STWD - Earnings call transcript Q1 2018 | Starwood Property Trust, Inc.

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Operator

Good day, and welcome to the Starwood Property Trust First Quarter and 2018 Earnings Call. Today’s conference is being recorded. At this time,, I would like to turn the conference over to Zach Tanenbaum, Director of Investor Relations. Please go ahead, sir.

Zach Tanenbaum

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

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

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

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

Rina Paniry

and Zach, morning, you, Thank good everyone.

Our $XXX from share. a million, quarter I results will XXXX totaled the this the of This $X.XX payoff shortly. with morning $X.XX this our the I includes March our segment. business, or Lending impact largest discuss which begin will core earnings of per positive of converts,

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

On or of the consistent we commercial rate side, loans a separate LTV $X.X blended in originated LTV billion transactions. lending XX with floating portfolio acquired our carried XX% of of overall loans The which gross our million billion. preexisting $XXX XX%. and of repayments to had $XXX to million new We quarter projection, related we of this funded with Consistent commitments. $XXX loans $X.X million, related loan

have we of but period. the any in said normalized bumpy, they As in to be given over the the tend timing quarter can full-year past, repayments

past per similar and two this years, a gross billion the year. we expect averaged Over year loan repayments $X have of level

to book floating loan correlated positively rising with be commercial interest rate. Our to rates, continues XX% being

XX% quarter. portfolio earnings FICO. lending acquired to phased loans with the On current average fixed turn $XXX previously of LTV million, our XX of now $XX contributed which $XX an XXX $X.XX XX-property and purchases million, of we rate of to acquisition or our average payable the I closed properties levered earnings non-agency an contributed received XX-year total tax these upon including days we the and late a to to We quarter estate share term. containing We and bringing average residential the The consideration, which $XXX totaled the repayment of announced the core purchases as December of will affordable segment, in quarter. Property Florida, XX to properties to per Woodstar housing which on $XX net On is II. side, million has in portfolio first million, cumulative eight and $XX basis, million equity The achievement portfolio million. $XXX in referred million of an of contingent in abatement. certain weighted the portfolio We a real our debt this additional QX.

utilized and date, X.X of issued connection we units of option units resolution transaction. last upon structure the the down million represent issued the which time contingency. portfolio. first we X for exchangeable we with an stock with X.X acquisition at As into are rate of in an units we in closings connection holder. with executing In the million STWD OP equity to quarter, have million OP a the obligation These mentioned additional quarter, units this subsidiary, the issue this this common To the

we we our As them be core an quarter, regards treats With units equity purposes, as anti-dilutive were GAAP, count, interest. to while non-controlling similar to from GAAP units these for share GAAP discussed treat so excluded determined with you to count. these they last were issuance under share

we added our are which back at on share common arrive However, are share paid With weighted shares stock. purposes. million dividend to EPS indexed to they in units core are $XXX core our the distribution, included X.X QX, income, count our entitled average count In of to the million. for diluted regards to

continued segment back core During a added and weighted the a expense quarter, consistent XX%. distributions wholly with this average occupancy paid earnings. we well, units. arrive on cash-on-cash returns aggregate our These XX.X% in The the amounts then of blended interest owned to included in P&L generating in and at are period $X.X in to XX-month outstanding the of million trailing non-controlling assets yields of perform remainder for GAAP

a the we near-term Dublin last portfolio quarter. this as that expect realize impact increase our in We mentioned cash-on-cash bill in the of significant lease-up to we

also $X of sold quarter. the The turn core cost portfolio. share $XX core and had or from segment, two and which our assets gain contributed $XX master lease asset million, earnings we a retail to a per basis million. quarter, now our will This generated million I Servicing of Investing to $X.XX of

CMBS be in Core on well. represents of mid-teens. yields perform our portfolio X.X to our to now which continues portfolio CMBS continue book, the Our overall XX%

recognized X.X positive P&L in spreads of also adjustment the We $XX tightening on GAAP bonds. to our mark-to-market million related our

our increased were front, $XX $X occurred million, fourth to by revenues of resolutions servicing run On rate third million. billion during quarter on the quarter. driven outcomes up of from expected the better that These than $XX and

to We our run prior expect quarter to in rate return QX.

with billion. We servicer serviced also $XX continued named adding three deals obtaining balance new our billion, totaled to collateral. $X on named quarter, and XXX of of assignments our the the servicing portfolios at $X.X of billion portfolio, end our totaling stood trusts actively a portfolio At

$XXX continue as to this portfolio, finally, reach these stabilization. segment’s we harvest property we loans the Moving securitized quarter assets transaction. And conduit, gains to million of our in on one

million. with the cost $XX During quarter, a of million of we a sold gain core basis assets for $X

of $XX properties, balance bringing the million acquired also this to of $XXX undepreciated portfolio across XX We million investment.

$X.X depreciation. undepreciated and Property total These an a overall we’re metrics. our While $XX.X billion book totaled of property undepreciated impact of billion. per its million, portfolio about REITs the make of representing of XX% segments Collectively, assets share value our on to and accumulated assets to properties basis, or $XXX the wanted comment properties, I on topic $X.XX our our in carry

back value for price GAAP price. continue in less metric we increasingly our million us. book suggest would our Any is gains value relevant conclude At to our GAAP arrive add-back gains will assets, an asset capitalization becoming of $XXX I purchase few realize As $XXX believe purchase on at to with this comments for would and dividend. excess a about book we minimum, million. an these of excess in adding that a

convert, our $XX that $XXX a in X.X January, times and quarter, the utilized of to we A This The our notes last XX high-yield million XXXX $X.XX fixed equity in ratio off-balance-sheet non-controlling to and the notes modest expires from an funds we we cost-effective we interest If equity were all-in with which Woodstar were weighted times. part net expense within form converts, debt $XXX debt. leverage issued their per equity. of in of this include to accreted million a component of been sold, through ratio We we due decline undepreciated X.XXX%, GAAP X.XX% times. X.X%. We in which two more to which able to recognized ratio funds to with of gain interest is debt II, be or million earnings. billion $X.X core resides months, of a at quarter’s debt increase in had coupon share coupon would our over capacity, the which associated of with worthless. at X.X unsecured $XXX a average those of This a March million, term floating. replace repay of undrawn quarter ended to term In of The fixed resulted convertible swapped a senior of cost carried debt

