STWD - Earnings call transcript Q1 2019 | Starwood Property Trust, Inc.

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Operator

Greetings. Welcome to Starwood Property Trust first quarter 2019 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]. is conference this note, being recorded. Please turn of Investor would the Trust. conference Director Tanenbaum, Zachary to Relations over I for Property Starwood Thank you.

may You begin.

Zachary Tanenbaum

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

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

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

Rina Officer, I With me company's Jeff Sossen, Barry company's to on Officer. Chief going Financial Officer Executive and now Chief over call Andrew the Sternlicht, President, the DiModica, that, Paniry, are Joining am the today the the company's Operating turn Rina. to the company's Chief call

Rina Paniry

good everyone. Zach morning you Thank and

quarter, $XX million that was $X.XX million this share. a of XX% impacted earnings write-down per I or on Core negatively portfolio. This $XX regional our discuss we a by later. per will core reported or of interest took we earnings $X.XX more mall share in

million charge, segment residential morning core this this and was per for commercial with core I Excluding earnings which quarter will lending the quarter. $X.XX for our the of $XXX contributed share. earnings begin

we funded side, floating originated for billion $X loans new lending commercial pre-existing rate the and commitments. both of On and $X loan billion

quarter repayments million, $XXX were lower expect up this them quarter. than to loan Although at pick normal we next

received $XXX from million sales. We A also Note

weighted billion a average Our record quarter of portfolio at over a the loan $X.X with XX%. commercial LTV just ended

the lending securities. On where side, loans securitization million we non-QM of sold purchased million executed we third and million of retained residential $XX $XXX our loans $XXX of and

that $X will sale or contributed $X XXX. GE. the quarter. of weighted from of I we net on Including As which of of totaled and million to totaled resulting from segment million million, with X.X% of our debt of average quarter-end, to includes of $XXX average earnings lending acquired of turn this core average XX% a coupon This an retained million the now the loan extinguishment this $XXX book a repayment LTV infrastructure business million. loans equity FICO and of securities $XXX loss

floating with bonds in XXX spread with this and $XXX newly $XXX XX%. reposition replaced we portfolio, points of on average loans our sold a repayments We IRR the of totaling quarter. and strategy to loans rate an million $XXX million million execute received basis acquired of we As excess during weighted of these

billion. $X.X at quarter the ended portfolio loan infrastructure Our

to on property our segment. Moving

portfolio. fund quarter, During that related the in of underlying driven to value recorded holds we regional the loss recorded XX% in our $XX by property. mall fair a of core was interest a a million million and a the This $XX loss by GAAP decline

have is accounted GAAP company follows the fund for model. in mark-to-market under past, we as As the investment discussed accounting a thus an and

purposes. while also may At $XX do for back you recall, between As core deciding we this our to accruing and of in fair GAAP for core. mark-to-market value decline difference we This created a to basis quarter decrease we in core added on core investment value third approach earnings. recorded a business, fair not cease the million time, purposes in the income XXXX. GAAP the for Across a take

certain However, we including view if considered inline to our assessment capital, In for flows impaired expected invested portfolio indicate making future cash we the unable factors the this that this return for we bankruptcies purposes. be of and affecting our a as anchor mall of tenants. core tenant quarter, variety certain asset will loss

the of income. upcoming of debt. made had accrued We of capital maturity this we related through and XXXX, million underlying have second the considered the we $XX quarter quarter also million contributions fourth investment to To-date, $XXX of

total and of $XX have to-date which X% to represents cost just core than bringing is $XXX equity. received X.X% in our our basis this and charges our over for the million. cash asset of investment We both less $XX quarter, taken our After million GAAP million,

core write-down, this of well assets yield of of average perform weighted property blended XX%. with to million occupancy the wholly-owned to The segment contributed the segment and XX.X% this cash-on-cash earnings Excluding continued $XX in quarter.

because continues reflected. not and reminder, a appreciation is cost value follow assets As acquisition since accumulated depreciation increase a historical their any wholly-owned our accounting to model,

of depreciation. our carried share or $X.XX $XXX million per As accumulated of properties quarter-end,

I we less in of At these that book which price to our back excess our purchase core this million now for of to to minimum, be As arrive quarter. would $XX and see believe segment the of continue GAAP assets book a on our to we our price. purchase turn continues in assets, relevant million GAAP amount. us. value value will at for to add-back earnings an gain contributed investing metric suggest $XXX excess gains adding Any would servicing a

in on the to opportunities our portfolio of harvest of gains core gains capitalize to million recognizing sale million. continue We $XX bonds on totaling $X CMBS

