STWD - Earnings call transcript Q2 2020 | Starwood Property Trust, Inc.

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Operator

Greetings and welcome to Starwood Property Trust Second Quarter 2020 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Mr. Investor Starwood of Trust. Director Tanenbaum, Relations Property for Zach Thank you.

You begin. may

Zach Tanenbaum

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

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

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

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

Rina Paniry

Thank morning, you, Zach good everyone. and

we core or $X.XX million For per earnings reported of second the quarter, share. $XXX

proactively we cash we quickly our COVID-XX. May, spoke position into we in a moved position. sheet balance impacts market defensive We the from more significantly. As and last our sheet de-levered had initial our increased manage When early balance already

share. and for have GAAP in million was earnings a sheet prudent a of $X.XX $X.XX the balance increase per at face book underappreciated to $XXX or market earnings strategy over came quarter value inefficiency, the this created in $XX.XX. our Although cost unprecedented $X per today. share per billion an which a in impact quarter to continues value to the book volatility, $XX.XX $X.XX This and of in increase led GAAP to

segment, we our will these refinancings acquired book begin per will value our we of contributed Our property mark-to-market Lending, earnings share the evidence our which of diverse amounts Commercial we $XXX to platform core of I power meaningfully later. to our headwinds, adjustments Residential faced related them. fair the each quarter, the with on our year-to-date this I liquidity. a on assets, and have includes of continue related earnings and since and do assets. appreciated is portfolio, $X.XX believe by not value Despite which reflect to decline macroeconomic $X.XX and the to to which our of with lines million assets touch demonstrated with quarter. These business continued This largest contributing of CECL

average of funded. loans which originated LTV, we a $XXX with selectively side, XX%, was On million the commercial a million weighted lending $XXX of

$XXX by $XXX of preexisting funded and million than $XXX inflows million from of resulting loan million cash commitment. These outflows also cash were under repayments. offset We sales more

During the $XXX one for for A-notes whole quarter, million and two we loans loan par, million. $XXX at three sold

received also a $XXX loan XX% were repayment, The which two construction our of loans sale, in in billion. loan contributed and funding We which portfolio this brought reduction our million A-note whole commercial future to $X.X quarter. lending to exposure

quarterly were strong COVID-related at collections XX%, modification. as Our part loan interest or X% were deferral pending which of deferred of

primarily change portfolio warranted deferred and non-accrual generally The the which as modify as conditions were increase in of The general representing we often slight XX $XX deferral to in loans, $X the have months along XX%. LTV coupled our was one our of result our remains partial estimated working modifications we reserve interest, model, macroeconomic forecast commitments to well had timing. specific status. of no our CECL additional average credit additional our respect to We or in short-term, sponsors. the of With modified loan. weighted with changes reserves, to CECL of interest repayment from are a permitted, date quality only million reserve million and quarter strong These and with equity of were

continued our floating positively rate. reminder, interest portfolio changes rates commercial a in correlated with being As be to business to our XX% of

quarter of $X.X LIBOR billion a end average our of floor of basis loans having XXX As points. from benefited weighted

and retained portfolio of transaction, the to balance quarter-end. bringing million side connection In we completed Turning at securitization our totaling $XXX to $XXX We the to million. non-QM RMBS of segment. date seventh million residential largest this $XXX of this with lending our RMBS

and million no our mark de-risk $X improve the our balance were structure sheet selling we no into risk. balance law, recognize these able and securitization spread off position to by loans an liquidity with we recourse Although sheet

quarter we As of in at loans we early acquire non-QM an agreement into to up a to business, expand the discount. this million $XXX entered to continue

million discounts sell $XXX subsequent and million by been coming had weeks. securitization par. purchased we from non-QM none eighth Although in into all quarter-end, $XXX we this loans our to acquired these at the intend acquire Separate million and simultaneously of quarter-end, of during to approximately $XXX agreement, loans the quarter to

loans million, spoke about with $XXX the coupon X.X% of quarter XXX. average and average of ended we quarter, an portfolio of experienced a balance FICO significant in mark-to-market of they recovered a increase of spread quarter. million with and being LTV GAAP $XX that mostly $XX widening this March. average Since Last reversed million loan mark-to-market XX% have weighted then, decrease, through residential last Our the late quarter’s these a

$XXX from a us with a at reporting X%. a to values portfolio $XXX the a cap XX return refinancing, increasing Next, I, perform housing assets package just our the segment, obtained valued our In rate. we at million in earnings and cash-on-cash $X The rate. XX.X% earnings which core of average portfolio at basis $XXX million with Property XX-year Florida. the blended in portfolio I spread capped to very supplemental strong The quarter. weighted We reduce at with first and a LIBOR, included million continues $XX XX% obtained which debt the This at refinancing extinguishment will $XX which reflected we X.XX% million of on appraisal, portfolio cap assets discuss our Rent fair in in allowed quarter. our term proceeds million of remained collections basis XXX Woodstar points yields at affordable of million acquisition. contributed occupancy were this Core connection over of to to to at a XX%. this loss well related steady debt to X.XX% and

was rate cap acquisition Our X.XX%.

