STWD - Earnings call transcript Q4 2018 | Starwood Property Trust, Inc.

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Operator

Greetings and welcome to Starwood Property Trust Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host Zach Tanenbaum, Director of Investor Relations. ahead. go Please

Zach Tanenbaum

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

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

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

Rina Paniry, presenting the Chief Chief With Financial and our President; not Officer; today. Unfortunately me with the I'm Operating Andrew. section. DiModica, call going Andrew company's her Sossen, now are on Officer, is to company's will the Barry the will Executive today the Sternlicht, the bronchitis call and Officer. Joining that, over out on turn call Jeff be company's Chief be Andrew Sossen to

Andrew Sossen

and everyone. you, Thank morning, good Zach,

As Zach morning this the kept great quarter an be and joining our will will fourth another for our Feel diverse Property not which, The be multi-cylinder financial Rina demonstrated for mentioned, us platform. better year of Trust, one, providing I results Starwood the quarter. update Rina. off strength therefore

earnings $X.XX. during Residential and times $X.XX higher the for Our bringing core investment despite business, total largest with of begin or share the an cylinders Lending XX% this I Commercial totaled ROE year. share, in morning million XXXX, just earnings per year for cash balances will our over having segment. the the $XXX per fourth to quarter Collectively, our delivered at

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

business. to pre-existing the to On had originated of of and which, billion billion new quarter, we $X.X investments. during loans $XXX XX related $X which the across funded $X.X We of loans commercial related billion million our lending side, our is loan received repayments, non-qualified from commercial year-end on commitments. of billion. residential portfolio We lending loan the this mortgage $XXX record size a non-QM million or bringing segment to at Also $X.X sizable

financing. LTVs with do that As low a FICO and loans qualify reminder, these are scores agency not high for

these a loans leverage quarter a weighted and of have loans X.X% coupon portfolio When an securitized, of average non-QM of XX% LTV of in had our double-digit FICO XXX. the average As yield. end, average at

the we completed During our non-QM second securitization. quarter,

So securities. $XXX million million subordinate of loans and of $XX retaining

Infrastructure held $XXX $XXX our the sale balance after trust the and purchases $XX year-end. of contributed the for at to equity I on of newest purposes, securities will its now first full sale net consolidated and segment, million core At this million related GAAP While during turn earnings million our results. outstanding the for $XXX totaling million which new year-end, $X.XX VIE loans quarter share the transaction qualified for Lending, quarter of under business as we or sheet a $X per we rules, with million. of

in there the Although, was $XXX we completed in acquisition purchased this of majority on from million. a which ultimately two September, delayed closing was loans for GE October

total loans of we quarter, at or XX% $X billion acquired $XXX million contributed to share. which gross three our assets million, repayments Property bringing now the I During of floating are with and these per year-end, earnings core $XX of turn of Segment, the million $XX portfolio commitments rates. will received to $X.XX

During net of we for $XXX portfolio gain sales bringing properties million four core within in sold the master tax portfolio our this a to year-to-date Cabelas quarter, $XX million. our of lease

opportunistically for share we turn with $XX underwritten have for doing portfolio. quarter, XX%, million. we these In current an almost equity for Servicing yield to completed assets sales our We the duration net book, now Segment, that so, management decreased CMBS increasing plan exposure the average by established to this contributed $XX cash earnings million gains in $XX Collectively, the of to our weighted do while our core basis core as by wholly-owned and in of this well of the financed debt per XX%. perform occupancy continued cash blended remaining points remaining million fixed quarter. cash XX%. weighted XXX of of of I or of sold average on we over every portfolio and nine yield containing $X.XX X.X%. XX.X% are will segment In a bonds which Investing The very rate to assets average years with assets have now and

purchased to leaving flat last at $XX billion. million portfolio CMBS, $X relatively quarter of We our also

our recognized slipped was does expected in In bringing transactions, of we conduit, million a fees our million securitization loans and $XXX seven we this front that year servicing, the $X.X transactions. volume quarter. total $X amount QX, This the for On include quarter. the billion million first to but into of in three securitized fee $XX not

quarter, for of quarter-over-quarter REIT the securitization gains these $XX across to last quarter $XXX an investments. with quarter, eight with drove carry property core the $XXX $XXX sold we balance portfolio million $X portfolio, the third or cost asset our net per this million as mentioned into bringing every the In million XX of we the Segment we fourth volume. depreciation. Together undepreciated we from of had $X.XX do assets a accumulated million in which almost Property quarter, million share flip As basis of properties higher

impairment court which quarter for $XX related This located loan leased tenant earlier I our recorded loan impairment increase year, million, the the specific but had The tenant. grocery this is a This facility a distribution mortgage million quarter. reserve appraised loan loss to during bankruptcy by losses to had Before representing the walk subsequently reserve, for established loan's we risk-weighted in through on lease. loan general rejecting our is the the difference in an to wanted and reversed, during allowance conclude, value charge first resulted which an were a the Montgomery below loan Alabama our was loan a to $X that million quarter. reserve which We increase single five last an for bankruptcy filed $X I you previous quarter. balance, which in a the between

I to excess distribution corporate similarly million that on a lease This conclude lease certain same leased in termination a facility a in received the had capitalization and also XXXX. remarks mortgage we addition, by with comments the XXXX. loan debt. over Orlando Florida loans our about ended is first grocery bankruptcy purchase billion purchased were tenant. rejected the and $XX a credit payments In $XX balance. We was loan loan in credit assets The of value and was part billion exceeded discount four by year No unamortized this of originally This that loan the on risk-weighted different quarter. of since our facilities few $X court. last on by our these Both loan driven value providers loan, required from we losses dividend. as with the of appraised pool XX the was will of