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

Jeffrey DiModica

line we the loan our issued to of in more us spread unsecured for notes strategy today. financial borrowing spread with lower million coupon tightest since a our X.XXX% LIBOR the high-yield issuance we grow Rina a portfolio the to to investment-grade and environment $XXX On name XXX, to where swapped tighter with Thanks, in call, trade. notwithstanding last plus articulated QX our and bond cost crisis our earnings We allow diversify continue to see

achieve funding to loan us offset loan originations still and again has IRR billion more into we diversified platform loan an one spread quarter. $X.X this very close that slipped In in advantage our a assets created XX QX and $XXX tightening optimal across XX.X% Our this in multi-cylinder to than early enabled once model $X to expected deployed we QX. having million quarter the billion despite aggregate, on

our higher volume the a loan expect with QX, coming portfolio. from We origination majority in

we locked size loan asset average QX $XXX in each always we million financing Our at and in as on conservatively over origination was do. just

We create originated have significantly – significant loans not market financings on drag taken could large improve ultimately to IRRs or maturity. our that at cash extremely risk

business sponsors lending note conservative continue to I construction the XX% that to We in with assets Lending of are today. construction But loans think will than attractive. segment plans less our great

we expect our with million $XXX same than as of we As in in three the in the large QX quarters approximately what book and returned equity combined. repayments quarter any next prior Rina loan had more mentioned,

We expected that amount.

the deployment have plan we our to this the in lower off business We the with on at point leverage, execute XX.X% with basis consistent IRR excess quarter rolling that are this loan credit in yield than at with tighter Surprisingly, our in criteria, quarters. above and us this the historical optimal point replacing spreads cycle, is ample IRR origination and expanding leaving our we’re our been increasing our Despite coming loans balance XX liquidity loan on portfolio cash it without of with. averages our patient repaid quarter. sheet, the the optimal

lending been In addition has higher tighter by spreads, driven partially LIBOR. increase to this

spreads additional the in our peer the path loans Lending unencumbered our lending borrowers on with benefit an assets, by segment refinance. balance help to continue Additionally, unencumbering of tighter are and issuing have QX, our the duration debt increasing our less us group. created $XXX likely of providing lower In will coupons million that rate sheet which at unsecured the in of best

decreased lending grow of of X.X our unencumbered debt issue book. billion continue to leaving as our unsecured times, book a to we issuance us our to billion room today $X.X core unsecure $X.X well. of loan borrowing our have continues allowing our of drive ample and debt, liabilities, portfolio years Unsecured its ratio culture assets credit-first a from cost almost and us expect more of grow strong we with We as our our spreads since credit even improve ultimately, performing book and which rating, XX% perform without portfolio inception very to lower. strategy our our credit XXX% low-leverage The will LTV nine ago, straying performance should in

loan later levered least of for FICO, very low to LTV at IRR, our closing required portfolio financing a securitization, potential to quarter, high in Property perform with segment provides long-term turn portion ratios. us the our this anticipate which out lowers well. book. our retain upside, from as our great the Financed fixed extend depreciation we as which a large return of Our loan rate duration, we shield, portfolio with continues our conservatively and to rate achieving extremely and double-digit debt, cash produce this payout continues This portfolio existing equity diversified residential We the a attractive benefit first return. expect

but us we portfolio that to add as we believe we in future, $X harvest will continue share our this to the for earning core for previously book As mentioned, have the view that to that come. we in aggregate, in has years investment available over of are unrealized the per gains bulk hold long-term

the by portfolio. of allow in we the was this assets based in XX%-plus median growth now closed, With markets faster medium increase income strong modeled. multifamily leased strong buoyed will growth bulk are in performance Woodstar continued the we in in originally Florida to portfolio with rents us II all The than levels that –

at our credit rates to in creating improving is segment. In lowering gains, XXX% the our office Real Investing retail XX%. office mentioned than our servicing fees both our very one-third of virtually our purchased, our our tighter quarter. remaining and basis net Pro at we Property and the cash out of mispriced portfolio by portfolio basis Pro and of proving is up quarter small from months investment leased sold plan portfolio three several thesis Bass and approximately Dublin were special Servicing performing points XX% assets and sell XXX wholesale our assets medical coming total mentioned, return Our over our segment, significantly to this to acquisition, are two well. this the of are leased, Rina we cap equity REIT segment Estate Bass We and lease

portfolio has special continue conduit be new Mortgage year-end our loans best three origination I’ll positioned sheet and Mortgage as and X.X lenders. along in borrowers servicer, percentage balance conduit three the our Stanley’s performance servicing, or the Starwood top in CMBS far CMBS of XXX special contributor lowest scorecard, retention By assignments exemplary added This and our only We banks Our origination servicing business post-risk best-in-class winner in of ensures a loans out funding a to originated. XX that conduit Morgan to note will a continues X.XX% be Capital of of slightly. loans relationship Starwood top the CMBS our credit earning. steady special Capital with with business. are the to grew advantage,

in in through billion or We special special value QX, since that to to in assignments one and acquisition nine purchases, add of over the quarter servicing are extremely most happy partnerships $X report to our book, in our we expect added XXXX. any we notional LNR assignments, servicing have

securitization us million on $XX million significant Our dollar nine revenue allowed reputation, scale for to and acquire and giving investing servicing capital, ability our trusts, us loan to leverage own while underwrite every our just and we those per $XX company. significantly of every servicing to invest more future

in $XX buyback. the the Barry. Board that, to management team our partners and and Finally, dipped shares February your in as opportunistically continue of left $XXX in is in ninth back to Board our will and we’ve past, million This are we stock XX stock our year million have top approved and our in call appropriate. when like act With done bought quarter turn the purchase shareholders when we I’ll