estate when our core our real Servicing $XX This in the discuss the includes the will stake Situs, of I that acquired related our interest partial to $XX we during of earnings million XXXX, segment, Next, and quarter. we European minority Investing an of advisory which amount in to servicer. million contributed disposed sale company

During we the resulted GAAP a the cash gain. quarter, related which and in core $XX partial of received realized to million sale,

portfolio transferred any gain servicing, the $X.X to transfers remaining significant unrealized into servicing our bringing large intangibles investments in GAAP an million to servicing at its of recognized These servicing recognized to into June million fair of $X our special value. this special also fees. servicing of during billion billion active the business, we transfers $X Despite we In to $XX quarter, We quarter. did volume implied our increase COVID-related that increase the not receive contributed the XX. loans

Given see we to in recover for portfolio. we expect conduit, before In waited markets delayed fee our attempting to recognition. that times our will resolution which assets, these securitization longer result the for pre-COVID to current environment, securitize

during no quarter; of X.X%. week, had a of we loan the securitizations securitized million slight last a Although $XXX we loss for

with April, We at outpacing of $X sold preexisting we finally, business million to million properties million $X over of of earnings also property million funding and segment XX% resulting portfolio million represents $XX core relatively under a loans of this GE million. In in office since decrease core Infrastructure quarter $X of gain from repayments million. quarter. contributed of a to acquisition. of gross which my a collected coupon billion our an quarter. in due flat slightly commitments, amount last this discussion $XXX proceeds is XXX% segment, lower we Lending acquired of North gain the GAAP for The in The is segment. is $X.X Carolina regarding $XX in $XX Concluding And interest our loan

had credit no the interest portfolio, which and quarter. this collections of in with the pleased performance margin be to calls continue We XXX%

liquidity with a subsequent about extended XXXX. addition, a and February financing to morning I $XXX facility will this we months comments In XX capitalization. to million our by quarter-end, conclude few

our business debt ended ratio We adjusted lines. to to undrawn ample an equity of underappreciated continue two across the debt We billion capacity credit capacity with $X.X times. and then have quarter of

of We billion assets. also had $X.X unencumbered

margin million turn of certain we cash warehouse of on de-leveraging our call of is for payment call dividends our that, lines, I’ll As includes over had The amount the to seven have obtained of $XXX approved after voluntary facilities. capacity. our after of paydown $XXX Jeff across we undrawn second de-leveraging $XXX This deck where moratoriums Friday, million of quarter his assets. With and million comments. on and

Jeff DiModica

excellence one have I’d the and seventh only for analysts seven been good year. congratulating voted morning, is being shareholder start by proud awarded Thanks, Rina for it Award and rest each Care years. to Investor are like to Zach NAREIT The to our And everyone. year our of shareholders for the communications. award the straight space given and company team Rina, for and by reporting in we our in straight

a near senior us by given cautiously has most Since over days worked and management than over $XX and life our been we significantly sheet business since Although has reducing and residential worth last as the or have We high-quality well purchase have our obligations. purchasing those some since future $XXX in to $XXX required mortgage Rina COVID dip. working been par of sitting some $XXX have team these loans to on our offense the with said. back at been to feel to above it’s call, deleveraging liquidity nice ability our of along agreeing permanent strengthen net the began, remotely, to part made cash to on approximately loan-to-value pricing today, million large the I our go of we’ve hard Inclusive COVID of less low the million bottom our deleveraging, again. say, the This COVID been office, million normal of I’ve loans to borrowers purchases on of par can company equity balance began, both today discount securitize million. the on reducing

have of the loans to loans execute We CRE large in we an selectively second written on and accretive also actionable of half pipeline plan XXXX. have

we’re residential the by financing and leaving million we we’ll are maintain balance membership set capacity to if notes maintain months, any recent sheet with to future or of in only our over home of loan currently move $X but over expected have bank tremendous and coming a stalls. balance events. $XXX to grow federal billion our both today, our drawn reduced investing leaving ample to With we With million caution both liquidity new FHLB continue preparing bank remaining recovery any the business. expire tremors borrowing maturing the to of secured securitization balances senior and close are its our securitizations, to February, weather for today in have We lending two-thirds to will to that $XXX us lines weeks ability coming our

cannot the either a off pay plan be or markets X. they our improving efficient, the senior to plan the capital of should open to ample B dramatically upside, notes, unsecured cash notes, to able November We spreads with or is hold until capital but not them be raise in some both. prepaid that through be Loan to combination senior unsecured today fall credit Term new As

opportunities and performance our discuss segment. to set like I’d by Now,

segment loan each we are we going off in financing expect forward, loan expect quarter. our CRE lending deploy to our continue half to we As we of loan this did sheet balance book, In capital as more than our pipeline. large pre-COVID. portfolio rebuilding

includes with after also assets resilient COVID-XX. of in more are during and components stabilized CRE Our funding sectors we post-COVID more that the lending outperform playbook prioritizing smaller future think that will