$X.X of XX, undrawn capacity undepreciated December net two we had debt a of As times. debt to billion equity of ratio and

XXXX quarter, their settling entered with discussed you they our when notes we redemption As last period. convertible open we began

quarter, remaining and $XX the settle $X million issued million $XX cash amount amount newly principal we notes principal $X.X $X.X year-end, shares. we with and of notes During issued settled million in to million newly in with cash the common million fourth common of shares. Subsequent $XX million

have contingent realized. upon ongoing realization of our million During property the tax of units were decreased issued related to housing not which expenses. abatements, portfolio. issuable certain second of $X.X OP $X.X property abatements million also tax units our majority been quarter These the The we affordable

April be This an of that, quarter first dividend I turn a XX over will his of $XX.XX. for per will on declared yesterday's turn of to Jeff the price represents comments. record annualized to on for I'll $X.XX on to which XX. March the share With dividend our closing yield shareholders share dividend We Finally, call XXXX. X.X% paid

Jeff DiModica

inception. sources, $XX.X year balance our sheet while opportunities record metrics and to of XXXX financing a billion than and large with billion $X core we've Andrew. diversify at set loans up tremendous XXXX originated our lending achieved we from volume was half billion deploying our another of $XX what Thanks, company alone. to XXXX risk capital our since XXXX More versus our loan for return continue which in of came and business, business a XX% our similar model,

increased issued again were Moody's We manage to our upgrade combination of put costs debt, we returns were borrowing where what lower team plus deal-level mortgage January QX to produce out spread able our through financing bonds single warehouse watch to be high-yield in lowered loan on runoff lower lending securitizations were in and lines the large and where markets and our optimize able was XXX through turned unsecured first at expensive LIBOR sales. to capital bank borrower business. a actively to costs more Our by to of convertible borrowing continue capacity on consistent

loss last sold largest in we've Additionally, risk complex earn ultimately reach capital originations. mezzanine and that we deck. to year mezzanine And in senior a most it's on have the consistently and our on our what's noting global off junior financing used large equity-like worth the advantage returns first or position junior

we've on of cushion businesses runoff the quarters A market and since infrastructure Note to debt the opportunities opportunity in and today. our asset volumes in over and alone. acquisition we our lending in focus the Investor Going strong analysts our lending On the investment and back XX, significantly equity website. only non-QM in value-add XXX non-QM sales have turbulence At forward, We going in large in available as cash detail. approximately originations second transaction York the loan we're investors able of slides we welcomed through across pipeline on on like late stress, capital. sales, core The pulled without five lending we loan have to we've infrastructure larger for highest our in and with bar peers securitization months residential a to market new energy lending therefore and Day closed explain times our our basis and to audio new XXXX million we the loans always close date quarter City. many build or business, have new over to New each excited $XXX fell. of investing in newest which But $X expect December detail of second cylinders residential simultaneously on quarter. And spent raising of approximately and QX raised billion been cylinders hours in investments, during our investments Management through a lending are coming our another completed

will expect our are very achieve these We portfolio. purchases yields to accretive which current

a expect million of went These We across in have through our At core billion the expect of to rate returning portfolios, detailed half portfolio. we or potential that contribute of date Andrew made a as energy a to add assets which $X down that that and of approximately rate through earnings expectations cushion we owned returned sales year dividend Day, and loan, term approximately our to we by and in XX.X% well analysis contractual process existing also net $XXX significant we a as of us give assets us now gains acquisition, significantly in step up our replaced cash the since XX Cabela when reinvest of portfolio on of that nearly ups, can with their expectations inclusive capital our cap versus upside. return and portfolio company gains left maturities source fixed potential XX operating approximately evidenced have rents selling today infrastructure trades earnings which portfolio. ultimately mentioned, that Bass financing gains those of per we new that Investor that's with half beyond a return, long $X.X income Pro their at performing September begun within acquired that real be over and estate share par with portfolio incremental will lowest from term the equity over to the our and which create acquisition core sale time. the and cut we assets purchased a versus

market added that housing seen far about tax which rent low excess equity our increases value tax our have and of investments of abatements We in multifamily to has and up talked income in and nearly in gains also Florida, credit consistent overall the in rates significant portfolio underwriting, rolled extremely durable units Segment. rental These in upside are years. additional our Property half apartment future make have

for our billion obtained balance of servicer special Our which XXX with quarter billion which X.X well produce trusts and to credit third-party unpaid totaled market. a -- our deterioration QX below segment in billion. new XXXX. When $XXX of significantly assignments $XX year unpaid the brought in portfolio LNR in balance will we incremental name in named we against to on servicing we REIT to $XX planned fiscal assignments of XXXX, $XX runoff servicer portfolio, increase up named our the revenue provide future XX were service billion which XX an servicer Through our broader and the XXXX, into in trusts of purchased in and despite book, hedge partnerships fell managed and the

continue their from the a brand. basis XXXX, all benefiting year; quarter the last market while Our within XXX and of among non-bank down basis long-term from capital the in history share dramatic of tremendous XX-year second for increased collateral historical CMBS points Starwood loans grow lenders XX XX% the grow XXX to the in relationships and points time standing non-bank in of our mortgage to over first over performance, one-month seen to the in from by XXX We've flattening LIBOR a curve yield treasury rate XX with half XXX.

first is, XX LIBOR spot XXX-plus that, LIBOR is flattening forward point now time the is basis in As years. of interesting that curve below as for the

will by impact forward that we released You morning to model following our our after for this earnings will time, LIBOR supplemental per lower. of CRE the basis XXX is the we to rises of the money by from will environment our and property see the both disclosed, in first point believe are LIBOR that fall With to amount. rate our have diversified our LIBOR only drop as per our put call levels, versus loans, Due share which well. our the turn for note to also earnings Barry. same peers in to all portfolio business estimation in typically today's that, in better curve $X.XX $X.XX we forecast a gains share of we we perform and expect I LIBOR the will lower I exemplary floors in that if versus the we

