss never nicely. that experienced going now were we on And need even our our expectations, it’s equity. nicely,

similar four, equity we We and and of quarter. it’s of exactly to yield would tighten our be funds rates to three, everybody XXs we portfolio would on tightened, grow the nice we spreads business to to tax But and the basis, all do expect on years told able So that the were just preserve kind to And our grow it’s that, ago. as book. they’re our XX.X that, the rates yield target investing. continue five cost LTV an borrowings last originated in doing

housing the multi-family it stable. And ones the call recall, year we is But that And because bought fixed debt, sold you we if incredibly the affordable growth, portfolio. that. think, expect debt. at rapid housing for Just affordable financed to very we’re and assets, I rate there know, look few we the think, select or second United may cash States. double-digit you in largest how real And yields, in cash owner the are largest assets REIT apartment but on XXXX didn’t go like with, I stable with estate the perform time can not over assets Wilson we is we the we portfolio, that the, the market we

and looks really because where the bank. located hundreds they and REIT. the yields. we we I was our thought to for The partners form expect so and have bank own and put a kicked so forever will this face it’s And it by but that we when we their the income, has this basically So Capital think since consistent combined the bigger controversial. market private, of about in it was and hundreds we totally and yes, our are quarters Also this One, care And like for credit so – actually EBITDA own as which investment it full deal. it we we make credit goal EBITDA you a distressed having compelling. stores Cabela’s was Cabela’s or Pro a say card hundreds parent and retail IRR of low say of and in public in was didn’t bank receipts and owned against credit the and to think we because lent stores. and deal dividend know than I retail had receivable. actually that credit Actually millions the investing of time say, the the was mentioned it’s our now into or that Bass – But the is of then long they pay three of they side, it’s their move into actually, dollars really in don’t attractive be was core I entity credit double-digits here support the and they portion a you this of bank the the Jeff their

of dollars of and retailer well their something, label intact. the company X% all with the what doing rely card Cabela’s the bank, bet millions still was ranch synergy, only successful they credit in by we it’s guarantee. super Pro companies OTC the won’t XX% at and Bass against for it will bank and were that transactions even stores or be a of of And thought, That investment is as business the would those credit of so against stay lent – as online place I enterprise the shops on guarantee credit so dark private store. we bid, the we So tell there on actually view. way which they you my this a has card have our the and hundreds in online, this but take not would And migrated long as go have issues Cabela’s successfully business corporate an card an their already happy the

and that can now is company. So those we actually growing the asset the does think so redeem points and they we’re scale that

coming we so – visit, see with cash of pro looking and Jeff Orlando, about portfolio in yield long-term all of we’re debt in long credit care moving portion and concentrated not because provide So about online, it with in that the And weeks. with – and several it higher especially live happened stays in are about store excited be margin mispriced double box of as I business for well was debt. yield and there we was that have no migrating it that’s box, don’t took to are can’t their time. up pretty stores. of out for around long forma need a and mentioned, we’ll mentioned excited then finance and we’ll long others out businesses we really multifamily fixed the that what likely physical One sales you’ll part know a for we’ll do rate Florida other – portfolio a than to cash new market we the reached thing really, everything our multifamily in that digit is announced for will most we opportunity thought so excited in same-store a a right might the and hunting rifles at investment a as again, of about and online diluted we’re hour you advantage add And to Jeff I’m and They with kicking a another – three this that and really so really they is are them deal that. our hunting that portfolio, as also business retail our time, all our we’re

comments other markets it we and cash our start a run cash like payout going an benched the be more book that didn’t to early haven’t the a been convert optimal we lot look a assets book market to that, on October a to tighten keep and mentioned and at the and sitting We’ve sort our the treat markets most hope continue as us we debt really unencumbered [ph]. which situation her top stock with to investment did to equity towards efficient of issue a debt credit. great What’s debt us and forward thing credit delever very we’re on and grade marching of to the is, continues or our for will a because assets unsecured of So year. traded refinancing puts a is we to fascinating Rina and in the year. so We is ton and big in tighten fascinating a where the and it’s about and run of the think it junk-bond, has loan sat to continues be of