We was offset lower timing a to $XXX higher function recognized result This of CMBS securities, million the because million $XX a adjustment of conduit, into by levels securitizations of larger our over we simply loans. tightening spreads. related quarter income result had saw a as positive continued resolution April. in slip X.X principally mark-to-market our these of certain we income which our was a P&L in an as GAAP also In last servicer,

quarter, in transaction. one million loans $XXX During of we securitized the

with distribution square-foot grocery wanted and second loan Before last intend to the single at REO distribution I loss Orlando, walk during lending XXX,XXX loan, the in through $X within Montgomery, that $XX during We on At net Florida quarter. carryover decrease the on a the to quarter. asset, in We transferred the we reserve, million I $X in million foreclosure Alabama segment million. you the the basis foreclose square-foot foreclosed to its $X two We of our in center net was a conclude, loans net to date, center X.X filed lease April. asset, its million million discussed to the a foreclosed impairment bankruptcy. reserve for smaller XXXX tenant that acquired quarter you our first that were recorded on of

conclude the team the during our $X re-lease asset, and our through facility remarks Given billion quarter capacity net we value lines managing million I to a We to XX ratio of for our in this with X.X of we the and of by $XX annualized entering a credit XXXX the $X.X represents will XX. by my investing of share amount quarter million investors. ended our Also to extensive per quarter, at and price I paid during our XXXX, Friday's closing in that, properties equity share few X.X for to experience which to of be on his non-QM $X.XX our undrawn Jeff new debt about and the order quarter with to servicing extended X.X% undepreciated debt we in will on times. We work With call loans. expanding of comments infrastructure dividend. on This over notes a will have turn into cash July yield transitional and maximum $XXX June $XX.XX. $XX the both shareholders our capitalization date capacity billion declared dividend dividend million comments. the maturity shares. an million second convertible principal of a with And finally, will settled record remaining for return the

Jeff DiModica

Rina. Thanks

over stock has XX% a performed the return total well over months. XX last of Our with

traded the our in and times we book to at excluding of today. depreciation adding the ago X.X four years value In property $XXX million ratio, gains times below property market the same price-to-book adjust depreciation was unrealized back no at book, X.X X.X to of comparison, stock for. level there Our or price the times fair was $XXX so and created segment, is gains million when our stock

steady been The pre-crisis to now infrastructure sheet in quarters structure result that total last the robust three equity the high-quality, versus times. over remain period. last lending very as year four CRE our has at on X.X leverage leverage, the of $XXX will have balance a and I leverage adding talk lending our over lending, modest higher Our remained times non-QM leverage the businesses, highs. two just billion Including peers. increased has deployment above sheet originations slightly at leverage and segment. loan per our market off-balance Despite years our about significant

origination. grow significant for XXXX continuing be expect the capital a we to trend With loan of very economy on year again a strong the sidelines, equity above and to amount

at look We have more staff ever. our than increased loans to

With volumes of higher, can $XXX wrote and to recent The of including the to on we QX upsized like are loan spread production. borrowing quarter million and that an seen XX-year to over assets spreads. years' we the of continue positive expected creation loans loan the billion facilities in Rina feels we pipeline. We line to said, treasury create quarter that and we comfortable first we borrow net in X.XX%, similar to our have of with at a in be IRRs it is multiple QX the looks to lower in continue $X added back those tightening. down unencumbered

add unencumbered asset creating us assets opportunity debt. of reduce debt strategy differentiated specific asset to the unsecured recourse provides unique non-recourse Our and

first debt and our expect debt. overall to to benchmark our incremental the return, we above unsecured sold bonds in retaining quarters. add sheet associated accretive liquidity opportunity quarter of reducing have $XXX unencumbered balance To percentage and XXXX trade the Our mortgages we while the now position, in extent, the on of coming par assets a financing million mezzanine while creating as that

our reducing highest warehouse on financing Warehouse debt half our our debt less thoughtfully to of of We creates generally quarters. business than the have diversified in lending coming our funding IRRs, the long-term process continued debt exposure prudent to asset warehouse line have the we the in having lines believe a but and is and strategy. in expect with specific strategy CRE

earnings also increase by if by expected LIBOR Our to our per as and share. per others unlike basis expect points But in share LIBOR per XXX fall $X.XX basis share will space, rise we XXX points. by increases $X.XX is earnings

We LIBOR fall loans well. will as the the as including protect LIBOR if does are extremely structuring that fighting curve we floors on focused forward originate, earnings for

loans have sales Our environment financing LIBOR earnings to much and improved lower with due loan quarter-end, floors. took in we quarter-over-quarter falling of after repayments a

far up on share, In or XXXX our underwriting own property borrowers strong property We earlier. focused portfolio as unrealized $XXX $X gains are the to take potentially market over net million of performed of write-down producing to and Rina segment, of and expectations pick has expect in per beyond also the our and protection well lower a prepayment whole mentioned fees close advantage as call LIBOR. re-financing

of we Our Florida country, gains. and XX% Orlando well, underwrote makes than extremely the Primarily has excess the property property and today to multifamily our contributes far of half unrealized portfolio digit our of we MSAs our of X% in single Tampa, two to experienced portfolio up more portfolio performed the a underwriting in strongest rental of high rent have increases. on growth annual located and in X% value

XXX received to know X, to the we product cap this real in will price we XX%. high tax with points, by return tightening the exact Along mid further basis by this expect appreciation rates this revenue cash amount XX.X% We type, from increase will in nearly already June benefits have estate lead portfolio. to our to increase but for and

be could portfolios lease also and well at sold very master perform office continue medical Dublin to significant Our and today. gains

our we and a have bought of continue years the our CMBS up low we X.X in remaining servicer revenue. to significant for again the properties sold in significant once we and coming maturities those kicker Additionally, until out portfolio revenues servicing will harvesting gains book make equity has loan increase the in