Barry Sternlicht

and going Rina, say I me be. calls, you I’m call, I Good to meet was to quarter or think – I’m the these year. we and to how you and quarter do the quarter as loans The about I Thanks, those proves having despite I of listening whenever projections pretty team. well, optimistic going my There’s your that exceed on our optimistic working what fairly Jeff. the is Thanks, and will know, move And I’m last morning, estimates think confident origination and business in to that for our side. some second everyone.

is to permanent than our and in of pretty what’s We have better really ability competitive our sustainable anyone on drive financing like can a positioning. cost cost advantage. our or The view down good to a sector we of going

is grow, goal been time and increase can have if and it’s hoping come can I’m our we have can to continue we our that, grow. And that aggressive. to So a more we credit lenders spreads as do But in gotten tumultuous dividend.

our be of as quarter. history, highest the the completely will next velocity of in had And we the You about the can what anticipated. three Rina said, book first see was the repayments but loan in quarters

actually... we So

Jeffrey DiModica

total. In

Barry Sternlicht

we we’re for it about and …in total it. and knew prepared

So, about all should time it’s I we conservative. and true, talk say, it the every,

We book. stable by to our levering are We’re see on book. be up to. consistent, We think, stable a and can fairly and We pretty conservative choose I and our want earnings we not consistent. increase

than servicer book. We’re lost building the businesses servicer. taking less our gains now is which in that is replace will equity the I but Rina earnings of value of special million, don’t the like, – think from it, current value the half mentioned $XX on

would again, for me our book, a may it shareholders. into It’s about have see a oh, I a made like been –you that undepreciated is it’s I business. negative the that guess, $XX Rina mention, is to our And I value. option slightly. we’re free bunch comment And you declining GAAP also book this So bothering say, eating

our wrong because we my We’re not. analysts our wrong a stock at multiple you some not we’re down because use Woodstart do Then at the peers, book, we And the at earnings, take is. look, one, in buy yield. that which think, don’t just of portfolio multiple considerably as to our our book. I you if tell stock go while we value structure first you of what selling is ever dividend of use of view, of the Rina love in stock if our using actually pointed into the safety I lot And of we’re REIT book investors of to premiums multiple marked. if but looking stock, of And it our even that understating the undepreciated those the the the of will multiple fair to would love equity they’re value, the see our moment, they’re look out, metric. where more book. especially of the had book that, of you I you’re is, did business is the because should a you, will the And and, determine to of issuance that we’re really other assets mean, our like and our my if view the book, book trading you’re really and do more the multiple, you value course, –

transaction. was a So solid good it

a incredibly with these can’t is to pay think LTV. that able businesses always stock been somewhat We Our the I’m company’s replace, has people. performance. XX% But optimistic a I the anywhere attractive steady world which in find very be you will other dividend that of cloud over a to

the and servicing we over that people other focused few pivoting you’ve that maybe get cycle and into us I won’t a engine, special team the and seen As is thinking and businesses. is think have on

trading One little at out. we’re of to were like of recurring if gains a they and properties the comment they securities. buy sell always non-recurring And little do probably We a Ladder, company sell going that. and properties which I’ll mention you securities, gains. like about kind also, and We look buy

gains non-recurring actually And so earnings recurring, are our non-recurring earnings gains.

that, it the a are the enhancement it – be several and sent because something million million I didn’t have in to for or know It’s owned. we an a we do me these think, And can they’ll small for we not information and congratulation have do shareholder it book So a was like selling retail not just and would they article of our even value. the somebody was last be $XX the foolish $X IRR. XX so sold going that, the years, And time data I bought and center, and all center. we I on been forward.

for push use on do So capital knowledge to the look our we’ll elsewhere, continue attractive and and return. shareholder to opportunities to our our rates and data find scale across to globe continue book that, opportunities of

ticker paid on the and going EB-X to long that this results thing, were ago. only left not because loan in We and the financing, recall down. you our had more it I Avenue XXX may wasn’t think, the was paper a in transaction. I brought say in one it’s We construction Xth made announced

on as we a did happen this to were something that and we happen hoping But to IRR is subsequent presume. quarter-end deal the in even be and you’ll So would talked going XX, I about. that see

believe, it. an see estimate of of fair You in to not financials, a can see it’s there, oh that gain the value going your I supplement

You just be surprised.

was looking our book. page of I Board a at anyway, one So at

So I’m things. pretty pleased about

think, we’re team gas. is cooking I The origination with good.

people. and We’re adding businesses and volume

sort of win, our underwrite wrong, trying there. is their we’re it of the I see exiting reaccelerate impression, in fiercely loans happy forward. business, book. We we we’re do also if our its mezzanine of servicer but are and It me We tighter, good. would and some build our these our a ability Some scale the it strategy we’re check, going are and at and actually that write loans these open us. going bigger of the is attractive enough and hard price can out a again, Don’t do. can globally. profitable to growth is I’d which even like competitive charged the actually be to markets we to will expect team – to spreads to we build and get happy book that which competitors expect, to to a remain are senior’s selling our Europe do point to gave and that team written us wrong again, get off And big

cars. right. at there. All it’s execute it’s we believe this marketplace, it good although are tough have everyone. pretty in team moment the Thanks, unless that is about. out – are But business So we a Things excited you isn’t to don’t make because what tough, great me, because electric able

Jeffrey DiModica

was that’s add in property of that not to it’s larger he million, he know, about $XX I that less he book. gains within said overall equity portfolio, one the the meant point when our servicer thinking clarity what our equity about talked to he number. XX% as than of said book going our Barry the servicer, at I’m

Barry Sternlicht

clarification. Yes. questions. We’ll take Thank for the you

Operator

with Suisse. Instructions] first question Harter from we’ll take And [Operator Doug our Credit

Joshua Bolton

Hi, guys, actually for this Josh is Doug. on

go-forward you behind Is yield asset on Jeff, that sustainable the about the drivers First, on basis? higher optimal talked lending book.