the in just X.X%, we’re trading are almost never a why think stock at at investment. given X% it ridiculously seeing down. So, amount dividend compelling rates I’ve And – of the X%, are X% yield and the at understood the down, pointing market now of the lack going yield, diversity X%, was so the If where a didn’t and I trade it’s money yield. dividend and yields mezzanines

there the a which book would are of of out. $X they to diversified book at trading this but a management the of we XX% frontward, figured because are unrealized is at mezzanines we have our equity traded with in have traded X from preposterous, estimate go The X%, think small and X, we the investments gains portfolio. LTV XX%, XX% gains we net and XX% anyway in amount a the the book we of it’s a quarter substantial we it’s in and Tallman sort took we loss the – company is then and LTV embedded So share that and over

loans force about of some aggressively excited in that competitor exist the probably pretty on It’s build times of the up we’re market doesn’t to our team looking nearest what, months. at across and The basically it a and investments two up, be assets? So, much continue ramping continue in coming we’re jazzed we’re size and book being cylinders, is we’re Europe, X% looking up major the to really at today we more and our cooking that sector. trying

Jeffrey DiModica

X%. Yes, basically

Barry Stuart Sternlicht

X%, so I it’s heavy, think X%. that shaking is

can it’s So X. But like so what back to like to that now our yield, with and million that it’s see nice adds right these earning always friend keep banks got the and payoffs, say, a people our lab One you the other find of we competitors investments, a stretch $XX like book XX% and with to stream. and just or we duration to $XXX is if the investments market – thing we’d and XX-year have partners double-digit not is to share rolling it’s which get equity out to grow which billion, see exactly book our X awfully in a that’s we’d over stability book we very work to adding as can continue and to up loan not and there. X, great gain competitive and income market, of are

super take happy with questions. So any and that we’ll

Operator

Instructions]. with KBW. first [Operator our from question Jade take We’ll Rahmani

Jade Rahmani

very Thanks much.

to things in you how the real-estate terms thoughts expect perform to out on horizon, you you commercial In on about and the could find performance wanted share XXXX? the worry if I risks of your

Barry Stuart Sternlicht

it of fast for what that general rates about rates selling to, – I We too everybody the getting in out worry unwind about good the worry I December. starts gets government raise not move the will us, a think hot it’s just just activity. economic so actually but economy and I worries the too good that’s for little of stimulus Yes, hand bonds the when

going we So arising. mean for refinance it rate, because up great. we’re book, most our will payoff if hardly cost since are come of our be in I people our have spreads we’ll earnings, less because debt, can replacement floating is returned and so think good barriers I inflations which But

On certainly the a recently so of they’re on in into that I it’s haven’t the economic committed but backing see the to powering Chinese they there. are fund, markets Investing from sources the mezzanine capital. are country, to Asian guess property off billion seeing they like you’re probably you these debt players debt that and up off put in so backing of as bit, going $X little are this the foreign showed fund the most are saw risks from the are a typically think but activity we’d The capital and so lending, down completely, market, margin sovereigns CIC, to buy that U.S. in to was shut equity it really disciplined

but all the have for closed they while. states a companies and their the in life probably of business So,

seeing before. So of started and buy get maybe of these mezzanines that money to end that of the you’re country spreads and seen into wave we some tail blew haven’t the

look their of So, books discipline, the and held. and fairly federal then and right real-estate now banks government seeing their to government, at the look the those loans lack look at you and the continues at disciplined, are market remain outstanding

government other few the aren’t at not earnings of that, the City, cycle, to and was on investment casino, charted like equity yields the want City, all last Atlantic I deals development for bought get looking piece just I’ll see We investment a right? and don’t banks sheets sheet sine land a winning pathetic. a fairly no be see that, stay was banks land and zero can’t, a compete a see so a their and sorry. bid, deals so the banks on they money fairly to investment name and spread. do again get And that window their and Morgan allude is thing They is business to trading bank a because don’t on the shouldn’t sheet we’d of chartered nothing balance that’s put that Stanley have going seen balance into casino, of anything balance can’t big and their doing bought at to longer operations can they recently we from banks banks few the are borrow – are well. buying with like a bank they horrible we’ve Jersey real-estate We to we borrowing in that’s And that, want that equity back seen say CEO there piece a to