We patient from to medical infrastructure XXXX. cash XX% But finance to duration. digit on realize these also cash double later XX.X% an benefit XX% from the MOB, our office accretive the begin been to our On to building approximately to both return some book gains have in our added with our portfolios, to and and segment. property return choosing refinancing increasing execute reinvest potentially in we portfolio, and expect of

return threshold. purchased the As GE Rina assets that in not our accretive were of said, million we to quarter sold a the $XXX

successful capital accretive with a acquired and returns XX.X% also to and optimal similar sales after $XXX commitment closed of IRR been the deploying million We two investments. loans also new our quarter, In this has we REIT more subsequent team at into loans five made and quarter-end quarter-end.

continue year yielding expect core we a ones, a over improve earnings over to sell we yielding and to investments higher add portfolio begin time. in down this to grow As and to little lower

grind on CMBS type. on cycle conduit the CMBS tighter and business issue of our has to approaching marks our This profitability spreads spreads originations helped the new to on REIT Finally, segment. continued have book. conduit our deals with

the holding quarter Our of in REIT has XX% despite since million advantage taken BP's of our $XX quarter and tightening of third by spread XXXX. CMBS decreasing team the sold

I team call has to revenue years. the to in CMBS lead book same when partnerships special hit XX% should Our coming turn to maturities increase name X.X servicing $XX is an think We that third and that, assignments performance party to in our the and more begin billion With used Barry. period. this to will exemplary

Barry Sternlicht

a earnings mention Andrew. something was about loans Zach, once pipeline in talk company again the Thanks from macro the the Rina. Welcome classes to second Thanks away also call. the asset Jeff. want the for we Europe. Thanks back I in our and conference mention that to and of didn't country and

is the overall, it, been are and career. fundamentals the real President the economy, repeats U.S. in aware very And estate good good they estate have in you much So are real pretty XX-year as as is incredibly market as shape. Industrial the would apartment are logistics seeing I market the meaningful trouble there market actually one fairly increases. And re-accelerating. markets Office say, that place, and The retail rent is remains strong. while slowing is market. my

really gain of retail year saw equity than those the so didn't million, the core, you book us a assets. we of in know which to probably have share harvest gains work take we but the in from the which we pointed And value to which our a take tend when out, investment, chose to did overall now $X our at believe the you X.X% Rina we retail income to overall as equity write-down we and is accruing to less duration on later we the look for a $XXX fund, one we and And as we have the we demonstrate any of portfolio. as nearly been assets, haven't book of

So very are quarter. good. it's a markets good The

municipalities and The expense growth the I lease, rapid real RevPAR estate but suggest as very revenue come growth, some cities, of positive, in more hotel struggle would market. macro sort remains states taxes. from other is caution, increases place for

as you revenue annual to modest the union they and so you go accelerate in labor. estate cost isn't increases labor And other from going to a increase cover $XX and had real taxes whatever in wages

When book the at probably market probably underwritten solid City at there supply have at every point also investments is high-end. of maybe are demand this I performance for nine So York you every been price on look There or the in more also IRR targeted point. obviously invest. quarter not bad, start our at years. is often are little in than rock to bit, but I pockets looking New our are deals quarter, Condos the they price want There as cautionary. a for places hotel don't our remained and

we to We to platform really is businesses our that a support a job we a have dividend. deal didn't very as talk I our allocate built spectacular have grow to win. are with am but is we time much over super are pipeline investment diverse and the happy firm, cooking build and see about also in hopefully choose almost these We capital every to sustainable of lucky days, kind in all investment these we of predictable and the ones return which order and gas. it, we have deals there want states We today. and with to that

also there our big presence We significant and going it Europe again built production expect are of from attractive. rates in for seems, we opportunities, team capital that a return and are expanding team our we Europe in offshore find as forward more

I culture also excellence team have. built am pleased really a with we have really outstanding and We of the

All of better lending in REIT, space loans non-QM the the is business, The our at they what business, CMBS is $X business, heritage exposure. energy have business, which assets whether which data buying equity have have we Trust we real that my The assets of are GE. acquired have value the fair from option, some of net in The And career, from the even the retail better calls the getting business Jeff already. business, business estate company. large we beyond it's have. our infrastructure of made of which purchase what investments originated we that do our is over and billion the servicing core and the which finest the with

and book continue grow cylinder and great for features. return of continue to them our And harvest we drive and really our we to from exciting of our each people balance them shareholders. have All rates we

So I say. much have don't more to

the pretty I looked pleased very Our And calls, as pretty and no business four And cycles even have been are we that good through that stress doing am and I recovery. economies business have prior the out well. in us there today. pointed is the post on

for was. Of and spreads when times found crisis. term. losing course, and ahead financial were collapsing times near away, And capped we but been in opportunities we markets exactly and anything don't started where in knowing there this pricing good when post-recovery, goal us deals the of the ourselves the the we not But in XXXX have backed we post see

So with we take everyone. will Thanks that, any questions.