Barry Sternlicht

keep to year. this and even you I'm year, -- Thanks, the Zach. beginning Thanks, Andrew. view the Thanks, the morning Thank I'll going just my our so listening for about and in. for Well, morning. I'll short pretty of Good everyone. year next talk Jeff. comments it's

probably package the $XXX common of CEOs I that expiration was assumption be headlines for in and second and the billion. the the and is gross seeing in reasons. and will delays stimulus leaders economy. And the between operating next we're the business in battle with two year. political years think or the left as other capital comes probably break of One And we're XXXX, under economy slow it'll right the spending uncertainty assumption

I XXXX anticipate spend moment. may a interest year also stimulus this be June increase. cycle itself fourth people not view will against think may right in the that the manifest And now, in at and rates. election you're you'll informs lapping the it zero we see package, That of of not the quarter see this or

which because to which never me XXX, morning LIBOR, the frankly. the the say you'll reasons this don't think Given forecast is in decrease Don't increase of maybe the likely is shocking one do election in drop in we'd XX-XX. of rates cycle. that the think could see revisions see you and and GDP a anything highlighted I December thought for Jeff they'll Most a see impact even XX-year

comments these are shocked. it, So worth whatever I'm

negative in some obvious across picked the one and not around States the probably all those of created world United us. investment virtually which lower to of our has have world is for everywhere, the has offshore kept that has the And easing up. again which opportunities You weight interesting pace quantitative real rates rates and you the of is

$XXX a million the in and all our million in less we -- in XXXX, was of the had growing investments in we So Europe wine roughly actually, $XXX In even what it countries. almost almost book book. those were Europe originated million loans offshore, of call XXXX, $XXX

Jeff DiModica

Beer drinking.

Barry Sternlicht

sorry. committed we've XXXX, $XXX And already this or Southern Beer year, it's February. to not closed million drinking countries, Europe. around in Yes, just

investments. to and going our us see you're So now LTVs through diversify achieve our infrastructure

dedicated XX We people debt and in team. a have London

business be capital returns might internationally the which which all or, million ownership built, we trust -- our any the capital, probably and in expect release. continue $XXX mortgage -- exciting press goes in our So company today, risk-adjusted to is, earn I'd lending what higher job the the business to positions the highest see by that's we management. call, thoughts what our have the a of which complexity to and And on us is you and with my increase of know which on owned a senior I we comments you well finance we're the in think were over steward direct

our we our own. our treat just as because substantially do own, we investors with So is it capital

the is theory risks to lines down that where have have and my So should the we business never should force exceed capital the sleeve multiple we and rewards.

energy have energy built that in price than business a paid and we've see lending lagged And slightly would the we pipeline liked business weed since the day. new our say, real product what We getting which expect of return started, we commitments of business. whole probably lines the near we've the to now The probably accomplished multiple years was the end I'm non-QM the the encouraged excited with and by I'd the book, have, at close XX the we nearly to and into. the But both so, what lending will really estate close, we which business, and point we what anyway. was higher on exceed we've

and a not real then it's the meaningfully about we're and exciting and new is of a happy to transition really business ROE we're better lower us hope, I'm originations our So But correlated will and vertical the on contribute, excited you'll see earnings basically to under yielding of in year. book. our have that we next than notes that. semi as and And wrote increase we we estate year so far doing pretty sales and the maturities

energy. the have you construction. be property million supply, the of something that. kind that we wasn't rates with It new XX% is slowing also community, growth where look keep the will nirvana because now us, it economy trade, It are analyst you much that know it doesn't low. like in cycle. We'll of good reticent The We of giant or base are X thrown deployed a in of cycle. probably property But it induce understand think equity. is complexity I at less. $XXX to the follow us. those begin to on a I of around for the Slow even equity bear like again because people for tons about don't was who Although, we've

one multifamily drop construction extreme the guess numbers in You've saw those factors in in construction rise half really of already I in cost markets of the the week. you The some driving And start reasons prices. the at is steel high scarce materials, is labor, least construction seen year-over-year, is by probably driven up prices particularly by and also rises. which this in XX%

that community, the Slower loan lenders we and market of can not. their bless don't for incredibly contemplate in real our see property goal economy, and all -- And economy, We billion and consumption their is pricing or to galloping and the mezzanine than or development it's the remain from more, their the them, start include searching and from yields market in should we they to lending they existing doesn't worth of the harder replace God really disciplined excesses rents in the a the keeps -- rise not. now non-bank there be whether justify banks, to in were $X banks offshore particularly the roughly because and that capital So construction. come returns think cycle not have pocket disciplined. if see community, the money rather keeps that as might understand the I have -- sometimes where the been book new estate

the mezzanine of advantage ourselves we taken down not and in actually of -- way DOE took the we've junior in scene pushed recently and layered junior the mezzanine -- and we've So stack. that the a with senior in

been And the our -- from thing predictable. us like of which run the model our sleep achieve at we returns with peers. decided and but has more injure it don't there And model. to going not company disciplined further safe trying diversification, anywhere capital There's gives no to happening like deploy and ROEs us that's allows we've returns up start you higher be and night. our one to safety, to to that could consistent which levering really and some and the we're and do So this at

Andrew mentioned These in loan this. it I portfolio one we thing have will brought loan about that talked losses ago. other two briefly XXXX, two I years The loss -- nine -- or on things

team So team. And that even this actually a wasn't it was different this was...

Jeff DiModica

ago. teams Two

Barry Sternlicht

teams ago. Two

So...