I the to in not of watching say we flood, investment a a accruing affiliated, hasn’t issue, warning that’s complex, any income And they’re up for invest a something and – been stable, of that’s are so that’s that there’s a I patina warning, foreseeable but kind will that the tenants. in that’s turnover is assets trickle, was – So, now be trickle we’re But bought going by it’s Maybe we an own place you’ve north of it the complex mean, sign, would today, and – people like they But future yesterday in that investment sure. Absolutely. more of retail and to to been a equity natural book our are we’re the gains won’t the flood. those a assets, represents be it’s really not that a been sales, think from right the sector net a – earnings our retail not as the assets the Grocers it’s There I estimate, we like of tough that recently, No we’re our the overall and General for perform grateful seen it feel Brookfield. rumor is X% is continue there and right? properties. XXXX%? better? bid-ask a

So that leases signed mean, there it was the But equilibrium they last nobody year think, is, they’ve months. of was last ever I company, I GDP one the is. knows think, it space, than I more where think, signed retail XX I

So wrong there tenant tenant in are tenants. are millennials It’s got you’ve – different not there the the mall. the tenants It’s just and want.

them. Warby and put go and you unfortunately for kids you your when so in and Parker guys and Bonobos other Box And and put these the mall

[ph] Millennium gap brand, like Express buying K the are the serial. Nobody kind yesterday’s and mall. Special post put shopping of those You and painting in it’s is

is AC. traffic. Our turn lights the going and the the made to the In on the not and think. He it old did again mall just owner clean are job experience days, malls drive

got to the hall. would I Now like mall concert a program you

I’d understand pull for the it really people together. couches and under. it’s events And tenants in bring the off to are their got that all doing that You’ve say, industries of experience. pressure the

lending, he’s those management we retail of a Lynch super news opportunity that Bird assets, nothing. made of where award us we stores many pay under cognizant the is company at be he’s and the our department picky optimistic. we’re for own our so But of out. And sometimes go own there a find a risk sort managing this the wondering is right so our few everyone’s and pressure even places. in We’ve going – The in malls in want store. They our department and our run change great cases, we’re not we sure right? to We’re so good stores. space, and management are think Typically, And to Michael assets. fairly don’t we’re

three do I own pay we bucks. store if or Now two the

value higher essentially, hotel those So and building or looking assets. our we’re apartments retail the or for all all at land would office an be JVs as of

Jade Rahmani

On the to conservatism the talked? baked And timeframe any the earnings into JV operating you providing, there would be JV, write-down generating for is start again? what retail the

Barry Stuart Sternlicht

of conservatives, first income. you’re me, ask you If no all, taking

believe on be which disaster will I conservative re-extension and I it nothing for the appraisal for recent Honestly, a debt, we a that’s extension. two-year So fine appraisal, lost is I the company. done investments. those but the me of the know, and think eagle was it’s eyes, for the It is

great is recover. tell like resuscitated, – think in but you a I at I a new – healthy new are the he me. happen, body, it these it’s to a – getting needs that’s I malls patients to think, a a are going happen great that needs And few organs. and assets doctor is the mean, will So who markets. –

got and have evolve to So access. to great they’re There’s parking. going environment. are. a great more knows of they They’ve got Everybody They’ve where well entertainment located. it’s a doing cliche

bumbling up So don’t and completely feeling are to do sector, Amazon municipalities bring stores what a their they have whole Avenue. main in all I be the States. very streets only Michigan the know well, retail people And with But and Avenue empty. be the the Soho United will in that there. Madison retail