Jeff DiModica

I am going asked lending questions of and want our in There other $X add. lending I do is to mention a this things. some of about book were us One, in to is morning book which few X.X% REIT. billion-odd our

that, American when this [indiscernible]. LTV Dream Overall the is book be later of of to refied recourse XX% and That out most lending retail the IRR. a and mall the book expect is it opens. XX% is the that we which like optimal year loan So XX% to LTV and asset, almost

in there's lending retail the book side. no hidden issues on the So

a that us other morning. in realized. And my comments, gains. I we this thing was one preempt, The will of Well, be said asked I take question will will two

will appraisal. an The one be other

So you gain. will see the

actually net $XXX can that So achieved measure retail of whether assets million-plus invested of we we you in. the gain, have a

well. refinance which write-down than office took one expect latest And it, and largely of in performing quarter offset we own, to we I mentioned the the will should would year. portfolio. this another Jeff quarter retail The say, medical portfolio, portfolio sell we the offset, gain is more We that very probably, the will re-mentioned fourth I assets.

steps going it's the flow. and pull of returns XX% there very $XXX expect in those proceeds leases XX%, almost from to and out And cash-on-cash. forward cash million We nearly stable around to are a raise cash

that increases the just rent book a portfolios the $XXX and two modest the increases XX,XXX REIT magnificent double and affordable we XX% will underwrote. very rent So has recently four equity portfolio, we coming times what underwrote what we left And from the news is gain, portfolio roughly bought, of those apartments. in be million that which received of out is

being are we these on think conservative marks. we So

The we our our cash-on-cash that targeted stretch Now loan remember equivalent yields IRRs they and equity are why our duration in in assets. to have targeted are the book.

we thought by the the So value they as do they own which we are the they returns. can though and our was, them bought even we assets forever we And depreciate generate book appreciating. to higher way, offset ever malls, lower including

including selling will Cabela's just just in us reasons long case, gain that many take we years an the know, in booked time for our and again because XX.X%. one gain. note, little portfolios like I about buy, in over portfolio not XX% the deli insight we assets XX% as a you seven years. them X.X% later So And did the two long we now, two ago, year. bought We of them the probably, our sandwiches. the other -- of would And ago positive making on improving the sold a the one sold as and plus, realized and X.XX% a we think, And cap remaining yielding raised a assets them and the are something IRR, IRR now

So we this internally, below really a things. We assets X.X% have PGA we we wouldn't done the of Gardens County retail mall X% Boulevard agreed and But Mall where this few After to been selling always are. Beach except believe cap take is write-down have there rates larger Palm write-down buying knows cap. and today. nobody a very still cap, in trades are

assets we chains. than our capital to underwrote these higher we that we have X% And bankruptcies not than X%. in-line And in structure are a and additional venture in cap are nationwide we meaning value a a you The in been has of really we all values clearly where four cooperate there in hard higher partnership tenants the value to investment and case, Wellington store from recognizing that requires sure X.X% own of assets. So and PGA players turnover largest joint in significantly that, these portfolio, are that more and Gardens. is getting being is. are are not that Mall the which far But cap, mall These rates almost

move want the the our just more but we So we we earnings pretty mean for and business $X.XX, happy And write-down. cash, point the without invested really out I to we that on quarter, are overall. it numbers is, about that than met

we So will take any that, questions. with I guess,

Operator

Thank you. Instructions]. [Operator

Our Securities. proceed. Please first question JMP is from Steve with DeLaney

Steve DeLaney

these for thank question. versus I credit the and wondering morning the Good to think would you days? residential Thank taking follow-up sector you. And get be was how real be, do opportunity your to you risk you commercial can it enough big what rank you that results? you really see activities reward would the Starwood's estate in in resi overall for in credit to meaningful

Barry Sternlicht

Well, a business. it's relatively small

We it. the book commercial today. grow mean LTVs loan XX% $XXX like in the scores the it think really XXX, book. shouldn't around to and We would of our the equity be are in I to FICO have correlated business I are million

We have completed, I believe, two?

Jeff DiModica

Three.

Barry Sternlicht

our of securitizations loans. Three

So we established ourselves. a good market for

returns. working improve the lowering should so origination another, are costs, We it our on

believes conservative some of it done accounting, requires the have a the the return opportunities is say GAAP overall time. management capital. on lot which We for would unusual I of

XX.X%. takes conservative think We were we then them GAAP. are assumptions we this whole which if have is equity IRRs are to GAAP we accrete fairly And of a and bunch at privately, a group. requiring XX%. on GAAP an follow doing would there's view us And XX%-ish, these made that like

that looked loans them and that's should in not. the Probably think we have move match-funded total if we trust that wouldn't and we securitize grow it to We did attractive equity in It We we from them as to them. very pretty because at whether and the get securitize REIT. the didn't It we just the more XX% [ph] taxable, our largely. So retain just returns it's [becomes] them. attractive. we ever of left our big them, be these TRS can book? of funded loan taxable achieve just Could book

both are we So looking at strategies.

returns. overall, returns infrastructure that another us see we financing business kinds right than that more book, want. energy move duration. the accounting XX-day these will and can also But a the the to little hold bit of a bit because earn assets it's we we think straight position, a line a and XX-year an can you great we no our The is nice just matter that book, of if achieve The think had rest into I we bought do When a the is of maybe more book thing and we dragging across duration allocated facilities is cost loan the now or the issue. a fees. the balance us whole

some us. Even are So as are of take going we loans the that loans are to if at accretive short payoff were fee. they selling just the because write-off selling coupons not we the par, and are to

sloppy points IRRs than are think, forward. of engine serious becomes, couple our And driving estate loans all we see but of XX% higher have XXX numbers, So good. transition which earnings I a real our book, a a going it's continue as sort of XX.X%, basis it we to in the the our new being at