Andrew Sossen

None both impairments were of taken.

Barry Sternlicht

the anyway. taken never impairments we've so Yeah,

those ratio. years in XX later, the got actually we've Pretty a of actually of lot a originated long I'd of the we've thing over then So impressive are years -- take time so I'll earnings billion out think for loans $XX nine of and in belly flop book I large say that a by borrower. that

other is the something thing that's it The super is turnaround XX when you exciting. to see book XX the and really mean servicing or -- dollars. name servicer I from go billion something

mentioned They're That's book. our they're look mention gains including told We our name, We a Ladder, You're excited which something I collapse the of going it. earnings getting on a a right And great take it's doing I always gains bit do, job. of we they we're you mean, to a the what have we Investor like money. trust, and that a and a most advantage you not understand us and likely. recurring/nonrecurring it hopefully is businesses. Things then. which them at split. down like are they're information business. the we at Because its foolish see companies coming they road. be repeatedly free Jeff we're a We They we're doing paying for database but we I and underwrite are lever, lot to don't business easy invest, the that option doing often by thing number of of gains but if have their good if these buy now this for growth -- at have you -- recurring/non-recurring. business. talked portion, about Day, mentioned, of with guys continue from down not not sort gains, us LNR we on all the good not Interestingly And business a in and we look the year-over-year, you're to they this which investments, and other There's making but a teams this our for always trade they small do mean take I'll to to portfolio that. time all they conduit relative job have that's take down It slow their will year. make was sell high ROE time. it's what the a we our and securities and portion a pretty harvest that

led doing of most lending mentioned that units we and XX% are that but large we've see able I'm business so team market conduit share Jeff we're produce been probably think that to and mean development, a other have. really United with the of And the And us high footprint within observe we're market. I with outside dollar. we had pleased to yes I in is States bigger and -- ROE from great nonbank a ROEs by XX%. do originations to and of us group And you they our we trying our then market United the job. States, the Dennis probably team book. balance, by -- what and This can see his product we're book every both done XX% we value. company is the have very this a diversified obviously every convince never can on continue then -- should type, diversified maybe the by company loan geography, And divorce and

$X us we'll back various all give lenders. time the $X.XX back You give $X.XX a from our you

thing yield, in from the is far Someday which are risk you away dividend me too the investors XX is market. one a We surprises yield. is that might shared widely That that exceed assuming. years, the dividend that we ask still have -- fixed the me about

and And to world of a than find We that lines. hopefully we bank like verification or quality exceed lines we'll will and look trust. of business the we'll business we targets. what that's the a our mortgage do more like the Given meet and multiple do ROE other intended

strategy So disciplined involved it's with of from annual been stop. as I execution our of contributes is cycle time is originate thank that, LNR I think XXX-plus based our all speaking board well hopefully want think our team, virtual the world I'm the going over and and and and has people I here the where a very which bonds the I'm service to to -- estate our team help that teams for real Miami supportive the company.

with stop I'm and and going take for questions think -- you thank listening. I So we'll to that, take

Operator

conducting proceed Please be with Thank you. Doug Suisse. session. from comes At with this line question. time, Our of first [Operator your Instructions] Harter we'll question question-and-answer the a Credit

Doug Harter

lending talk of the you you loan about segment, the spreads? and about, on talked for flattening Can given the Thanks. around your LIBOR outlook commercial yields asset curve expectations in competition

Barry Sternlicht

gap And weren't fourth S&P now before? Dow, done Spreads consistent trading lot right trades a and there rallied. and we've and was again the the a I the don't of -- markets in bit settle of finance spreads with as I of quarter. what that is of out you obviously on they've gapped now and backed looking little can't AAA financing assets the are kind pressure on see up. Jeff they're think any market material in Well, saying at one out both reasons out so

Jeff DiModica

spreads to rates back That's rise some out here. widening there upside is right. if And certainly

Barry Sternlicht

for spreads. some mold to molds love good We are

And But against, York are? to more New So the high-end residential City. market. catchment moment. your what I we in selectivity And transaction lend much we've at don't cautious you we need points choppy in you do anything. finance do asset do on super where see more order volumes to mind don't been think want a It's pressure

years market like that's the to end. on pretty condo that high that. not We're three proven - what things anticipating becomes construction saying in finance York. tough So market in New the we've probably And been just a for

-- spread it's it wary So wind up. be markets have to the And going its asset LTV of. we think Doug that like XX will the our that isn't -- and that other is decline. because really will kind really XX it's We against of

looked property want XX% We of I in for interesting. at our value. kind also And Because stress what book think happens a test decline to it's mention you XX% or Jeff and that?

Jeff DiModica

December to doing thought XXth test did We could but while. over contagion. That wasn't which happy was a December like for coming off seem important. the it Sure. it continue stress XXth We that Year's, about New team

we of that that we we we Barry basis of on And widening interesting -- And And and securities. being cash or XXX in in happen we ready Draconian being estate all of on of the Draconian hold. real hold happening routinely for hand that we as XX% all widening realized estate more prices securities. at obviously scenario that anything in a real that scenario we that XX% in cash time do have our values routinely trade opportunities down points day. marks it all than spread decline in for we conservative way a could at That's a hand XXX ready did So than in we where amount a in have portfolio. that looked points said else basis our a and one tremendous for cash and

Barry Sternlicht

We can observe all that day. in one

Jeff DiModica

the never be company happened. Never, would And fine.

credit to lines, was event. sort in bank all and did make something against it that that test to ourselves. stress our the supposed sure we we board -- that. no of enchilada And Diamond the withstand systemic that facilities, so whole But that do maybe we assessment of repos, said Jamie can risk there's So is