and them single you Streets down people think affect Main the if movies closing got don’t Think about did then So about every all, till in about they worry them. company upset Bookstore about take that wait America predatory ability it’s It’s Wal-Mart. This or United wouldn’t Their to Wal-Mart, you all in the below use the not prime legal industries. cost is different. States, prime, deliver across if pricing. and say card, other be basically

a below you old price federal your have front a aluminum in door. So, the you got government you days, cost, federal at – if

it’s some move against XXX I EBITDA. everybody. they to smart enough. right? your business, So in delivered going of aggressive feeling point. tell somebody’s house, have On those you supportive ends, on AUS nobody times EBITDA. it time when cloud here business their their I a subscriptions CBS, at not me trades to kind I’m But on their trades XXX annoyed of mean, There’s companies over, of profits game Though

us, So topic, answered. you but off nothing asked, do I so it with I’m has way to

Jade Rahmani

given you could special the for to CMBS also can side, that the special uptick provide servicing on surveillance And servicing potentially CMBS an the for lows. special X.X touch offset there the – in servicing? retail any side, XXXX of outlook some run-off? the in delinquencies on X.X On Are somewhat

Barry Stuart Sternlicht

in keep XX% of comment. answer, or of one to years to billion, kind roughly five or asset our about for say, I $X our book want made did overall a We I CMBS forgot at my thing decision probably. four

I our today. we’ve BPs deals. And so when been we cherry was surprised I – looked picking haven’t But been at book

it’s today, X.X of our X.X. book it XX% I looks like not think, of that and is

And kind beautifully. already we’re high potentially say no done is XXXX, we’re budgets paper. business our income for that coming better time, going at off. shape good look I our moment were navigated in we those as and that – would that XXXX. we in longer, this were into We’ve So transition of at than

book XXXX So the we special good if servicing with we a we managing so the we – are not and There’s going in feeling vol pretty we’re can much. of – what in numbers. what lot budget know and see and less about to decline we’re not, the revenues pretty the we’re

resi XXX% And so manage replace it and start things, of business which our is it that other other stuff of to and we some and with doing decline aware the business have we we’re why so.

Jeffrey DiModica

we very, small, that’s counting on years early X.X big our going driver X.X. too still but Jade, it’s yet be the is think, revenue next get But be And the X.X not few in I to those at a book, very to hope. losses delinquency

Jade Rahmani

residential And mortgage quarter this you first expect rate a And to was originations. that non-agency a CLO sort the do to of then that you to on or those or CMB.S? the pace, deals in run say you’re of ramp? did It going meaningfully quarter

Jeffrey DiModica

securitization in it securitization we’ve in the lines. non-agency the business, XXX with doing were over portfolio residential terms we off what was so the take residential that the little where first mentioning built of out warehouse to No, million, was a turn I quarter

market, yield our in unsecured – XXX. that on that’s to low asked place a you’ve absolutely secured on and can’t on we CLO side, CLO our And where is trades significantly peers competitors than market. cost a people the which a lot the that seen the in have a our deals of a finance a the don’t inside swap compete you get of are LIBOR about terms in the on capital, In better of high We CRE of basis at. lot our look market of CLO for to – done able or with borrow

go our there. think peers to I see you’ll continue So

more We pushing for be balance a doing that. smaller good ultimately that have may exit some been loans towards and

to at of that’s not capital you see But So us because point. on and could need that early lean some XXXX in secured. XXXX, unsecured in market or CLO we the later our something both

us think I the you’ll course stay assets. see unencumbered in So

Jade Rahmani

questions. the taking for Thanks

Jeffrey DiModica

Thanks, Jade.

Operator

[Operator Instructions] Harter Credit We’ll to Suisse. next go Doug with

Douglas Harter

now? – the – from look might Thanks. debt the we structure like is? talk where Can it the what your year structure? trading else a to you do can about What should What is you capital what where capital

Jeffrey DiModica

to of our just – say, are warehouse items there’s we like? general lines in Listen, let’s Yes. XXX, LIBOR a XXX few and

Douglas Harter

you a a find warehouse say it of on drawn would lot to not blended There’s on capital? XXX, what spread

Barry Stuart Sternlicht

XXX, around about somewhere Yes, XXX XXX – there.