As financing our to deleveraged Rina with quarter, borrowings said, features. sheet during and both obtain A-note the mortgages sell we senior balance efficient mark-to-market off to no continued

planning as extended second conservatively forecasted. less than well purposes, expected repayment management’s modeling our X% and loan are half liquidity that repaid in we less of in XXXX, of we loan dates, significantly as book than For previously XXXX the now

loans reduce fundings very cover just the call we executed funding our good of properties. Of lending this British assuming teens commissions your or leasing news money the assets. on we quarter of loans of assets made, fully executed our funding percentage tenant repaid, to the could third helps and over three a exposure by note, XX% two Facebook, what on expect coming money, our providing net requirements is will gross future business historically, just are requirements A-note wrong versus assumption sales a off they our very to quarter. in cash manageable are financing, par $X our I’m XX% on. sure in quarter funding out bank if can thirds of the are as XX% underwritten loan flowing loan pay spread down investment last years. those no in and first to end of grade be be easily that funding news lending were the mid-to-low billion one loans where CRE managed new construction the months, draconian below million approximately funding future of no segment is less as the lease over construction funding is versus in telecom. quarter in Given reduced future plus coming percent quarter, this future XX today our the actively of we down sponsor de-risks and have construction in loans are to the our $XXX and future generally which plan. and new and improvements portfolio we cash is quarter we around By sure loans sales obligations the good construction tenants, segment AmerisourceBergen your leased

have above today, future We any to other that are floors of value our cash incremental selling floors these choose expensive a LIBOR loan average XXX to. above we be able of points create today. or floor The raise need nor during happy dilutive book have $XXX basis have sold should LIBOR so we of an funding them approximately to giving to million without over par, X.XX%, ever this unprecedented could zero, assets been requirements and period securities, or to two proactively capital. thirds loans, below reduce our did significantly

from us modify and hotels were were few lines call and warehouse Given aggressive short-term loans, in Rina deferrals deleveraging which new the our a of and to mentioned, hotel our exchange COVID XX% reserves in flexibility appropriate. use some on include effective holidays our margin interest to early sponsor position, ability majority assets equity, other liquidity as allowing of we

of another and and COVID in million second $XXX equity $XXX for sponsors million have equity total. began over fresh XXXX the current future Our fresh projected half it in of $XXX to contributions contributed over of contribute best-in-class equity of since million

our we XX% pleased COVID. and at we are million and which hotel of averaged and to Distribution feet that over hotel reserve took is a facility that our moving signed $X formerly foreclosed Montgomery, when million finally the is one square we in former in Winn-Dixie by XXX% other of if, foot entirety General. equipment that Dollar occupancy significantly Winn-Dixie Alabama lease other one for lending, hotels, on speak. since we exposure during in leased as the square Importantly, million of in own Amazon an have XX% segments least stay extended outperformed Center, Orlando we asset

a projected our both empty recovered or on are moving purchased in large millions to We that realize to approximately efforts generate began, a We this to in that today in to and within below reserve of purchase are taking $XXX taking went agreed in our significantly resi we priced week. due coming gains non-QM rate loans future par loans, have million of from year pleased our to leasing our we prices fixed portfolio taxable the to quarters. creating these eighth over properties, will quarters. business. COVID gains since in tens we securitization par. above

Our financing, these markets raised to financing resiliency FICO, for of platform’s show target difficult began. COVID rate low of the our even our over second securitization, assets. $X star transactions continue fixed since securitization LTV and non-recourse billion high to in access

unsecured and and down $XXX billion which fall our million less planned securitization, in today after that we coming whole we Our million to to last loan quarter, will executed with nearly bank significant expect $X.X give new business is the grow $XXX existing versus us QX. return two this FHLB balance type of profiles. capacity is warehouse to to next weeks, than to have with times terms capacity three continue at our structural that attractive borrowings pricing lines

highly not involuntary the to of commodity voluntary Rina In embedded in strong to pace had our well the correlated the to we told to second slow and had we and has commodity from commodity have or CRE any of book away loans quarters. expect coming said, that grow you COVID, not half is invest infrastructure these due the our averaging we platform credit very billion market believe rate we positioned date are $X.XX collections business, fifth, floors. Unlike loan share in prices. has as energy to XXXX, have had originations Although volatility interest interest XXX% therefore residential our like and early performance, loans, date. don’t our price significant wellhead

balance we to quarter So, to income, but continue to the in lower new good in we look our with us and at reduced to off to allow economics interest on our add opportunities post-COVID to XX issue employees, about sheet addition the talked horizon on will and will create to extend REIT in execution years. will attractive see new LIBOR that add continue that to has accretively onslaught I help order availability coming servicing the loan. continue Rina move spreads opportunities CLO invest special financing and invest, our the segment more manage to financing that the year. repurposing next in revenues for of

attractive yields BP’s post-COVID very investments seen high-quality also origination. have We on on today new

our those Finally, still remarking of our in book units, after book, very are [ph], over of million Florida multifamily portfolio. will gains in over we property turn Barry. believe gains, to we call XX% that, the With stable XX,XXX our $XXX have I

Barry Sternlicht

you, this you, add to and Thank Andrew lot a and everyone It’s Rina. what morning. dialing you, hard Rina Thank to thanks for Jeff. Thank in Jeff said.