Jeffrey DiModica

LIBOR is and listen, do probably LIBOR are that competitors We closer four three better to Well, out debt-to-equity turns figure going do to pretty average If all we’re we ratios. our disclosures, turns easy of have run on it’s leverage leverage, a up. that to of we less basis.

So leverage we’ll the with that. financing. basis same make IRR for point less tranche. improved do loan basis But financing There leverage, of we at thickness tightening, have get higher are a third of same like appear point tranches in you don’t of every ways a a we ultimately different more it that, if our to of we money LTV tightening, and the the we will do have make higher credits, in don’t

We there. continue helped by higher conservatively to a we’re being little extremely run LIBOR. all bit out But

Our who lending have business based the our of as earnings and isn’t on set up businesses in competitors ancillary as are to much don’t LIBOR be business. the in quite some our only growth

I funding So outperformance really so our our of outperformance benefits have versus where we’re more that probably actual say would of is than from LIBOR. loan book them who more loans competitors there on the

Joshua Bolton

on I’m competition, gained non-banks shift? behind hasn’t the that And similar been a guys in sense. loans any drivers terms second have thoughts if have recently we’ve and share. market heard strong bid bank you that dynamic? the seen And if Thanks. makes then of for Great, so, curious, a

Jeffrey DiModica

end the sure Barry than some day, banks the at are significantly I’ll better start financing of ever comments. have But they will and have. out I’m

are cash we haven’t so that CLOs, compete We have properties competed to are that flow chosen historically now banks there able on we’re they much might the on. and properties But more that with doing that financing transitional better people path. were

We’re borrowing cheap. extremely unsecured debt

in, transitional continue dominate they come assets flow that in still low will lines with the They and LIBOR warehouse assets. still Our – on plus banks can will assets. or XXXs high to compete on sponsor cash great and are we the

part plan. not to there, not of we’re business it’s our compete going So

Barry Sternlicht

have. Ever

Jeffrey DiModica

And It’s XX% have than is that we book construction. and continue said or to less Yes, although, it’s our our of opportunity than as something this we construction. only before, did an book. I XX% less XX% quarter

Barry Sternlicht

book of being our of X% [Multiple just base. asset is XX% our overall construction Speakers] something probably like

Jeffrey DiModica

Yes.

Barry Sternlicht

like beautiful to place. tool it’s start, property not – be this management from it’s at $X, because $X.XX the we we’d equity we’re It’s players cash delighted. clearly So $X.XX just course, a us, lenders, a nice for – And, not of get the

fail, They we back, win. win. they us So also pay we

So it’s okay, I of picky very this we mean, it. do cycle, what we’re point about and we the where do at

been And have and think stupidity pockets would just the the say, returns have market, deals often space looking we’ve the suboptimal. they’re I funds don’t for they some from the players by much wondering crazy way. we in sometimes, coming we are again. pass, seen And of hedge into there real emerging stable the estate lending nontraditional yield in world where

green for a those actually absolutely far between are be continued fewer So should There’s the that seeing are that shouldn’t be terminated. EB-X construction you think the financing its X.X% that is program, not the stand using unemployment do bring merit today. employment on we’re class, EB-X financing to supply which I own or reason as and built at does no in presumably to All and be trying card marketplace it doesn’t in rate. induce increase

So I money. idea, have a this but of exactly does no program waste what I exist.

Joshua Bolton

for Great. the comments, Thanks guys.

Operator

Rahmani Jade with from question next our KBW take We’ll

Jade Rahmani

you. Thank

that In to are multiple smaller plethora funds have of Starwood A bifurcation seeing Property firms access between you a financing and debt notes, a need Trust competitive with means terms and sell of the of don’t cost debt such so as funds, of capital.

other as area which you not guys deals are competition is have of great carved a you market? in advantage sort of a the and of So sectors out seeing as competitive in

Jeffrey DiModica

They’re bite compete levered simply I smaller Yes. market of four capital, you. they’re the it have is, if our same leverage where to debt who taking to say achieve doing Jade. and you’re if you would cost things might leverage. times I IRRs. five funds ultimately they’re up to what capital more the run – Thanks, of ultimately doing don’t turns or that And cost what advantage, don’t leverage going the have think

financing Blackstone we with multi… think we and I the have best-in-class banks share

Barry Sternlicht

on we against don’t do, XX% are …there we routinely higher LTVs typically. their than positions borrowing and

talk I a for about second, really let us So, think, that important. because it’s

If portion you did I or think us. right, to borrow equity XX% XX%, have of probably you want all you significant

Jeffrey DiModica

of us. All

Barry Sternlicht

would be XX%. X% drop

you the at there they’re risk. XX% the XX% we no all look but Like that, like going dividend obviously not is if the yield. So without higher borrow trade or you’re things see yet the reward book. they something to and commensurate same, And equity or same diminishing not

think But it’s So I solid our and it properties, mentioned it, is housing. book market just fixed our multis deal debt place space Rina completely equity our XX-year did some increase a salivating rock plus fixed long-term we move, math obviously and the we multi in at office own expect one it our earning, higher. co-figure figured the it XX stupid in debt. could eventually has backward. medical there, years this first the rates as you out, We will float

And increased in X%, rents there’s we consisting up in we’re of windfalls were closed the consistent the long-term since the we at better and what they actual full. inflation living issue market totally like the in would town and X% this multi have the in because affordable. which apartment we And everything just sub space, no figured than under affordability growth approach mentioned of Orlando market rents with remain plus and be stable taken growing and moment. stream let’s revenue say of we’ve but X%, and that’s is So the kind Jeff so cost

for like thinking Board assets, them fortune charity them So excited ourselves to management we’re to a we ever why? the we doesn’t own the sell about They and them, those we duration could really as shareholders. we going mentioned, the bought on and bought and seem with but it we’d are do like and move and of what short loan for Jeff smart

like feel don’t kind increase an up equity don’t it guideline a equity of little maybe that, given by frustrated ourselves. our much the we’re of on of XX% we but that asset the higher, do We So beyond should that’s company book a that. take and we could basis want we’ve we beyond to really base