Jeff DiModica

agency the These are do I XX-plus prime able wholesale What course year. phase. before. are our who loans they would have loans. of These over came for securitization are this loans. last talked have These to about Securitization spreads tighter. we significantly like last to add. Steve, great And grown not to them buy LTV we the are in improve not subprime plus some get basis say to mortgages. self-employed significantly, get low continued at those and which when sector, borrowers in paid jumbo for they we don't up And in rate loans credits point XXX to will pools, we I has is, are this lending more LTVs. qualify

us lower us, LTVs could these buying to in that with our comes And agencies are believe any barbell to have are We the securitizing is are very bet this them and pools. allow rating loans. us strategy of large off down XX%-plus that fairly not buy one to been all and in they We build of will keep line trimming a selling risk we there. them. loans these on. just where willing wholesale space the competitors we with those The higher actually XX%-plus piece XX%-plus the from potential We from pools. those LTVs We much securitize in

XX LTV our a real the XX LTV, barbell So not is XX LTV.

So we perform well. think will these very

Steve DeLaney

I different I that really FICO your think it's exposure both nicely. a and with profile and very I the different totally risk whole it balances of out comments appreciate agree

morning. thanks for So comments the this

Jeff DiModica

Steve. Thanks

Barry Sternlicht

you. Thank

Operator

next Our Please Jade with KBW. Rahmani proceed. question from is

Jade Rahmani

Thanks very much.

In pace within How just up explain when a this Notes inter-creditor the note your know there? a helpful? could Note? lot if selling structure quarter. I A, B structures. are agreement last you the would do there thinking, And be think you cycle, in if issues these. of your you thinking you I prudent A control lender But you your that could rights of were how at picked explain you wondering in retain And look B

Barry Sternlicht

go if we ball company. think market. would return play. public in. to that's Note, to like back the no position. buying And do the we can their the we off have And the So an we get If Thanks. own we is A think day. Lower recourse finance we just and our right? facilities. things the debt get are to to again, They we They cheap, position. bonds our this why wanted we to Ultimately, credit take, we at a we market, want And facilities. And own perfectly our match-funded, long just we they same public get credit are mature awry,

mortgages the can't credit you specific can't with do asset that which do lines, are you parent. partial and with to that recourse So the

for are So sometimes it's basis XX probably. our stay slightly or but on credit we points. cheaper this not points facilities, basis to dilutive XX doing It's

in some days, aversion, We don't in risk something it that like there's happens the doing market. credit for case we are

something, to Jeff? add want You

Jeff DiModica

any business you Yes. the and the fairly Jade, and you of our We saw we lot people show mid A, we not gone different. know of The XX% know, market were. want And and which the We down percentage it prudent month that line. and side. more a two where will December, we our bring the trade funds increase is of floating you which will loans loan that that peers, to high soon, problem people really relatively than competition market think Listen, understand go portfolio I widen CLO warehouse CLOs did below refi it will in important us. B, as tomorrow, space, less XX%, as now, A pay-off book. than of XX% risks our our months decided don't debt amount cost of our they be to time portfolio something as of would to peers, in on markets CLO pretty have at significantly which to back in the we which that work our up is from do think think to a around still that we of be a through in is, the to the on with think was rate

to So on we unsecured and an having ball are try debt sheet. long playing balance focus

Jade Rahmani

Thanks for that.

that you of large deal? overall as a how a trend? that Secondly, you that deal the guys I tenant, included something flex you think space nature. explain view And just Could WeWork did

Barry Sternlicht

talk activity the Yes. real, and of States, with the in United about it's like a is growth internationally. space. can of York actually leasing Shared office in I in Jeff like real business loan. and the far are we sort player overall quite a component start expansion profitable, will by now serious the because London, major largest they in obviously that the And New Uber's markets are and trend

they as rent enterprise probably a levels, space service. different those know, different to successful markets solution, sell as they move trying And as to a shift As other you office as they markets. the have they are been not into with structures in and two are lease as

plug-and-play, and needs Amazon in just feet New York, square either XX,XXX they if or there them from move it take own their they later so to And stay space. they

corporate of include are to creating by the and or you might a not instead handled of lights fun just millennials. facility multi-year past. serving atmosphere might the by might the beer it CBRE keeping on, of they So and these running XX, nature my business do credit what include receive, as do And whole doing they work we perhaps debt shift a But their a the improves term. corporate to and having for kind something WeWork from this is would a XX up their we major the hard credit, to credits, fund in

business. Jeff. against So JPMorgan. know, And the rest And as I with will you make a we did building leave for loan real their it's think a headquarter I

Jeff DiModica

Yes. Thanks.

be It It You know it's absolutely the that. headquarter will a much building them. a and It a XX.X the now the very it place. the is Lord something very located believe here. definitely at bit it single were loan the within Midtown, brought WeWork, & of I be growth. a core for scare headquarters be a be was And And were we us. the like It's XX.X we comfortable of XXs importantly, Taylor than building, most in LTV We will south. wrote moves from it building really buyer with something LTV. We in which offshore going to or is high Most a risk fascinating higher for mezzanine that, and junior that tenant beautiful WeWork is might the if building. there. JPMorgan. large loan at took floor stunning, like JPMorgan that path the would well think ultimately

to apprehension type have they So take our those risk. of given

It's that's to a having with very XX% of So behind to cost done. building. going a large XX% a trade player about gorgeous us JPMorgan really on beautiful really it's smart and a mezzanine when like seems at earn be IRR along

Jade Rahmani

questions. the very Thanks taking for much

Operator

Raymond Please Our next proceed. Steven Laws James. from question is with

Steven Laws

of prepayments talk morning. it experience that on kind remaining expect earlier. And is can was kind you of of are? the year? coupon Thanks do But for I follow-up Good balance assumptions to and much on, investment my Or for infrastructure, the questions capital? Hi. sell refi question. legacy Steve's would what Barry, there lower think taking the about for to love how would prepayment I you to that like what you

Barry Sternlicht

we are The actually new higher. we And mentioned, as XX.X%, XX%. book,

in way did that as we them sizing are We real estate.