we’re my car, we’re pits guess a and crash having had changed track reflects all on mortgage the and that. call they to think and Speedway the of pull is of getting we’ve I crisis they rates, and never of the tracking, in lapping the release the had it and this I sort two into tires pit that and at view because new all them are the experienced the in bodies, lenders kind the earnings quote around of the out my Indianapolis of

soon the significant issues on Jeff all within As another of having the ahead, referenced quarter. interesting whole filing, Jeff as the you’ll years have I in this necessary company. the which you recourses said, look crisis, investments recap usual we that for take have remember, with we’ve never out the to in a And the the middle that new gains as kind opportunistic cash learn this any be lot really seen in for will we structure. company, gain place And made. you’ve will securitization about of look a

no which its company, think the our and a we is But earnings of business, at advantage business the the fall. to earnings free into continues the has So, hope that that in Rina resilient. stabilized is the business held calls time, of performing kept that energy given went we mentioned not mentioned, has and still book no specifically the lines quality also period crisis. and have a pulled significant contribution which to be out at be power, with appropriate deterioration this our the what investing well energy the as margin back scale credit pauses lines up proven to we has mentioned of a to and since I I that are diversification overhead, significant from in extremely markets and But infrastructure decrease obviously, Jeff but a entire funny some

shareholders and that’s thing of our conduit, RMBS, were off panic in loans not never well obvious don’t is, securities. the good mispriced were we that as and they other The strength the particularly loans knew that including held had sheet, our in the we balance crisis and the we selling credits. they we we to – as given held

but its company, been Jeff a going sell say to cherry-pick And are to those do that States, of Europe said, the has a then at offense, to and recently strength deals tiny deal gains on on so We being and have looking opportunities committed we trying losses, to great the hold in are them cautiously be in United able around and to now, as careful. I’d world. we’re we’re we and

they that not the We’re the period it. we this is all for hope may hope that all we use vaccine but we’re successful, vaccine, use in also people it. actually obviously realistic

of be if to a I XXXX, these into would it’s be in XX the suppose. hotels, the told that be in to again, the retail with securities some ease the the and LTV. we property think astonished, me even we’re XX very running credit and lines the we’d is process have of XX% markets, sectors frankly quality that RMBS guess or years with. or started years returns years ago, I business, of something ago so the buying the the which book company we injured careful to a of have XX and been I the And you most But when continued surprising, ability whether structure earn kinds CLO capital but a for continue truly and which the of of say, helped it’s I fund our maturity assets. our matched warehouse obviously, available it’s been or position

they’re been are interesting And I the so on Even assume fine. for borrowers, done our into housing industrial managing scale issues the the and through The has classes, an Multifamily some small super has faced. that fire. It as we I’m team be creative work great NOI. that some with we’re dramatically. and all is that their asset they’ve blessed, markets management a has time, obviously, try markets just pitching the is own grateful a quite we’ve if quickly on job, everybody its through in enterprise team really work really deck. places, situations the on built remote, and with to deteriorations but up in with been company. holding that’s been hands in they’re in

office well, balance of looking I their they their relatively municipalities firms stable. was want employees we that. have One and were markets we out office. we watch but working of that prefer from major real back CEO back taxes and know silly mean, the try to as one the come on taxes real estate to he are things for just at with tech really, estate announced office, I people to budgets, have pressure we’re recently to is to the the to that come home. not the of said, And

hotel in office So, own We the Jeff to the I lot are office. that immediate extended stay have that New kind our people back opened stay And mentioned we us. to think, one like hotels the our opened of thing, then work brokerage, them at mortgage opened hotel also XXX actually, but from which which lender the a and debt we where up $XXX lender – into the don’t $XXX away asset, like several seen own, that of running an office. we’re it we’ve or basis on on, million and our from We in hotels equity and is XX% a come do York of Beverly pre-COVID. put people and of equity a property. never Hills, million we first our we Greenwich is choosing expected chain as allowing which know to has so. markets, is with we the extended around walk We points of overdone owner occupancy, and Miami to

just not like going asset don’t to to I asset; return they’re portfolio as we’re credit net also we think assets. of our so on are up questions. that’s equal were COVID, job deals stores. because that and you lease debris tell have the Retail sales a through know, benefiting I’m are and come cash-on-cash obviously Cabela’s quality we guaranteed, we stop, corporately are is gun by the was So, created the And really terrific. a is loans reward from think find to is great going XX I on risk shareholders. take those for and our

I think, but until coming said, they the aware one November. is as thing maturity we’re Jeff bonds prepaid, be in very much can’t of our of the next,

can we the So is. or finance except the We that. there’s do It’s hand cash a we different of if keep It way to rollover. not on do small will offering find can a what financing. a coupon nothing do of be now, have question to right a question

road and yields our every XX% we cash-on-cash quarter, take and long increasing that not we assets because to we’re the ball think get gain. we that sell just create So, play but frankly. are multifamily, That’s we them huge to onto can here, long want holding sell whereas why and gains have

we So, though couldn’t pay and the flows. of sell would we we could them taxes, and the cash duration replace

take with that Thank you. – we’ll take So questions. I’ll

Operator

with proceed Laws comes Our Instructions] [Operator you. question. of please Steven question line James. your from Thank the with first Raymond