Jeffrey DiModica

a of a side, lines capital the one given lot. we’ve banks Obviously, lines multiple of So cross from regulatory perspective assets, they in ROE. get regulatory phenomenons lines capital from is, on of for this the warehouse from guarantee the business. lines seen are the that portion back They and good the parent, get have that of come like are they warehouse banks. strong some And these perspective, and a a a

today versus to floating at at cross side, pretty we the rate auto getting better said, AA cards significantly with bring assets still So a still that’s great the got for think, and like those recourse. other them That and it for the even business down. we’re and I banks hard, basis expect look levels to line I historically. we’ve than business they warehouse on wide push levels points it’s that over and continue XXX

plus versus XXX for the better are These about at or borrowings structure. BB of significantly where for can XX capital finance the size LIBOR investments bank. think so I I it at plus XXX to the XX CMBS LIBOR

I the continue really but those spreads followed. haven’t A-notes banks think, move lower, to will So

it of our So our the our sheet, this started sell and pushing it’s not to and we is business, them ability and the the banks portion because warehouse doing we’re on side. really majority of A-notes to that opposed portfolio, portfolio, but as which get side A-notes is balance off how on some are there, the still

lines going to use of see think know you’d entirety of unsecured. likely A-note don’t we will But the I more us replace warehouse opposed I as ultimately, market, debt. our that So unsecured to the

warehouse on from we price the rotate into higher us have see lines you’ll warehouse, For unsecured. that likely

the unsecured agencies I will billion to $X plus flat taking the and that. to like think, put off rating secured there’s accretively or from move borrowing, and ability them that

should trading. our we bonds I from short that the given endeavor and think as something you guys how investors, like that’s are well in will do now that to period

Douglas Harter

you. Thank Great.

Operator

go We’ll Levi-Ribner B.Riley Jessica Instructions] [Operator FBR. next with to

Jessica Levi-Ribner

guys. morning, taking Thanks questions. for my Good

Barry Stuart Sternlicht

morning. Good

Jessica Levi-Ribner

touched you you’re talk for you market non-agency what I And of the targets, know, resi competition maybe on in thinking maybe if Could have share business but the you’ve that bit kind doing, seeing about, a long-term? what you’re there? you’re little that

Barry Stuart Sternlicht

experience good for me, it’s of for an I to right going but team, that curve, a bit it’s kind really of say. we’re to – us. And area a have now It’s we’re learning

securitization So want probably we only we say, to net unleverage after we a would equity less, towed – I deploy. $XXX the million the like be becoming in, even and it’s or

the in probably leverage we our loan We’re going those on if not do that. book, you and a have We to to make in peers done estate would our that XX $X.XX go could dollar borrow we going to loans, be on would like that, we’re real like going did that book, some five. loan look we’re but like of

it’s low thinking took a double-digit we very attractive like XX% We’re yield. but lower, be something at or going probably teens rate to that

in So think, XX from maybe XX% of would would float assets to our and And up target the of then there. be That business. I will assets. be it a equity could hopefully, we our $X get billion

be here bigger, of north we’ve something – One of base our of and And is was book the as of because take from assets. that. little the that will recently grown a decided the we okay billion at little XX% our asset CMBS things we at we and up $X a

little they little originated is a up the business in think high So quality. is that pretty going and Jade right out whether the a we’ll are the kick one actually more market. be these And to securitizations, take call, being BPs risk. We mean, to today they’re aggressive the lot BPs bit, take to be Rahmani’s I retail or wrong, of of in the earlier will pointed a

very originated. being you’re bespoke of So low aggressive seeing pricing paper LTVs, pool very and but

were I in and in space. So think the target, in I’m we’ll don’t X.XX,, we overall, own X.XX sizing dancing our lot on on go share investment have and of back But more in the that to of – increase frankly. a we our not Miami business, side, a X.XX, market book It’s the when there the going said was resi we dyslexic.