We are rates small trying of XX%. to than put more money in just slice XX% taking out of earning attractive or it, a a really return

we widening a single billion we had in XX% if was big book, the We retained pay like loan moving write-off, pay-off pay kind million, the $X.X again, It $XXX attrition to we accretive $XXX was So redeploy off. and remember of supposed for was pipeline million And of It us a to bucks, short the book. loan piece right? like portfolio. higher couple paper think, the on I of off, $X.X so million rates. the So we was you about capital But are and are can. that on that the these knew our million actually. it

it's worth really if it par is Sometimes And the to? want you short, buy if not paper at to nobody work. wants even

Jeff DiModica

sits a $X we picked so We it billion around Sure. we today that million. existing year $XXX at up at year it billion. a Today portfolio that a Yes. to the $X.X expect $X bought about around, from of after around be portfolio around and billion,

of bring always over and period So this we book will be realized that are that time we debt pay The Barry bought about the team. costs deferred lower. obviously But fairly moving quickly, between we that that talked expected get sales downs, to portfolio just down. do as

a reward, terrific we and a in we are have in think space. putting a high team diverse leader risk loans, first that space what now think CLO to this are we place, And IRR facility. creating the credit hope is we in which this We do

mover offset will terrific yielding early reward. about assets year new We assets And we in rollout think more now. we it's than lower an So of adding the a the advantage. the risk we a have are think

book excited So are is about where this going. we

Steven Laws

residential that. on the Right. Thanks And for to loan business. on follow-up the non-agency comments

securitization small securitization, But I loss talk or about second medium to loan be get do be at your better business? small on record returns a key structure? are expansion guys my to more it there? long the medium, notes one. more you can from term the pricing? do retaining And maybe economics non-QM maybe have less the it? ROE target the hopefully for drivers been going of achieve first Maybe gain and Is what need but resi Looking a you had track the what Is last to to you it you quarter, even you term, what think on your of expect market

Jeff DiModica

Thanks. Yes.

I portion. first an and think BBB are securitization. BB up through on that appropriate We retained we our retaining

gain seen We double the into those spreads risk something tightened portfolio plus us That like will and more a retain has retention, benefited tightening the have these from don't Five when part mid digits. loss in investments. And maybe double is digit what four, focusing little from the of of that are about really year are spreads. the bit get more looks it. average we I forward. going that. helping and life. five we lower three, moment on talk on That's But securitizations, year and time love a It's

that's the $X moment lose or or mark. make we if So $X just million, million time but in

of of in. dollars be life hold coming to retention, the the millions Over tens it's of going on risk

So lot expected of years. five a over overall it IRR do the doesn't to really our hold

whether but we around there full an five IRR meaningless over think period. be over thinking or and million period will time, somewhat $X we that's us year that as point at noise about I are So in gain a million lose $X to or the it

Steven Laws

there, Jeff. the questions. Thanks Great. comments my taking I for appreciate

Operator

from Suisse. is Doug question proceed. next Our with Please Harter Credit

Doug Harter

Thanks.

sale pull see cash look book redeploy capital? guys the out you opportunities to you property where As the best of refinancing do with later, the that potential some and to

Jeff DiModica

has Best going capital the are obviously to the We out. take redeploy we business. opportunities business that been The added growing. infrastructure to

less. we XXXX business write $X.X back What year in built many early little When we XXXX the have that did year landscape is grow us We saw one we are a while And XXXX and business growing, growing and you that the large we billion other XXXX. like and is of early billion. loans happening are loan less property up And that. that, is other last believe about this in We year. business. the the we thing for to into cash $X loans lending another two to core in didn't coming bit book the did as really bit a there little that's residential XXXX, our in was,

XXXX coming it is into XXXX. money less at the in is back book that came of net the So than in

offset focused be our will that. we of in focus we that business So between will cylinders the this a the large core Barry? area. coming loan out today are is less where returns team But given risk growing in, money I of remain and few think lending getting that and our money help putting will

Barry Sternlicht

take I hold into goes probably of XX% think Yes. also, into of of REIT more opposed than will more I $XXX and I of mean that major, our XX%, the as kind our it's be XX%, in That the some up very the If securitizing large them up to to assets it's XX.X%. it we $XXX could as could maybe mentioned, million way XX%. loans loan more of them. out, capital. of MOB million we match-fund the capital the the let's accretive suck book, the and the a it's half these book, setting on refinance It earning redeploy book of resi. say,

We be buy do. else CMBS estate We energy our of do. we real And buy will our trust and everything the there everything it's cost our another So maybe funds then We buy about and of securities. we book, off X.X%. else XX% then X%, like XX%, probably right equity, BPs.