Steven Laws

new non-agency of Lending, feel Hi, the it that like good a covered purchase well loans you how as closed. obviously, CRE that Infrastructure you’ve some morning. I do few looks Energy weeks the as made that Curious about on segment? any loans. Hancock first, you energy think Was that guys ago, that and about I the – there outlook guess Maybe class? you asset investments, hasn’t more growth looked at? on portfolio more on some sell the less talk you makes energy that positive the and negative Whitney sale you for or Was something read-through there. that or saw portfolio

Jeff DiModica

thought I Thank investments. buying. question. couple you The banks to seeing And that didn’t turn the Spreads have your up potentially quickly that portfolio it what actually update. widened have end with just regarding quarter. didn’t And energy generate there, bit bit. to COVID. specifically we We work and recognizing can line a the and levered out. back secondary, Denise out. you what question on we quite Sean on for excess think of We were were certainly have approved generating deal yields we pulled Great of before the in are We Steven. a this an Hey, could weeks Tate new quiet side. and me. we Denise they’re why on a buy that We the give cheaper little Murdoch I and Sean don’t ago

Sean Murdock

Sure.

loan of financing add doing we said, working we’re generating in the pre-COVID. we which as prunes returns opportunities in finds it portfolio And are I generating attractive hard CLO, think the energy investment putting of for and they’re it terms Jeff our out sort after a of that markets tenant mentioned, Jeff returns growing. on our of model COVID seeing versus the the business we’re stabilize nonrecourse activities. I’d term think sort were

Denise Tait

Sorry, it’s Denise.

on all gas deals. [indiscernible] deal, to deals oil drilling Hancock service Just and those add the were

in wellhead, investing not we’re So close is those what the deals to which are.

So lot have a associated they of risk those deals. with commodity

So not really for good our a comp book.

Jeff DiModica

And we both for helpful. now investments Sean I or XX that’s Steven, to and that finally, probably the CLO Okay, new talked portfolio complete have need so about.

can off to the come to a months sheet. next to So, be our move this over debt goal CLO we point the get where balance nine six to accretively will with

Steven Laws

election, Can the the not guess place you’re you morning got states, the on may your answer I different if date next I election. new presidential about depending and is. on we mail then doing. after next of may who talk the And call holds, Great. a conference Barry, a the votes the And little will – or question in president investments an you know have bit take

You’ve got a very strong sheet. balance

You mentioned year. debt maturities this maybe later raising some

investing election The different about REIT? were think mortgage kind aware of, that bigger think you fruition? I’m does taxes well. general, impact exchange, to as like then how risk, just selected eliminating November you’re the you about in regarding the how he’s that And things, real estate go to in if Biden’s how Starwood, proposed – real how estate sure the does Let’s if that come

Barry Sternlicht

underpinning rates,, in no tremendous think at is there’s rates yield – wide. the and are look real I world. we there’s And estate, too

something or estate like mentioned basis is XX like I which their lease think only trade where will not perceive people credit weakness something on I because I huge traded we a think at real streams, premium in invest five rate bonds can’t income There’s – points macro. reading yields really was you a the cap and that. Amazon

to and have at quality by to have the you go credit the look block cash flow and stream. of block, You invest micro you

decelerate means XX% think given, election on minus think economy, have – a if GDP. So, we that you I whatever Biden’s will the that

is issue. kinds for be stay there’ll low. think will assets I I we the like, And to of think, no relevant example, like-kind finance. don’t Rates exchange

net individuals and strip helpful of their required. by it’s to alternative, instead buying estate. tax go used unique isn’t because It because sell mostly isn’t seven franchise caps lease It at away. caps exchange should it’s they and like-kind real the no there’s again, six I think think centers And will I assets.

I So way. that’s an – fill. used them easy it loophole never to in the by my life, for I’ve

think never real won’t flow have either into values think been issues I down. building capital a because – or But So sword, It’s to situations, volume like other estate, buy build are and they’re municipalities, is you buildings double-edged going value those. means the of cities, or other buy if I new reducing a doubling taxing, affected. taxes a building, that property the

some assuming obviously families plans them the those there going buildings, certain wealthy thing own own property that pension assume but of And truth is the market. they is to people a tax own I public seems while it So to market. create be truth the shareholders U.S. them, the in – that are popular and to individuals. are they’re minority are not buildings, of

it’s later. So [indiscernible] and talk – to wealth and there’s certainly tax no me and

bitcoin It’s assets in bid real think, gone inflation. with globally. I So also not to to interesting that estate gold markets, pricing hard [indiscernible], haven’t me they’re rallying the really –

that will I think change.

that will stable, this will We I And begin Will if walking if is election. somebody around as feel pissed later, the vaccines comes you that will. will January, more don’t I vaccine the get climate know think think described with it be their doesn’t there Novartis quicksand. we once ground there’s a in and people produce out while be work it and work? vaccine like will people you presumably – off, but institutional, shifts. be there AstraZeneca

choppy So to be road, it’s have we a careful. and

long the We’re for here haul.

have quarter. not which million. I all but We’re I done of excess that mention, million at in a cash million is yield, our had didn’t of earnings. It’s obviously and share here should sitting is we’ve $XXX notes, on cash XX% my better $X.XX you to a business mentioned in $XX have one that lines you’re I $XXX in

capital work. for $X.XX So, put us the earnings that. once for you a can to we to period we add our do can’t But normal

our we because can dividend cover gains we books. However, have these all the in

– over careful. the not it’s don’t And interesting that election, little but yet. of time. And bit, head scratch think generically. – I kind think it’s I be so It’s And your a

are gains hedges. tax will all gains Usually move they can’t of know. – and on see real a capital changes will mean Will I estate? use periods complicated – really them time, taxes, I corporate tax the don’t I I to fee. as people as tax it. think do wealth capital to for well the people long schedules for inflation puzzle. as like increase hard think held We’ll It’s assets taxes, income hold depreciation I change assets longer.

taxable pension So, plans. there’ll especially necessarily sale, less most for institutions individuals, likely, be not or from

no both So, that answer cases. because had I idea argue the can I long

Operator

you. Thank

from proceed your comes question. question the of with line Rick Shane next with Our Please JPMorgan.