Jeffrey DiModica

overall you can get a we’re LIBOR can know plus a of We off importantly you think base the smaller build on are do a And The And that value LIBOR Jade XXX happen in, back. the are spreads with more day CLO really for can doing and earn rate to a like can’t get plus today ourselves. are into exactly fool accretive the two. AAAs and may loans we’re CLO that LIBOR referring XXX. book there complex asset. CMBS where assets financing thing good the where problem are underwrite thinking And if the loans pretty we XXX, seeing year I tight over transitional rate it funds that, add up back more to floating add in yourself a tight don’t getting more ourselves. three-year able differentiate other and are your and that larger we you more plus inside you’re But it and pay of you of seniors and you larger spreads we IRR smaller lot market I’ll funds

of and You loans you can and financing you very be by nature getting all borrowing the the year. a is in or were yourself securitize into them XXX that at that IRR X at LIBOR some sequential borrowing an you X. you you’re of fool And quickly running repay they the AAA hits a you first thought repay XX a the when thinking pay plus you time down one in spread XXX, that

think show addition CLO, when them numbers basically you financing giving we who of call of the the you assets, have refinance levels to you’re borrowers out your they will giving in a do don’t we we So really having loans, think loans to the achieve. world And that a the that we phone achieve the that’s they will world ultimately the and the smart. to list, that to don’t

we’re works with. we pretty So but we’ll see happy that over where time out, financing have how it term

Jade Rahmani

think on haven’t you large has Can seen on also quarter I unsecured slipped loan very you interesting issuance debt in the the million. which give do and me No, power deal you before? something to smart color the $XXX part. And sounded any did your I pretty that strategy then been

Jeffrey DiModica

Yes. Sure I’ll start.

April, end very week the can the we’re conservative slipped took in happy we to before we we’re first know it a quarter that a that close first the and… number The very $XXX of – for we’re we – probably we thought just months was large March giving would and it we’re great so with make portfolio it, it’s not that ultimately portfolio, in-house happened, you million across this have but nine that a

Barry Sternlicht

the gave You did you? him number,

Jeffrey DiModica

quarter it we will less. said just last No, which be is

Jade Rahmani

was that? of of what And kind kind portfolio What loan was that?

Jeffrey DiModica

was portfolio. It hotel crossed

Jade Rahmani

the deal? power And Okay.

Barry Sternlicht

about bank. retailer running to power deal the story, seem but So conference, seem because earnings which a of a credit their like came to asked like we think a it XX% XX like power bank just we year I a is was Cabela’s you, I deal And at a since to leases Cabela’s interesting and may got from Y. thought these were me we’ve like

a it and think suggested this flip the market go they’ve to execute Jeff out well. continue I that’s you’ll bought prove quarter what the the we me they And the probably to and strategy second that the executed in second? team see and really to to So second exactly don’t third, we’re building couple going is of to to

Rina Paniry

third. and Second

Barry Sternlicht

third. Second and

Bass need actually savings, Pro care don’t and Pro and And So – and Bass merging on a our that business like We million alive. Cabela’s in $XXX had stores. EBITDA And merger modeled two Cabela’s and they and don’t and book business the actually we’re is in to stay Shop just takes happy We just of increasing people if with together. our ROE very this it. place Shop.

happen And which Considering don’t retail they can so they’re country. dominant I sell well or was player ago a the online. like shift and by I online fine. think think But things they be like across physical in it they as don’t they the on they’re thought we lines I believe things that did work to like the way on straight sell anyway and don’t travel things great credit. will

energy power to the question And power financing in that. fully plant, power looking a So stupid, to was they buying so credit. the I’m all They team I life And there credit the they contract amortizing place were answer a misprice from the involved told that by a it for take gave loan. was the getting was plants. believe. of that in a loan power that’s it’s our contract, was your us similar a from buy story originated actually – these a There was on so me

Jeffrey DiModica

Both credits fully five guarantee seven different rated are to the hook years, amortizing on over there’s make – BBB triple who payment. are who the

loan a So a it’s digit. in seeing couple credit BBB

Barry Sternlicht

business was looking it sector. – think other a I a more do power return, we’ll in that like are REIT long assets to as we as against lend lot …double-digit for and the always so qualified lines other

Jeffrey DiModica

But if group have or it’s something not we didn’t been underwrite. an would able to we have energy seen

Barry Sternlicht

Right.

Jade Rahmani

thanks very Okay much.

Barry Sternlicht

Yes.

Operator

We’ll James. take Stephen Laws next question from our Raymond with

Stephen Laws

Hi, you competition more point opportunities there just of targeted point? competitors most. aren’t regards morning. talk senior think as. of people cost able where guys the required little to some on well Can with compression more about Is mezzanine to a kind than have the you But a that close is point seeing And which capital capital. side. spread good on their we to there return how a To lower public because on public loans, you’re reach competition stops, or versus I are follow-up as there bit players, what