So lot don't a of great core trust really property see investment these days.

pro cash-on-cash our this growing. of forma the refinance close office. net yield be know we book producing and producing medical will It to you probably As have is of for XX%

biggest business. form the they taken thought anything the have ever the should One the loan our even because problem book up same changed But ever a book, confuses. And also big So been. book spin in we resi we stuff we about we if can with though too more with haven't book off biggest lending this it and REIT, whether in grows is have energy and of resi leveraged. is levels the portfolio new have happen large The are they really it's had. our leverage highly that

inherent aligned of the So the I proper returns, other. how the are had other each talking they Board, and meeting, just risk for about targeted to diverse we IRRs, capital, like cylinders. a not in And I the diverse Board cash from stream allocation the think the just but are actually also or the each we which flow

with on each do really is don't other, is to residential property commercial doesn't to they rely So energy idea business. whole linked the the of not have which business the really really which

Jeff DiModica

availability that create about why capital and and collateral we out to create unencumbered about of way go asked unencumbered talk You we of collateral. then to to our you all

We This doing of quarter effectively And have second we of prefer collateral unsecured seen rush book. the a you structures, liens our to are debt. peers which creating B on Loan their thought Term have create to of unencumbered in continue If power we that unsecured certainly there's that that happy we And to something be market unsecured a think lot debt. will debt. we that's the ever focus going are returns, on.

financing space we unencumbered others we could unsecured can't above forward in our do. XXXX above we debt the don't they accretive because are do now par, going that trading assets par. And well simply that create Our an bonds think do of

very far business the more in we is and way is strategy conservative. that think different So ours

Doug Harter

that Just assets. on unencumbered

much to assets? debt where you how So unencumbered are in access you would unsecured total today? give that And

Jeff DiModica

side gate. the on the second always just the creating try bit We little which all of conservative fully quarter, what we out those run they are to with don't our in ratios Yes. a when fully fund fund

at. are we to decided we cash have to We something be We position. And decent to. enough able do issuance, have a certainly that's an if hard looking

deal that months. that bridge will Barry go we the coming the But choose way. some gap liquidity bond ability the talked the to over if of have about we create things to with the Some certainly

Doug Harter

any raising capital? on change your And for appetite it. equity Got

Barry Sternlicht

necessary value The our are obviously. right return. markets wide stock's now. of open the The Not entire off

without of million just taking it's for $XXX the So the loss gain. any the

more more quarter opportunistic. will or anything, is but pick are need, we that that last But associated But available some we million-odd no, than $XX not we to quarter. capital back. unmanageably transaction maybe up expect try the now. this we kind of So had repayments we loan get to right and more If maybe again, with might

Jeff DiModica

Yes.

and are probably are our Our higher of our after depreciation at A price today's X.XX to with gains. significantly peers that. we book, number move, you know it times. we And look including than X.XX,

I is, raising feeding certainly better us when the market given of about the think don't the that and is where the about times So in. is, way stock we sector capital great feel option. gains equity that we feel X.X better built diversity have But is book we the a the

right, a market better feel it like So when the think I we will option. gets

Doug Harter

you. Thank Great.

Operator

Shane Rick proceed. is from question next JPMorgan. with Please Our

Rick Shane

to there talked into expect I to project for from generally. Hi guys. deployment see then But curious as taking you little talk pipeline to we business wanted Jeff, that morning. bit capital the my the to contribution just increase about business. questions finance assets Thanks and grow about should well? when start this

Jeff DiModica

Thanks.

We are trailblazing market. in that

that after the or banks at never and will process and teaching we our that. that we this and we a they have lines in warehouse creating coming are have them We believe before are months open second warehouse done line our third month two

IRRs So funding longer. we to a much to in run the and end we investment. that when the that coverage, year billion setting how bit the And here year. as a new low $X.XX because have what fund with have a little seen of trailblazing book, bit which But takes on mid We you us up are will little constrained we to $X.X are outrunning way, the XX% us to billion to we of we in business available are today based significantly range there, do get billion coverage the to the new that the we are business have think something at loans ample from run a be that on we can funding billion $X.X put $X.XX similar that we believe by that will able the today. to

Rick Shane

Got it.

So book assuming was building nature? because lead given funding opposed to, at am issue time a lead the issue origination time I the assuming structure transactions there's as I actually as on long this a it's point, was it well a

Jeff DiModica

Yes.

You for know been We six the every see now. has deal. team here months

We are very in. plugged

them. will deals fund repo after that that I say and deals great do see where us them go we the appropriate we fund them facilities, harder are and fund If right cash on best in XX we you to bit like, return. the little choosing later. have we of see them picky more we can will regardless the But will we now. obviously would we will are and a We next XX we room being are we risk think days, deals

Rick Shane

you Thank much. very

Operator

proceed. question FBR. Our Riley Please next with is Tim B. from Hayes

Tim Hayes

just a I relationships you complex or attributable compression like is really compression. in the and little broader spread larger, different curious it this space platform? to just and that of if seeing your aren't sounds And loan play much ability CRE you am Starwood Hi. the loan more mortgage first for Good be has that directly competition tighten. to my Thank spreads tone continue following noted to afternoon this your But everyone. your question, taking lending questions. for peers increased seems My year to several loan transitional of the REIT and earlier have volatility that commercial just the