Rick Shane

the morning. this of Hey, guys. the Thanks that had should into an from continue And to income the spoken that par. would if for the be do Jeff, my a Or of you resi going possibility gain accreted purchase forward? about low and taking economic of think loan-to-value we recognize? securitization, that portfolio questions securitizing that above How you discount that you is contribution?

Jeff DiModica

securitizations just good Rick, fortunate we to discount, be you Thanks, were the them. Yes. able buy These questions. a today par. purchases, as to are above said, during COVID At

I to yield think the that equivalent a the trading are WACC, growth of single pools. underlying in Bs the about coupon are

at when So, very whatever obviously are these accretive that over can or XXX we sell is. AAAs

they So I is be loans back. most of volume. the in financing one out supply have. the doing will there’s markets have of coming originators roaring non-QM the And a be less less People cleaned come that reasons months. going lot to think have the The

reality they going whole strong we and bids buyers, So, given securitization it of them. the for. sector we that pretty forward, should who is where increase continue because like strong above to there characteristics purchased of significantly this credit are that like really pricing lot loan the and it be The bond to a we’ll like

gains As far as taxable. are the gain goes, these

hedges tax of But there the net what also will small at should hedge – – take have of of securitization. there’ll that, likely the have large done, that gains are some these. will be issues. are in rates be very And all the losses. we probably given They So some with time there along we

gains opposed as do running that, along say see couple all some just as through think head likely would different you’ll it Rina, we anything So, to securitizations, you next with have into coupon. the you I of fairly there? large

Rina Paniry

would business No. how our Star in this it’s that treated past the with just conduit say as mortgage consistent well we’ve securitizations I as capital.

the securitization. we recognized gain So at

Rick Shane

Great, perfect. guys. Thanks,

Operator

Thank you.

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

Tim Hayes

color Can Hey, little Hope bit CRE on more doing characteristics? stabilized good us first today? question, that just size My more you’re on higher maybe you’re quality, a well. guys. just seems assets. morning, It you towards all pipeline. migrating And like the us the give for

So up? spreads seeing yields are bit types you there about Or can in assets the in there talk asset or bit and curious, come you’re focusing you or LTVs that a maybe, a come just on? move also

Jeff DiModica

Dennis in immediately say, were that the is jump I saw and would Head wider. line. Jeff. the our we it’s opportunities I’m and of Sure, Yes. Schuh, I’ll start, Barry sure might significantly of Originations, handful on post-COVID,

coming tightening today. looking competitors not spread back people are some seen of to a There our market. – You’ve the as are invest here into lot

get opportunity for a our rates return some there bit of couldn’t to things into So, get is that little better set us on necessarily we to pre-COVID.

a seeing decent I that like. we really of think we’re amount multifamily

industrial We’re we that seeing really like.

are think, as sell to to our We’re less warehouse I to as with our and peers. you seeing among collateral sectors A-notes add of financing book use potentially them our [indiscernible] we or the opposed which, to CLO be know, want ability that lowest, as lines, the continuing than in to of half

bring less So fundings. look future keep less we to will continue of on to – to sort with assets

we future. we have the until out cautiously, into more we given little repayment we’ve pushed now, think more less to and uncertainty like future we repaid. I repayments, would obligations pushed the significantly how clarity have funding – around bit a future about get out Right funding

any Barry, meeting you stick be think could years that in we and I to a So other doing product considered do see that thoughts little much, not Dennis, conservative us retail, more done if few haven’t sectors some probably fairly which different? last you’ll have or our bit are anything, with types or volatile. the in

Barry Sternlicht

We maybe And loans, than our chunky, right? thing say I I’ll we’re doing bigger our we going only deck. half some to year. the is like mean, in $XXX million to the our the invest are $X.XX or break in Well, obviously, back peers. $X.XX – not year, It’s smaller in do want loans of to it’s patients make earnings. there’s of the

even on than our we model the real to So we’re we better out running is of loans well can we get put can third or less returns to estate that. get we [indiscernible] though capital – in book if are – And right north get XX a doing a energy to is now. the on

sort COVID. that the and deals. are Until here run of to where and the volume see sell, banks doing, So to I dam really the lenders for don’t collaboration Nobody wants one extensions really that to want of premium of is problem the have breaks don’t they of people sell. out sell they

will that are mean tunnel. And there end down. globally volumes people perceive light of think are transaction yet, opportunities So the I be financing the I down. at