Barry Sternlicht

note something as just done the we've I'll And for rating it's agencies well. historically that

the a do from risk So annually. we least perspective for at company

Jeff DiModica

amount there's Yes, of Barry sidelines. I'd on still tremendous powder the add that

do tremendous forward lower rates to follow expect volume that the we we've mean transaction to fairly to in be seen slightly-- volumes see but loan and again curve spreads, think of wider year general, significant that not if choose will have could this I a from

Barry Sternlicht

Actually point. saw pegging rates was rose rates to X% X.X%. return. most or happen nominal a total came is were because lenders likely if widen. spreads drop, we That in good is will What It that's spread those a spreads

So, kind sort they boycott wind the up rates rates the buyers of a so with kind of -- that of return. as of fall. same That's of nominal

also drop gave So, it in is fascinating that on LIBOR. the Jeff you data basis XXX point

have rate end shocking. to mean short did just the again is So, of they time -- a a they And do. which lowered economies ability they we like what last book, course the up kind of Fed are that's the setting lose from floating that's $X.XX. themselves they weakening, I

shareholders. and us good for the and company news for good news that's So, our

Doug Harter

have loan is portfolio? prior just guys Can then mentioned from and of as biomass remaining prior a portfolio by the that at update much other was ones well. the us teams? the I origination you you And time been purchase size this the that team on originated the of believe How team of kind current versus

Barry Sternlicht

the at hand. I'm questions. Interesting have we answer sure not

Jeff DiModica

I I XXX% say, question perfectly. but think I'd answer can have a the I graph,

Barry Sternlicht

Okay.

answer from another horizontal the for answer from likely was [indiscernible]. -- five not we chart size. is And have Rina take dots, But loans left Almost she's can't the There's from Hold like Well, it like is a none none four Like none tell looks he's out. from here. or these We'll back While Rina from come just two XXXX. that -- question. most nothing. that answer. nothing. looking this XXXX, or because and we'll one XXXX. I bubble on one. maybe and are it's looks like of little XXXX,

Jeff DiModica

the year. exact come back you and -- give We'll by

Barry Sternlicht

Looking at like right that that's of Winn-Dixie me two probably loans are the of think four they're are I this it's something our looks loans it. to -- there -- ones It are XXXX from that. impaired. which of X% all Yes,

Jeff DiModica

One.

Barry Sternlicht

one sorry -- is One impaired.

Jeff DiModica

impaired. the And one expect impairment. I expect we don't other do not an

Barry Sternlicht

rebound. from fall will That

So, anyway almost that's the answer, nothing.

Operator

the question with next Our from Please with your KBW. comes Jade line Rahmani proceed of question.

Jade Rahmani

of two quite category on interesting I the was two trends in the loans noticed the XX-K, the quarter. much. one, increased in Number at risk-rate very percentage looking Thanks notably. credit

that's strong last to So, a XX% credit improvement XX% from quarter. about

was if on LTV may anything but that? And originations to can know later don't else. new you if Nothing reflects or move on I a the a that be see alarming then color to wanted transition secondly, there, tick-up, XX.X%. give So,

comment both on So, any give could of facts? those

Jeff DiModica

Sure. Sure digging thanks that specific. I appreciate I it. Jade. And out appreciate you

the the little of in same portfolio longer do we goes our a percentage loans a business on about two. XXXX, how have to reason XXXX, a We from the this do lot XX%. those talked me moving business length to and and been the And going the of to for this percentage X, very well from of -- have well. it as of in the think we've loans for most benefit just and the -- first I loans that have performed loans performed XXXX, we've We legacy one part, to makes XX% XXXX. those sense back to moving

by As bit relatively up there that guaranteed in for allowed was a one with larger us LTC. It's a little go quarter, loan. construction loan counter-party an investment-grade to this fully

XX particular about lease that of. they loan So, S&P out that a XX% we're with Company just to on get cannot

So, little we in LTC feel going would. comfortable than normally very a bit we higher

book well the in that move expect XX that lower We the it XX-something in Hawaii. also LTV perform the was had quarter in of book. in had We The We couple a of to some preferred really of slightly in LTV that LTV biggest higher one that overall book a in had one loans, a the LTV. LTV we is significantly roll-off a drove of equity existing loan London. Hawaii, are investments multifamily terms the

really have were a very couple relative low rolled-off reasons, value LTV. thought the at book assets higher time, for was So, slightly we a quarter same we great LTVs. originated loans obvious of that on safe that within the At

phenomenon. rate net quarter a the So, one is

Barry Sternlicht

a reminder, the largest we're third of the nation. Just as in multies owner

scenario really have can So, well. and that we in try data

with of affordable REIT that -- -- our my you things XXX% units and which And occupied exceeded housing these on probably like -- of would the time. underwriting. we XX,XXX our forever and thing love So, increase when assets they favorite are I've billion the the vastly we bought and in are assets are are the XXX% the $XX rent went said globally

in years. couple restrictions units So, Jeff of some these -- of actually mentioned, and as come a off the

effectively The but the So, duration And cash debt was achieving nothing from there's portfolio. XX%, so. dividend our REIT, The yields shareholder good of that XX% of double-digit if our we we comment locked. yield fixed an this we years. stretch did is on goal And a what that an assets And our in average with there coming is know for any wouldn't book -- nine-plus base. with the were astonishingly with you cash shed don't equity obviously and about book. debt. it's was loan goodness I And equity almost is

Jade Rahmani

In give how can of investment it? terms it's size on the And of across businesses? you any color the the maybe split pipeline,

Jeff DiModica

Sure.