Barry Sternlicht

them. to They I I the two going right. space, They not. count, obviously and probably loans think There you shy we It's see may people apart minutes loan you how after from largest do with that's mean depending other made some and are may bigger not we are have we work our out. origination. have loans in five on them. fall we away in

differently anxious I are spot. I hotel But We heavily into about. that's your loan pick not stuff book are talk think our doing a we we of more seeing book. now. that actually countries other are also busy. mean to And we even all. on European have right won't There is don't one and moving we of some stuff. am at I things have are I the hotels bunch So sort a of dependent And is you

We have Europe. up in staffed

in. six things have, now. We bringing people sourcing they And five think, or I deals are

of In lumpy. fact, are some them so

think mentioned a on call. we with their cohort our that deal I them did

told the them and half and thought their was And So they in we you loan attractive their financed they equity. and REIT. a we thought it bought for they attractive so it's project

So going do. down there not fairly But was not stepped to That sizable. loan. we we That's up. taking we something $XXX are million are

we doing So obviously, been long a have time. this

We are stable.

We management adding Actually, have it's good team. more stability just in originators. our

and geographic think holes in So those I our and filling in that's origination platform it.

right are now. okay We

in I I So go down all and did to they now the asked we the world bring we said team slow want. ahead and on the have have and pretend whatever money purpose in

in that. that to see we way we at right, are fund or get mean are paying look past, the on in do off them. we pulled or and that's quarter So volumes, need deals all I when for and or the time to have a difficult going we back you that whatever because our be origination are them as tight, we loan borrowers, tight there

$XXX coming ahead skies so So they a I the and to community. take are really top redeploy income are the had in to to add the our liquidity we you on And local multi-book clear rent the these. steady a And some stuff some we mean housing, are rent is we mentioned, have again. as in And higher several to restriction property have really we that gains. what ability selling an years. whether and set off XXX% challenging create with long in their occupied it's I them, these of would the gains these of growth then by book. this especially love that It's million do is some that, of to be decide But time. in it's this will of capital thought. affordable And than for metric

we will I like full mean liquid So market. to go sitting on they gold.

sell. So that's to want to hard

other on portfolios and we the And hurdles out. gains sold probably will is the should think we look return capital. full have we and holding they at that good that beyond are return upside there's it's on but below and when value get we we it. in our we can, we maybe probably less there are that We So have

Tim Hayes

or And I think on yields for more up Okay. all that sneak And I if I amount comments, we in less you the environment mezzanine noticed those then one interest competition do that's the just reflective of anything than so, quarter-over-quarter. credit appreciate else? just rate Are seeing jumped Barry. here. will cycle or you are there senior where loans? a good

Jeff DiModica

Yes. in. Jeff. would rates have This say I come is

you into you to we come tend widen. know rates spreads are good We today. from And in have seen back see like see if a when X.XX% X.XX% wherever like move here come pretty tend spreads this, or to that, in you

flat. down the of worst, of the I We stay spreads. have is we And seen move in seeing the opportunity spreads, in at rates think are drivers one that

continue good rates be funding they were. Our as to as

So a that's thing. been relatively good

versus mezzanine of mezzanine. terms not In

are sales If create did we those A you talking or in $XXX financed create likely to opposed the of create quarter. about, because the more quarter as are where to a so million in Note mezzanine talked coming senior, mezz as of and a we true we we

events leveraged marks I to before. because face We mortgages. about for happen have if owning marks when we So think see first But not will the and you talked less reasons again, the spreads higher credit as we own and it's line. think mezz to down credit opposed credit

a think there. sheet. good moved balance that we conservative mezzanine think So spread, the But is I to in slightly it's something that our higher way run

Tim Hayes

Thanks Okay. Jeff.

Operator

have And we Jade a follow-up now question KBW. from with Rahmani proceed. Please

Jade Rahmani

deal color hotel you you. in Could Thank on any did New you quarter? City give the York the

Barry Sternlicht

Very partially in we loan. to and have then like back they flag sent Yes. and to be New York the really borrower $XX in they million interesting or $XX the because guaranteed and flag deal actually wanted the million our put

obviously badly. the they flag So wanted really

three XX% world. is of hotel companies the think recourse in one top the I flag. the This it's to

is in market is this adjusted return occupancies are And Hotels, this this economy skeptical quite selling And risk hotels market in hotels in incredibly the in the hotel an I it's and Starwood on XX in Manhattan, of I because office really and The okay. have doing Manhattan was Manhattan. So Manhattan. been strong.

goes York along. And before City is economy just York it New coming goes down New the down. City

it's not of that for all an us. better it supply. that the absorbed think We loan of XX% investment than IRR that and So big

with paid paid it, restructured flag the then more exposure down and payout this, having guarantee the big, got So to again, by we put we them it in money it. have

Jeff DiModica

even forced Barry honest, deal really be had we us we to and a liked better. that do To

So we ended a loan up we what was with something that Jade. terrific think was there,

Jade Rahmani

Thanks.

Operator

the to over I to end session. the reached of our would for closing have like question-and-answer We call turn Sternlicht back Mr. remarks.

Barry Sternlicht

Thank you we available everyone a always everyone for and day. your questions answer being with great again to is us are. as have Thanks and

Operator

conference. you. This concludes today's Thank

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

Starwood Property Trust (STWD) 8 May 192019 Q1 Earnings call transcript