have mentioned, bid have for them, our a of been there’s few have heavily their them. call Jeff they’re And of financing few, we as There one interesting come And even spreads [indiscernible] because, in, peers. being dramatically. though I come the [indiscernible] in. now. So spreads a It’s obviously, did

but these so If of sometimes seen where fund done – and lot a is They’re just for market. years hedge you see you’re or if a [indiscernible] this [indiscernible] would seeing and or [indiscernible] three [indiscernible]. it assets – trade little the less XX so pricing call we’ve my long, I times

the assets perspective mean, worked. business some wouldn’t locations that though know in it these is good like we these and and why of a have like looks I new I even never feel to asset, So

to drop – are we dramatically. lines. dropping. So opportunities. to just avoid is going and It’s try land And itself there already Construction

construction I multis will anything Hotels in you’ll of XXX,XXX think don’t tremendous then a their will see I office. finish see spec be a too units large. think starting from and people lot supply. peak in pipeline. down I actually And reduction That’s

travel mean be you’re injured traffic’s no comes it’s there’s levels going not extraordinary that have are Those business deals, to for you it XXXX, troughed be time two international but that restored of asset for classes, to future return will I until air could it’s travel get extraordinary spreads asset and I where demand pre-COVID two not question the going a like – that isn’t period the retail. those will to and look hotels some classes the anytime to while. areas think was back. in predict the to the going

had underwriting the heck. underwriting their – be than competitive it’s is different So as to before. we going And we’re

tough. [indiscernible]. the risk. that. really We do a So that, a space. Dennis we deal I of lot this reward support risk through just and why like that’s strong – can in anyone Jeff a there’s like now, that, think? And but we Having don’t several well – see there’s have we go take we can can isn’t would we that years, What right four on the will going be on probably buy said – think we to this pass do a as as just survive, went survive COVID if shop

So it’s I by think way. the for tough too, the equity markets,

Sean Murdock

Barry pages our a two personally lot [indiscernible] small. them. where every almost I two deal the pipeline pages, To that which to is a were subscriptions very to all started of full to similar of we services about would I new today Barry show is of done almost that finish all we up, on be that them question get say, gets because pre-COVID. do would long, It

and loans bid, funds would is and we like and say seniors our decent have when or on, mezzanine, liked of underwrite who try We – from budget others own what to our where them We’ve we are that the Street our would ourselves. XXX loans bid in the sell then why so a use something off hedge create but which and The or own red the also, a of we do originate above mezzanine cooking those deals inside care. originates would eight seen so that sell originated the points two back credit have we’ve are voracious, of. chunk inside trade I our sell it’s And is the capability they they we seen. that thought at and mezzanines would to origination to we basis it’s that of multiple basis hundreds Street the actually of don’t by returns that very causing little and they loan where could points to zone begin

the for answer. long Sorry,

Barry Sternlicht

Jeff.

Jeff DiModica

say down by on up that about we deal, levels. by Barry average, points want leverage generically say by basis that’s I’d pre-COVID asset, generically asset asset just be probably But to street. it’s XXX And points lending I’d are versus returns as are them street about generic. classes five deal on said, the

Tim Hayes

Yes. I a information. mean, I there. lot appreciate of the good response That detailed was

holidays, of about you begin in then in And to it that. just you I portfolio. it’s if to kinds you when if just having haven’t to the what additional give those just on And you conversations it appreciate or de-leveraging needed ups of the So, on – those extend would those too margin would other agreements? Can those the and me curious, that take, placed it’s loan if hotel duration agreements? extending remind whether be want put just call were place early

Jeff DiModica

year. the Yes. I general, Thanks question. year-end for this they say would expire in around

are hoping and better comes XX% that hotels a bit across that still In total those. $XXX the area. XX% performance little My guess start year-end. fraction general, to great you not things in somewhere previously, potentially the small is a only that in we de-leveraging, was certainly which have down year-end the come a another We’re de-leveraging but see paid was million of if

LTV LTV lending of the hold the or the So, a hoping line. able loan XX at we’re a and to assets. that, bit scare a The huge we’re sort us, like come on us hotel are into bank that little liquidity if banks but, something lines back numbers that XX QX generically, to for writing not these

leverage a seniors. from already of by point XX%, down level at it paid we’ve the ridiculously if sort So, them some low becomes

round So the next be hope. is very my small will

Tim Hayes

it. Got

last cash then lot of like sounds in circling like little also back elevating sounds it anywhere. my the pick you’re in bit here, levels year. the but I should going second know a up end good a And on A investment capital work, on dividend, Okay. just one activity for aren’t guys your opportunities half

to near I knowing foreseeable be might the continuing to just decision, if thinking a earn just but but back that you’re wanted, So, how, see not circle and pipeline? it dividend board earn under how future, could wanted know term you a about in the it’s for that you

Barry Sternlicht

the to I’m – dividend. The a market again, doesn’t it’s big And shareholder dividends. maintain the I’d think we’re love myself. maintain no going to we Can comment. say the –

I think the Street paying has $X.XX, told. I’m us

So trades – and the stock a ridiculous at yield.