in you in so closed $X do mid billion in quarter-to-date is large on guess the the first have $X of We another quarter. loan XX% billion My lending up top end the business. that, we

a origination book business, think, think, feel fairly transaction other get plan the in residential year. be that I probably for our business, the over business I will we'll segments, year sort cautious. consistently can did mid-$X in little was slower we The finance hit flat bit we the we the in CMBS December. peers, we like of the because billion a have volume. that less the little course about back did and in in second our infrastructure pull stay There We a bit quarter, Across

met with some we runoff purchases. in the sales So, new

Barry Sternlicht

I just loan, energy becomes business. capital available real estate for real we deliver goes get If want to loan. great a loan, infrastructure mean estate it say we're capital a agnostic, we'll the right? get great through we if I that as

We business. learning the amortized for was the our it a first granular, than in securitization of ramping. actually both more exciting which year really our ones, trying the two return big to much I businesses. continue we the opportunity like saying reassess get we're absorbed more is bit do mean did have, deploy businesses resi we curve the will last a -- capital. they over each these So, would -- that that's cost I'm And energy on in future It mean all and not what business, cost little to and our us. an I equity resi of resi -- should in are we book, they're be we we securitization.

we into whatever it XXXX -- or we're So, was. I'm something into -- happy and

cared. it's through never While hopefully better well come driving this we're little ship I've had fixing up budgeted. setting care ourselves great and We year. returns a we really we for And the storm where the I from. XXXX think and XXXX. don't or than And

not the this We We're sole not -- don't business know anything. through business force-feed things of space. them deploy going we XX these do jockey in remain all have lines have our you capital multiple horse. and the in in space. other is bet debt to as to You this And and opportunistic we

do we'll we is continue what do this So, to it. and

Jeff DiModica

note And earlier, Jade, question to would LTV one is that I other loans. on thing use our LTC construction your we

that little Boston Philadelphia done. the the construction haven't on have are been give London, permitting very that loan-to-cost you So, two going ones think in tenanting things multifamily, which LTVs Great one will that told using be that the cost. It's loans these or on in make we credit any on confident to number tend another we and the are -- purely market, in. of doesn't in is them the We lower, for based but and or in Dublin the about higher one a market, two are we're look one to

month didn't blip be bit or in quarter-over-quarter to do higher little -- on the construction side, And the I little in this the going the third is So, interesting. did part of quarter a more that's we LTV. quarter. in think and We fourth split bit construction any a the

Operator

question from question. line Delaney proceed the comes Please JMP of Securities. Steve your with with next Our

Steve Delaney

a new Hey XX good investment. $XXX thanks equity everyone of morning for question. you show taking million and my On deck, Page preferred the

curious of wondering as some represents us color pretty there's much in just or bit around that? that a you a embedded little coupon if option you. give well? could structure Just if if Thank it I'm equity

Jeff DiModica

a Yes. Sure, side. in that said, Barry It's we're an It's the very and full again thank investment primary It's It's leverage. is as coupon-only. area comfortable that recourse. It's NFAs. multifamily It extremely in something low you. multifamily. fixed-rate

Steve Delaney

Got it.

whether you there? the service, a lending of noticed national lending Jeff. limited wondered were of hotel in what this on were of kind you I us give And two was quarter just if the terms where first new really could and little type, there loans property were in that's page then on property activity what XX, insight portfolios thanks type out -- noticed full-service into the of -- Okay, laid I the two

Jeff DiModica

combination. a it's Right

dollar-priced a is more large assets but more that of of up bit a -- bigger. portfolio One little something very portfolio, limited little add the to a more portfolio bit service of a but across it's a fold smaller

So it is...

Steve Delaney

Jeff, two borrowers? different or borrower Same

Jeff DiModica

No, among are two and in very both both very the different well-known they borrowers the both national well-known borrowers. But portfolios largest world.

Steve Delaney

Thanks the comments. Okay. for

Jeff DiModica

you. Thank

Operator

line question next the BTIG. Zucker of comes Our question. with your from Please Ben proceed with

Ben Zucker

quickly. and nice the Good names, morning congrats touch in wanted your taking portfolio. program NonQM for questions thanks real on uptick on and and the to I just service

were growing be large capital, the here really know returns we you've but ton than eat sounds volumes the of business one a case. doesn't purchase also like that's segment. Your nicely the And And this at year-end. spoken think that I about still might better it

next this XXXX? So I'd looking of could get thoughts your beyond love the years little to but your over around for outlook where you a also business XXXX, in maybe take this business couple

Barry Sternlicht

around right? billion conduit like guardrails the well ROEs assets. guide we it's raise business wouldn't some we deployment -- XX%, our business that our package I think originate NonQM, of -- origination in and actually assets. And -- it X/X book capital Their increase, our XX% is to to a cost other improving sell. where CMBS our We as there of And up, of around we're promote like on in it keep put equity the of them around on management $X remake company XX% on We book the working businesses.

they estate real year. think points XXX I XXX, estate our think at returned basis we real actually slightly And we book. book stabilized above below last previously our

really business well. And is this doing so far

said, you our a like lot it'll look conduit don't business think the I -- mortgage. As

and get down to a to they XXX, it securitize I will think they keep dropped also going. we'll want couple XXX --

and as times book XX as that will as last We seven, turned do We've the I as can. often year times. guess we seven many conduit a year

And could job. get look -- have going nice to And if if that bigger it out. It get think gets issue to -- something is it team is at. do we'll something really like might our it it can there I spin bigger. business is is really require it bigger. we're doing So really the a And with it

We pretty was usual meeting as well. held the to is and board That have recall as actually Invitation went then with us spun-off stock Homes. my from outside for our child you current yesterday big doing merged Home's lower Invitation and businesses of might another see penalized yield our or base much spin-off And capital beast. dividend a could future at you too trade are get that of that they

going upside I optionality company -- two... of mean the we're a mean will spin overall the and or to our it's a I I'm increases do and that shareholders. it I include So we shareholder might said, what like be value for think I the all

Jeff DiModica

increasing... With a very similar franchise obviously helping

Barry Sternlicht

business. business a similar Jeff and right In Yes, for this huge price out. this There's pointed very a for now. sale something they're getting business

So the reason, mentioned that's I spin-off. the

So -- on smaller I've a asset corrected XX%. had When we was CMBS base been it's the something.