Barry Sternlicht

And at you following there has in kind volume in the of we probably you’ve in LIBOR if rates One, are I true the feel, and same entire we’re aren’t the about short the reflected tell United the think that been the owner couple is States significant is interesting States. the which large United can merge not in down, market. it’s off the cap of property movement interesting floor people that been moment, I things is selling. shocking. it’s apartments

one the sell note weakest sure buy the a And or being rates chop not our loan – so interesting, my off of lines. to A spread one lenders And looks a to of it earn the of kind are properties about so like trying I’m people exactly increase in moment, and spent it’s Hotel stick probably kind compression. senior in very will our asset kind X.X. to by had lender were put not a I in it up think like is heat want and and all of sure anemic of absorbed you are nominal I I’m there’s half had here we fewer But write about to you’ve they the what hotel. seen that and loan dogs whole would find the classes cap or will on obviously retail whole LIBOR in transactions we say it hotel rates over, having with which U.S. economy. most have targeting sticky it’s think the the performance We youth a earn they the telling we then want on business, four so at

went whatever all number went at they came up X, down, X.X at base X. a LIBOR because as were needed happy they rates as up, So spreads the

of spreads CMBS wide and markets the like So it’s times. rallying, been way are where we in and and XXXX, have the been AAA still XXXX, think were XXXX I and mean you’re talking credit amazing as they four

to credits come it’s we’ll in the borrowing forget of have $XX that among or – maybe the all So, but billion we don’t mean because are asset real-estate in, from I people. and either for I continue whether, base we from benefit second banks borrower don’t largest us these the as know, good real-estate, first many

this at And competitive to have, and didn’t secured unsecured spread, of the In doing unsecured and are the of we notice. – XX just actually in wouldn’t transitional about more we asking worried, alright, the hard-pressed credibly didn’t be a is it So go that. LTV are market more we get level, place we we but optimized but we’re assets. the will lower LTVs billion keep would anyone it concerned more we have company. cycle I We aggressive they in and turnover and be access transitional could not should we we ago, $X.X XX, ourselves didn’t same we get is will debt that and the would which dividend waiver loan a X.X less this widening wouldn’t we not did if us return the the we capital could or whether have the cycle yield, be your the the are years that had outrageous. nine both what be not in that, point see sustain we seems writing same it’s at point scale a lower at this because we you repaid, of a to makes to could and the –

significantly by content We to probably which have way it’s keeps lever to the Jeff service, because but easier I now the really we book we as are more is mean the And yields, saying credit strategy we it more, decent than what do, is assets. underwrite achieve these working. but right

Jeffrey DiModica

think own in, bank is lines come making for regulatory is us that whole I at with come us lines plus out warehouse will which on a whole recourse it us fit LIBOR XX% that, The at on ROE where loan If bank, to I is guess where capital above charges I’d significantly of for better write X.XX. significant lending add and a today. in that at to XXX to their portfolio room the banks after cap the LTV our plus at that loan at XX% XXX at lending banks our LTV, well. would to so LTV versus where LIBOR a is historically crossed there hasn’t to then warehouse we I look compare loan write at us in. banks I and the is XXXs might XX low where the average

to and portfolio the think room XX plus I LTV there feel only a balance student with think on that too it things to event, can is the for but recourse call compare plus credit bank cards, XXX, credit which a a I that to fact XXX high assets this XXX, it A plus look a have move make LIBOR my it LIBOR LIBOR asset loans XX it bank is LTV like is LIBOR credit to plus sheets playing to trade and plus make can that quadruple borrower, I warehouse they I XXX. XX is in – still were XX not their auto, from choice crossed asset XXX and would us mind. on So the LIBOR they at the

warehouse So lower for in way. the pretty a lines to us spread to bank significant the and is I cost think tightening to their of significant there room allow that us absorb will

Stephen Laws

portfolio Great, what their the on actually second, – touch to specific that quarter activity what of function it increase loan it the guys Europe. Is I sequentially like and looks just or think international to international X%, your base maybe here pullback from originations to you lately the and any or caused coincidental bit comments on seen you’re of what through competitors X, for Europe? moved a for has something is couple XX% seeing a were a in we’ve mainly there prepaid came in there

Barry Sternlicht

it’s Portugal, Germany there write The in worry money don’t pulled the free, Portugal. more, and think If any that LTV markets, year a Yes, deal. like of in those Center paid, can is out Shopping the question most we Center they X.X%. you about of our paper about so Point again think long big I couple paid European exposure. I guess asset are I XX% and we is at retail our XX places you

us the for construction is haven’t say a Germany like looked really on just find do the your try spots And at. obviously no deal, we to would you we I here. way in so is same maybe there So opportunity Nordics,

looking big for it a We into think just people, have of we they say team opportunities in people a they nine eight hasn’t have or – went have I book, solidified they – over London and

Jeffrey DiModica

quarter, probably decent one the and [Multiple have following quarter Speakers]. we one continue the in sized loans coming to pipeline think we’ll the We in and for

Barry Sternlicht

so. share grow and per ahead and want to go we – they know that,

Stephen Laws

wither versus is Okay pipeline pull repayment a specific back situation, so to there. nothing there or call over just it’s

Barry Sternlicht

Yes, yes.

Stephen Laws

lot of a question. thanks taking okay, my Great,

Operator

Ken question next our Lynch. with America Bank Bruce of take We’ll from Merrill

Ken Bruce

in sure have needs in get stock Thanks order if what have this a rerate attention asking the to to the to do to as go. you needs to try maybe your at in value this in where intrinsic an markets quite relative, as sense from to I stocks frustration for other with basis pay in, for The what interested your we everybody thoughts Not pretty more I’m worth good your long various you transcripts either I a and see any high, just interested because the time. the you’ve And I to want even got or the operators in call, operating your case discount be in markets looked significant occur Barry, to forms morning. just these the don’t of been been it’s you’ve think and market palpable. in on of stock to is thoughts particular valuation a think what to

Barry Sternlicht

never this speechless, almost the case. is I’m

and almost like for not don’t to are know the never and off five they get, things scale to point we I X. funded spinning earned talked the about X.X last structure you X.XX. yield probably if have over REIT diversity, wouldn’t we’ve in sector, years. – are that would dividend of the have you so in book equity I We that X, company a a don’t, the safety, LTVs, the result the really maybe probably example all the And Just equity biggest be X delighted today – think where measures I know trade the would at the at XX XX% many with this thought

and on book asset one at we thing is get So dividend base yield anymore. take that that from look you wouldn’t this