Jeffrey DiModica

FICO. X.XX

Barry Stuart Sternlicht

These are peeling FICO Scores. are and way. our loans, we good

something. do to going We’re

– entity going to an and origination ourselves. REITs, grow We’re the our these buy to business into going we’re

going and don’t that risk. advantage the of to that we’re And as yield – is and meets take we’re take opportunities or So we even taking to real put any And in much credit going contract, it too under think long going we’re it the we’re our so engine spread as REIT. targets. to ROE

Jeffrey DiModica

we think finance better matters. anybody market and in obviously than And that ourselves financing we

to handful securitizations advantage market back business not it��s competitors space, And We to of an on of own month so think a couple an a optimistic a that today’s ultimately, your coming be couple and million today. massive look equity the market profitably. in goal lot. it’s The in helps grow a but private business absent it’s us hundred a we dollars would originator,

Jessica Levi-Ribner

thanks. just like yields your piggybacking equity wanting XX%, something to in of then you BP Do off up. it comments you terms take seeing that? a you are And Okay, like today? kind of what be of you spine, have And Barry, said percentage would

Barry Stuart Sternlicht

the Something targets. between about XX% and XX%. Adam wonder that I talk

Jessica Levi-Ribner

Okay.

Adam Behlman

Yes, in tightening. top Yes. stack as spreads, are the those of they are

low XX-ish high on XXs on XXs the seeing unencumbered, of on XXs, we and So XX, our are verticals probably – XX the bottom securities. the the shields

upon are collateral originators they basis deal. So a probably having on XXX which in the of depending are about points to XX the

Jessica Levi-Ribner

Okay.

Barry Stuart Sternlicht

has the banks right the of are market that changed lot. sign rules there’s one trouble �� is doing and having They a thing and the are now, deregulated. Trump And things no One risk of tough. been the competing, smaller conduits has are haven’t him retention that it

today but to So been, very dance in has it’s around structured, they’ve more business, been changes able it’s the business our of than adeptly. because a challenging so been environment conduit market the the way the

expect I forward. change would So going that wouldn’t

with these We the own vertical. can can our banks, in So participate they’re do and working we horizontal.

So markets move to vertical deals. those mostly

Jeffrey DiModica

post-loss numbers that yield a as is have expectation better X.X, tighter much and a LTV spread to much you leads XXs historically. also and lower of that collaterals, today – pre-loss And XXs, than ever LTVs Jess, low I have between certainly XX it’s high pre-crisis than would deals which the Adam then into come been and today say are a seen you’ve gives down

You have more investment-grade loans.

as want plus of way that we’re to we expect these kick shaping pool we’re to. So going be a you to deals in also XX% out lose still that much, the

what from with far higher see significantly They aren’t not pre-loss for is in, collateral we investment-grade CMBS been the mid-XXs responding because AAAs bond market is and is it. tightened LTV. as collateral And no trading very – bank-dominated it’s see that post-loss Our reason. to trading that though to as even deals have better collateral lower well this and always investment-grade market that and well. dominated buyers collateral, it’s moved it’s

Jessica Levi-Ribner

stock That’s longstanding on with color. you’ve for kind just, had One the do the trades know, it the basis, question dividend are great. helpful Okay, I be conduit? – that would Is last what you about maybe a the me of the yield really How frustration there’s you guys do? kind lost don’t of property you that? markets seeing think think equity portfolios markets translation? that Do get in how debt

Barry Stuart Sternlicht

that you question? the Can sorry. say What was I’m again?

Jeffrey DiModica

The dichotomy equity equity the and between the markets debt missing? markets are What the markets?