X% billion. of $XX in $XX our it's Now XX% I looking equity. assets, billion billion in on the our was $X -- and of

it's So back. correction take correction. Jeff that the XX%, love it's Mid-course I for not XX%, Thanks it.

Ben Zucker

wait? now In what more that does better very and kind kind gains I both? is a would hear Are spoke the for that of your opportunistic seeing your you Starwood of end Or you of hold kind just just market And think kind about you Does sell? make view path towards year. as uncertainties? the to you make more property portfolio be coming with you over follow-up, motivated like to cushions look nice And your with a as may of expectation more it what playbook? some as of prepared this you uncertainty remarks just as

Barry Sternlicht

mean in the of gains these taking I Jeff board Well some book. with and I estate debate real

of earning I have growing looking earnings are -- value issue says these the assets out hitting As duration the love us. not we million is gains mean at gain you cash we $XXX and is duration. Jeff I for of don't flows them. and the is So My right? put it XX% this we're and anything,

-- always great it's because And businesses not You whole and a as not well, going we -- I But if we're fall I And be worth will the less I they'll don't there's property they example will asset think that I'm for give book. not since again certain the the example. the -- example Like are probably more. the that just biggest will the mean the interesting lower gains outlook slow -- for that probably to approve better to an loan industry. forget probably is And fully seem And about leased us valuable, the make mean, do avoiding maybe and Then we're -- and categories. I property for other that's capital. what rates susceptible most hotels is more absorb yield occupied. doing more estate valuable originators transaction but real you down. play. don't -- heard exist is -- rates will to think I harvest the drop of My okay and us. some if street volumes believe to book impact I you it'll our the see have think on they

be in trips which volatile. supply the mean, But to an to is Like that's that one in classes And asset by important I the the way need real the Like careful demand we hotel all of -- asset demand There's going GDP growth, so volatility way always And north. we've the usually insurance traveler growth, macro and best more economy the it's and estate. a of the category downturn. super space. tied up always is been that's companies in banks.

of this money, the a And one we the -- that So yes, scrub. asset last we hotel it's not do or on really classes but you quarter. may lose so did quarter

say we're and in the we're quarter. behind construction good the just we again division We at When look It's at happy. of it, better to the for paper fine lending. these I the today and think the be doing so. of but recourse I strike we we usually We've at mean best this something loaned to into partial $X.XX assets a assets, us trying moment we've own price you're Sadly better is had -- funny mind like, to you we the property own $X.XX property don't -- to is it's super that but wait I about book just can't about replacement things a and not it's sector, now But news of a started I don't defaults, our to happened or it. the like, dollar want what a forget price it's really or But one get we haven't on we're lender. do Starwood. equity like for gone that look the yet, amount something so. it's And heritage company. us with we it's the we and massive senior where goal think or cost. That's other

that's do what we way, So by do okay. happens to not if but we're trying the it

Jeff DiModica

from cap and Barry Yes property are originated similar replace lower as significantly assets. rates. term always the when you we've rates to a cash We it's were cap that on return hard bought locked rates rates say, to stuff long today, these in that at --

premium return to look significant cash bond. a high extremely have like we So is going that

it struggle the premium the get cash you you're that either it taking the could getting So gains assets we with. or through through bond and reinvesting

Barry Sternlicht

pretty XX-year yes, But I bonds in think energy team our company, -- it investment equity. behind we now form. I'm going I was very portfolio. sounds a million it's XX.X%. $XXX million at actually. $XXX trading this just retail and north of I was Cabela's did today. of something. the conscious par. I general And that or bank I earning -- want deal it's choose probably the the And and we -- a solid to size -- there's was at retail, same it probably business we And mean And that's our hard mean hate like it The you it's of mean, leases peak mean I million this just in return realize, are really $XXX

X%. so buy get buy like and don't the And you stock can credit. and XX.X% bonds in you same or And the buy know our I whatever

what So that. investing to we it for capital. and smart like really like supposed our that's That's poles look we're with was do

Operator

proceed comes of with Our from Laws Stephen line next Please with your James. question question. the Raymond

Stephen Laws

deploy talk for Can returns company? then color capital? business? the business the a bit little about to impacted stabilization bit little that the in lending that's there you're and since morning. December infrastructure a volatility you new seeing energy some How Good be Hi. is the has May of line a

Jeff DiModica

Yes, sure.

were November, flat would have deals come. But to the deeper couple. a we that I able say We December go in to I So, January, book, and there had into able wider. they've got some to in as we're this underwrote. on many We've say, to on term get would weren't come. certainly higher slightly what widen wanted and think basis Unfortunately to where saw to to us XX where to line in been returns they general, on Denise that that get spreads versus been were higher with are putting returns points financing spread wider then able on in probably it. capitalize lines. if out we deals I XX We've you is

extent to leverage try little sure, bit do high at add? Barry, the get and as I you lot us good amount better business today probably to extremely a the in trades and But always that I to able we're little a But am bought probably done at not point. for to really late about that of if do. have what and thought tremendous And as volume less, think the anything was not that slightly excited in the and and take it run early We'll when December overall a to in smart company to lower is than January. quite potential we of we wides earn it was bit the a that are that's do opportunity so our less we book, we've a returns. leverage

Barry Sternlicht

hundred I'd say couple originations the points than are wide basis modeled. of we

Jeff DiModica

Levered yield.