XX, And and you loan REIT I businesses book. you think us the every that’s do, trying the trying build smart are to actually the are be and $X.XX just tolerate to things, lot why in long we’d turn – verticals for know drop at we the tuck had one only our in day, all cylinders freak mortgage trying to deployment and taking on we book of going scale if call looking it’s are market growing out. the that it the we been would that what of as we mean of out. meeting of and true, got basically you our price and the do problems we of there business, equity in change held another our rate of asset take from the a but to and person, book, company think space to $X by is, number, or I questioned mean our Because underappreciated dividend of my will of the sophisticated yesterday, fair that’s can the saying got people where space our the spacing where any good. building it’s she if build example different give they we a to being not there’ll shareholder the service XX%, building retail trade to a Smith We company. no need account. can a risk. build you the I our was know, and these the some XX we confused after Morgan have XX% different consolidate tax really we collar of their are it that whatever we from told like, aren’t unbelievable, yes the our the at. average the about the it’s is, stock shareholder that’s think people don’t the of Barney, put we sheet people that for XX not that and we mean, the and care, just about talk and diversified plus because out our as – multiple mother space capital can one seem DIEs. different we value the you and took in portion whatever But use obviously it she the, that X.X and freak I all value repeatedly we to stock times everyone different that’s of it, mom, most massive our market was we’ve don’t companies that’s I got hard concerns debt, and get And we of we’ve of happy that’s make look but being just XX, XX%, is We to that resi we the XX, leverage loan on other to book have to to mortgage of liquidation is that of I I the actually qualify people institutions Stanley, the and of comes I move XX I’m it act? leverage machine, I be we company be balance never to and

of we after us – So it, happen investor dividends. understand have up our the I because $X.XX known didn’t that got it, They, don’t XX% I in to yields was moms, we none yields tax just were you for of our our wish know alright. an going went did could stock, it, or there more it, knew we employ and knew nobody none to and

– billion at a issue just equity I we grow $X.X billion not equity improve company be were better. our that on think we’d going a just business, I’m pace think we’re we better okay patient, I be it’s ashamed company can’t And so based anywhere company the we’re a we’d equity base, if to so our we��re $XX I mean we’d

like but investment a know dividend equity very we’d real not a competitive, neck, under grade, nine more be to exciting. we’d problem is this are issuing a pay it’s what’s a of bit have definitely We you – is our machine,

So…

Jeffrey DiModica

always can money. we So yield

Barry Sternlicht

equity stocks while of for of and off grow the offering. were the equity wait think I we problem to billing just that a Because had next these issuing all just

we’d maybe, we seconds on our we because cash in this we reserves give liquid, out including liquidity can our and did. not, equity issued meaningless is to to everything our create sell haven’t like issue like and just deal have other apartments borrower borrow, know this loans three you create have of based equity, and to about make time And we three we long agree down to equity, than climate. but to We in enterprise could grow to to so company the a but to it’s REIT we kind reason in assets, you a sure could in the flip

So, reading trades X, pays like our interesting good but it’s have just is we grow I to take mean the first. sector the probably, Ice ROE just companies hasn’t we – the I at in right book, little really than hair but larger Ice would now keep and the much with in got maybe I a dividend the discount proper of sector someone say, found Star, interesting think payout leverage, to that’ll happen all moving less our so no around, and better don’t most they but a pretty it’s Star the banks

Jeffrey DiModica

so for waiting I’m long – time, not been have we [Multiple Speakers] well, a Okay, sure

Barry Sternlicht

way time. go, long to other That that’s a

Jeffrey DiModica

order Could we You to if as if you absolute the or There and a into reduce think that? basis. able via the, not smaller through to active you through are able over taking help time dividend. be retaining can capital you’re learnings won’t a and to high of grow I the tax just there payout I obviously is about earnings down shielding comment yield just a I’m just conversation. The an that it’s in more the dividend get about more dividend maybe me guess kind both, literally talking you terms made this of thought of – that. but shield was us being I on just and an process by sense think help the in a talking sure you around in

Barry Sternlicht

our need into to mean companies got protecting precautionary no is right, every a in right all, another and move they’ve I they ourselves allows so for on part, we’re a dollar shelter the this trouble a in get Yes, way downturn, that downturn. us because when money they these have at

in had because to the to cycle, happened we cash another hold we had might what right, in we could down let’s So And company we if it in some if market. do, a about talk last cycle.

buyback You poorly. are which might and your that pay less trading bond cash probably

about can not can’t cent, we war I think it were are on a it all us should have matter expect know way go a some do doesn’t of need the we nobody access be dollar touched about, our probably it’s to pertain, to somewhere, great surface, you every okay So at we have. out is We effecting every to having able it. all, or not is pay and with there it cash it if dividends, opportunities, recession but to I we thinking

right it’s I day business way now it’s at that’s So the raining rainy the in look it. really your and for not

Ken Bruce

Okay, stocks in that capabilities, opportunities around sense to interesting cheaply are I of – for whether you I be to in talk are some can that all been know has the if of position there up residential of the me is it a there REIT understand are if on valued own beef otherwise? landscape last think amount universe to or even overall consolidation, a the about the your sector how take terms and you the more don’t might a in options is in review mortgage question the significant you advantage across of activity or

Barry Sternlicht

to we’ve course which at we we already private have just do – companies is hurt confuse short It’s going already are durations would may to hard $X it – of since that believe have themselves. – tried barring they had thought some worry which something in course we to they these this, about of book sell I a We I we of and used lending they looked they wouldn’t even un we at and $X, involved and they’d deal going significant trading they XXX% at us, crazy. $X.XX look pay of mentioned that it, $X.XX So mismatch a at looked a and gone book leverage get the everything have them is and liquid longer not Typically is private un company these of before went they are that, – – things which hate. one have us everybody. they

we then So, reverted at they now if to trading we issued where X% to pull sack and our down, would before it them [ph] par were get there. bought back stock we

it’s we wholly yet obviously like we way another do figured related space. it’s it but to we So think haven’t to – it’s interesting, in that us, business a

most but for and seen small mortgage thing out on side, smart one to couple in the other entities. brother a And not away, I we to give say, we’d would born, part On you’ve merger here the to the lending say go call That’s consolidating commercial talk the we and of sell. our move, commercial we’ll a the business, those law our phone REITs, wants certain banks I’d the do to be anybody them. relatively just other don’t buckets love other put a have

and can grow So this I the where book hope we the is we are focused company. and grow