Barry Stuart Sternlicht

our of of in our we’re So players mortgage sector, as liquid or ETF, in largest name we’re most – yield an as a we and now. one kind ETFs, the

number three. We’re

thought don’t a It’s rates it’s nothing were rates to blind rates, whips going the peers with of people’s must with with down adjusted go and we So and just which That sell would be as issue. well that people interest we’re yield. the But converts not up with our do sort We were servicer get that rising and we all the most away in the not over reduced, issue our that had a trade. our off bucket, REITs zero, care. programmatic secret on it’s aware REITs, guess, and down going second expectation resi our we’re them It’s are They And – rising to to trade. if based with have that earnings rates underlying amusing we residential they same get positive crushed. We the lot the assets. our declining that business has just – don’t asset It going people when on ETFs time the one get where us and were a sold divided lot our was between that of not say, just competitor will and slightly and can’t is of our differential about where a account That’s but ROE the the servicer explains is, from base. peer I worried trade level. Even it. be nearest for us and it. the you caps. I maybe to market amusing

it trade that, eight, like trade or and like nine, they So it seven, night. something we

out So paying and they assets we mean, we’re all totally loans we have earnings and have assets. book. off as take assuming get a the don’t different same we but you dividend at the yield We this appreciating equity equity I par. do, have have,

we’re I we books. mean, to ratio other the stretch our value can We talking there yield the value cash the single-family down equity to want if we the are in point, producing I because what with our mean, on as there’s have there day, assets everyday. we rate we do significantly are that ways fairly were recognize the spun we- double-digit doing if rising equity about road purchase is, whole are forward – to out things we to have

pace, every markets scale they We of time, ability this we sort at why conduit were did business year, is team was, may make he same out the the the but of firing of to that it, that nothing. then size operating don’t we never to our So have shut enterprise, comfortable going they income just diversity the and And the really earnings in said don’t me, was to cylinder businesses, are you you’re I streams, the the looking budgets. year at at XX up think, with, the first of said quality right the You quarter our are it almost of that’s right? LTVs. force with it wants produce said And to value company. it. in the – recall, you the debt press do be different of whatever value of I and rest cylinders. multiple do looking the for the earnings and the of our pace we They the had the

markets So, we the perfectly every work love these that. all won’t moment, know but businesses that credit

and yield The fine. this freaking equity mean, for fixed very markets of are see translated kind opposite. a markets hasn’t the the the out. really it’s they going stock that dividend into nothing you odd. on, often markets, The debt when are there’s I Somehow think don’t you – just in see capital

you here. the see So opposite

equity credit the loving and ability the story, enjoying see don’t markets these markets You asset and the base, of loving awfully care. equities, seem office to multis the of diversity the the the buildings

does. So I what needs don’t Zach know, front get to at me. Maybe better he He’s sitting of in

that. say I as smiling I’m So

Jessica Levi-Ribner

okay. [indiscernible]

Barry Stuart Sternlicht

it move consider flow. the bad away us the gives that. servicer. gives to deal it we better The and don’t we to and would I I more company bigger, – is thought we business. the don’t be rapidly. so And has to diversified, continue from love because – don’t no we the have sell is service. to on optionality. It income and and years, stabilize want and But We’d us company, the rise more It go asset rates loans know. There’s nine

didn’t but quite, are that So fine. it hasn’t we happen,

$XX close something in million I So it’s in $XXX to company. go we $XX to proceeds out valued, proceeds, million, investment turned nobody cash going the in and the made, obviously for Ten-X be million to think,

we’re it��s road, – long okay. we’re So a

Jessica Levi-Ribner

thanks for Well, right. All that.

Operator

call back session. turn remarks. we’ll gentlemen, Barry and Sternlicht conclude the question-and-answer Ladies for now closing I’ll our to

Barry Stuart Sternlicht

you the this No is very delighted forward dialing answer and any the to beginning. Thank has great company and from team our we’ve questions. listening our you the surprises, been to in team’s as the to with you you way our everyone, story, with And started and much. partner performance quarter. and thank we’re Well, look another know, for around and desire transparency to

Operator

you today’s conference. concludes Ladies your thank participation. for and This gentlemen,

now disconnect. may You

Starwood Property Trust (STWD) 8 Nov 172017 Q3 Earnings call transcript