Barry Sternlicht

Levered book. $XX secured that's basically the existing yield. you help [billion] to or Rothauser, ran is north team that a And may who in And and may its estate and Jeff lending I a real -- XX, better Armin which helping Deutsche our space run talking being the named, than wind not And manage know of fellow he's we book space. going in hired obviously book us for Bank the up runoff. and think

And and less Goldman may but not was know at IV, he for three banks competitive rules Sachs will space. a Deutsche he the in a So MD change Bank foreign was at may in the there's particular Basel in make years. obviously in an you MD or which lending by much

to in a So, and be we we key our business additive that will Deutsche Bank. was tremendously invest athlete he in team in think that help us a at

excited pretty we're that. So, about

Stephen Laws

expected Great. the loan you through repayments this Thank risk portfolio. concentration see the And extension think the you weaken? schedule, year for taking the of start touch we maturity your you later one economy with the my year? And follow-up on to do any type on my maturities how and questions. if Can about

Jeff DiModica

repayments down this So, XXXX for little a XXXX. early originations period us a us. is come year to we in bit slow was of less and are expected have that That for part overall. A

remember started property. a into the in more we you were and pivot CMBS when into put investing that's at property to that we lot money We time. segment If

lower. and XXXX we doing other were were So, significantly loan and volume origination XXXX in our things

billion think $X.X to went $X I from billion this to year. billion billion $X.X $X.X to we

that on where amount blitz in refinance rates the and today no There's the of elevated a going they at the real late likewise credit XXXX. to we're maturities side. are -- loan them the fairly were achieve slightly early ability we slower pace. They be through were are expect that tightness feel XXXX in that lower XXXX, likely given spreads, expect. blitz There's to XXXX, So, we able side. runoff all but no were we it's in through And they late to run on

would of say year I pretty guesstimates last XX% or would think so they're that close are So, versus our and run down I in offs. terms

Operator

of proceed with B. question. Our Tim comes line Please your with next from the Hayes question Riley FBR.

Tim Hayes

questions. Hey, good for my taking you everyone and afternoon thank

And it of historical XQ loans appetite just in how contributed you sale severe might conduit million for nearly far more XXXX. then how have into looks it You to levels year like so gain scheduled XQ, early compared to just of was this some relative quarter. volatility. deal $XXX But your of conduit would missing that what year? And like on the wondering describe last this most execute and to slipped on XQ to sounded

Jeff DiModica

had to on the market doing average when at of always what tends who book? we sale widening loans. investment-grade on of Adam, what a you are larger about talk play others the obviously gain give bit widening the we we've banks a gain and you do little in Yes, us in is look conduit I that higher The part than think little sale to saw in December, that spreads. want more caused room. a bit terms a

Adam Behlman

I mean that we We go. had to Yes see deals them. scheduled dropped were

they X/X spread just probably across widening We saw in P&L to point due of So the to did. an point the overall average reduction deals.

quarter is we're on The just -- end into from overall. have for work the I first quarter next. lightness pickup we delayed seeing we And of a a the not the of things expect there, quarter up because But the origination continuation first would tightened itself see on January a where market typical again. of toward back bit should

Jeff DiModica

loans of deal a I you And same hope these if sale what as can by we've markets our little would you're quarter first Friday. expect as to splits walk -- excess do to chaos, to get taking make we up seen. be little in historically a some the weaker. bit that the vein when price of you are a sort risk again certainly wider, And that But on when able bit in of spread well

we're So that. excited about somewhat

come back back we back said, quarters come they few where to As in and Adam and AAA one voraciously ago. spreads we're were have CMBS

Adam Behlman

securitization securitization, and complete expect three? on reflecting you there. comments how do Appreciate deal. with seems like And Got conditions, number the out it assets enough first compare there? just resi you And recognize to And does maybe another accumulated it. your of market to when you've the on gain that do what current be to type sale

Jeff DiModica

a That's great question.

loss, first the a had of smallest $X think I in second gain we small $X think million securitization. I So on million the securitization

and the about on. something right talking You're lot is a time spending securitization been third we've

even we how our advantage have the bigger happened lifeblood, we or much expected investment. it very the a and impact IRR XX the that be that securitization we securitization our two retained had isn't that longer of they're years. those six think We on those we business. loss securitization. securities conduit our across a markets, profitability be And about And RMBS same the in small there or over investment Ultimately of average cash something take is the over will The flows of these flow the believe life seven-year that open. though are determined over the and will in life, about, pay think it's cash had one our It continue one gain but and securities loss on will it have small to while from the people over is Ultimately, like and time. we obviously gain expect we that you really business. conduit business will IOS and longer a much

Barry Sternlicht

going we're that held change most onto. bonds thing to some probably going sell to the we of senior strategically One we're is

and... the for we ROE. doing And that We talked example BB about increase will

Jeff DiModica

BBBs.

Barry Sternlicht

the BBBs. And

as market just we our and of So and into size other team ROEs the the those met notes [chuck] recently and out the business. keeping increase ROEs the we kind a them by -- of depressed should just artificially we

So we're going to do that.

Operator

to gentlemen Sternlicht like and question-and-answer Ladies I remarks. Barry the to reached back we closing and turn the have call for of would the session end

Barry Sternlicht

with is answer listening Thank team available XXX, worked us. big people for thank many team. you and Thanks to about the obviously don't XXX Enterprise how excited Thank it the we're your and to everyone. have the questions. Again you. I I know all a want even is company future. is today people

Operator

concludes today's This conference.

at You lines may participation. disconnect Thank this for your time. you your

Starwood Property Trust (STWD) 28 Feb 192018 Q4 Earnings call transcript