Jeffrey DiModica

management could large team credit importantly What loans us the raise making model these some on really back Are on mostly be we and any finance management and but night but below mortgage floating think sure quickly Barry’s agency the LTV, we drag one credit that the night. could will would keep doesn’t reason, we most run and comments front real-estate we reasons awake and I reason about a that side capital difficult that what and not end that is, book up having and can at we of awake avoid and when market keeps would and The of the and and the think interesting rates enough keep super was that’s at and company We the is why showing the we’re this you agree work peers that and you – me cash strategy. subsequently XX% it do do interest the do. cash on it’s with negative large you if how rates it we redeploy of it? us one get When thought that only can’t, biggest you interest so more company we were hardly.

mortgage allow would market that of have something that we trillion $X making a yield when out of you scale liquid business the market dollar liquid would put is you including in the when the you a world, a said mortgage asset can for asset the would agency be bucket trillion and shareholders cash a as most Barry the way to in in One to don’t need of very a get agency work you curve and is not – like that wanting probably to multiple offset liquid a have small strategy securities which agent you a our very do. think $X in $X a $X it’s market can as that sell are reasons so what to I leverage management cute

Operator

[Operator from take Instructions] B. next Hayes now FBR. Riley Tim question We’ll with our

Tim Hayes

sense the quarter? and question. just of the when material a Can if us the timing you quarter earnings in taking everyone, had on in thanks give of Hey for impact a repayments were collected my that

Rina Paniry

back last XX in last looked despite flat the the at $XXX decline in the you interest The million repayment the if balance. Tim, the repayments quarter actually in quarter, sort in the to was were ended of Hey income of so came quarter. the days

Jeffrey DiModica

we talked entire looking something about this with loan that do executives focuses – have that the Yes, great What’s a we when we as when with the we surprised every refinancing have out the to spent a quarter are own big like you most over and we might to for if we refinance deciding an refinancings we get front will book of of market and we we sure we which one of management, internal in and think when are do would Board we do our asset we a that – length, day in think full the happen. owner senior not is some because and going try when many that be every make this our at the sub it cases, this? were firm people

what every handle bodies, don’t We what going do. to have in important good and to but and do contact of repeat the a we’re very being back. an surprised that’s it’s with borrowers, to we’ve historically what addition actually part spot-on extensive tend quarter having very we get time both often we In borrowers, constant on almost of we and get part in been

Rina Paniry

the data weighted at $XXX Tim you guess by] the showed balance just weighted decline the on point, a look other [falling of [$XXX was even basis sheet I that average average it So book balance if if though helps. one loan million, million] a

Operator

Zucker next with from question Ben our take we’ll And BTIG.

Ben Zucker

it seems bit more Building or there been the thanks about really Good maybe at hole market or to tell platform it about question here consolidation when the like of the focus, had is your specific the lately, need GSE someone? don’t has I morning stepped for that I a how is something in haven’t and space, on origination end. guys in business, find you you to just I so squeezing just now servicing like a with you and touched specific a don’t the only and the having little reason hot hard in because there right think me

Barry Sternlicht

really a on are You – We soar topic.

Jeffrey DiModica

Can I start and up? fill then you can

Barry Sternlicht

Yes.

Jeffrey DiModica

billion around that these cash have but really or model may you high and in, brokers I have to cycle, government you long very up, mind things go and It this to that the hope around. bet yourself of that other guys cost you they may into get agency it’s does the have feel and bring you and a not change their little $XX some risk relationships would don’t lock bit late a cost that business deals turn contracts getting expensive sign with doesn’t the fairly who

might a environment, lower, interest more continue tent smart great doesn’t bit jumping they we will that bit, but right into would a heading out late of make purchase it but else a can’t so very going it’s expensive, bunch doesn’t brokers business to volumes them and seem way, money be in almost it whole rate in also the cycle a could that than be. as business in finance this are got You be probably high cycle forever, are a anything It real-estate little to if slightly in in buying to volumes be be see me do late would continue be the as to to forever you difficult.

Barry Sternlicht

been giving we the have instead are been that are more restructured We we they’ve worried capacity. dead more, agencies though, wrong, and

there scale each about that are companies one or a not were and there they now GSEs obviously issue now. right The $XX $XX with $XX are cheap talking restructuring share is So and is and are that again it, you and about is flaw and business that the so they talking under keep companies deal, of be that taking are too along, could that fatal sort a much of the stupid bought. some repaid are these

We forward it space. a a there too that was A, have predictable not probably the and just turned that. safe there, right are sector, are having things you you on look now D moment tell, we working on in we executed lot our Again makes buyer big – nervous, that, that like time now. It mean now a in right hindsight. bets the would if that’s a and could the we me in bought – We you have – and at and I business out to conservative the be entered and I’ll those working on to but it business big risky of not are looking in thought a give us haven’t overly because was

Zach Tanenbaum

more operator? Any questions

Operator

this time that remarks. time turn closing There are Mr. today’s session. no any additional question-and-answer further this and questions back or concludes Sternlicht, will I at conference you the to at for

Barry Sternlicht

to Thank in you speak thank hot you warm spring to everyone, and the you. we’ll summer, have a

Operator

may That concludes your for now participation, presentation, today’s thank you disconnect. you

Starwood Property Trust (STWD) 4 May 182018 Q1 Earnings call transcript