So given to peers. in discount our what’s going the on

– of holding and competitors plenty stocks So it’s really actually are any up. that dividend their paying aren’t and there’s

to as month comments the we’re dividend. would I the dividend. world be it a can’t want just – moment, at we but and by you don’t normal at we can So held cover obviously going month. just normal time look my some intrigue soon. get the We to [indiscernible] – we’ve And we to think And it

So, that. at we’ll it I think leave

Operator

Thank you.

of from with line proceed comes Bahamondes Our George next question. Deutsche your Bank. with Please question

George Bahamondes

morning. good Hi,

other modified I’m You mix retail. that context accurate Imagine the were loans kind cited hotel confirm I loans a some secondly, during hotel majority that giving some were if wanted or just there there. was were the the quarter. if retail, roughly ones to and the around When XX of of maybe more that not

Jeff DiModica

correct. absolutely that Yes. The that’s hotel was vast you majority suppose as

some on very the been very some modifications technical book. are small – have mods others done small, mostly to date, majority have of The that hotel but been the

George Bahamondes

comments my talked for going callable? you’ve And sort Or be this Great. on performance just second billion how the much is of those $X you on maybe Can of milestone? unfunded detail to revisit commitments. question news dependent good money some about it’s

Jeff DiModica

you understand callable? $X I much can… billion is How if of not the exactly I’m sure

George Bahamondes

like news. Right. good Even

the how going $X the of some milestone, of that? dependent performance wondering, of right? it’s lease-up of is just Or on to any to basin, sort back sort maybe kind much tied be just So billion to

Jeff DiModica

of Yes, future good about a I typically third thirds about And news said in my is comments, two on construction. I is believe draws money. it

billion and will none would our us. our a of us, alongside alongside So, we that of future than of fund fund fundings is I banks always and and from billion $X assume us that the leaves $X us assume banks gross. of net less

and book that [ph] million if it news math, construction of next the $X years, that drawers on expect book so our and in out amount a of money come exactly billion given extremely the a and to million using or same of in were over we three back repayments. coming numbers the into size manageable [ph], half the good So $XXX $XXX

Operator

Thank you.

question. Our from next proceed Please line your Wells question the with Fandetti with of comes Fargo. Don

Don Fandetti

Yes, New office. some bearish Barry, on there’s views York

office somewhat a where it about overdone. implying provide of had your thoughts tech You on was kind you CEO little you [Technical spoke commented York Can Difficulty]. bit New that you and the to, maybe

Barry Sternlicht

Yes. I you tax some real estate because office the facing be tremendous on do them. think big, will the and troubles properties pressures big blue cities they’re can on are taxes still

and can’t are hotels You street-level tax closed. retail

much leases of so [indiscernible] when to expenses a the lease written those So will rent know, pay to so But it’s Rent are increase to while, it’s that for in has expenses way to – going I – increase lease tenants much landlord rolls, so up. the as the structured, the and the sometimes, as fall up the is it taxes. going will think not be meet go increases. even have the you

I sub XX% for think is nearly Francisco San and you’re space the mainly up office Francisco, of in in seeing San interesting led. markets, Downtown some now York. issues New emerge

the in – land Francisco. in see is So issues the San I tech and suburbs. rents and I in else think clean bit to and go has heart the the decrease thinking can are they the fact think you’re less a now, San right going – downtown of At somewhere that significant work people a being Francisco

has And some CBD so the issues.

– think I it’s City New funny. York in

I what really to be the got I COVID will think protests, was I even wasn’t And work or – in some would criticism And a want already values I riots. New their actually down New in turned which but do down York, be to York. people think values New York. saying down referring offices. of of into lot from for They’re

safe. nothing aren’t a downtown a out markets. downtown or downtown urban or think York to whether or faster New the in will Washington And general the there’s And Chicago. mayhem it’s Atlanta that cities perception than clean I return downtown

into can’t mayors attention safety. going real have thing city about the to price think to one estate. you the safety, pay And I are to

country, So really it’s move. important taking which suburbia is of to of you to place, safety the exactly is what aren’t get It’s expect. the and this that issues, might flight not safe, going control cities these And kind fascinating. they’re across

disappear. lease took to XXX,XXX square already and [indiscernible] be up All just [ph] building. think middle And down. foot is the going I rents, is the as on of about in talking not doing in will a New I Facebook pressure and it announced, the pointed on York margin [indiscernible] there we’re out, or COVID,

and square XXX,XXX I’m deal in space So of – Portugal building aware was Facebook in in and just foot another Boston. signed

these So And tech sign to getting firms, hard companies. time a to Tax It’s figure always deals the are we can’t are visit a most what lease were mall property. in the pretty they sort distributed taking way looks future of when signed. trying now like. out they the CEOs and land

asked as loyalty, at a talk that can CEO in look I companies kind people don’t cave corporate think do the you program home don’t to build sit – in have. that its wealthier you I the and So people WiFi don’t culture deal And with Most tech connectivity Alaska work. about do do like that. have I who how how have and then other and the that of and

recently, it everyone little as a from is, discriminatory to it’s So to [indiscernible] force said work home.

– and anyway. you that So can’t obviously, industries, service do

much – that’s in I resilient now on. more York’s not back but the city the that markets. And going to chapter’s means blame city I’m yet So safety don’t don’t is the – – And think open tough. written think want go than New the people city and I hardly – the something not the council, administration trouble. of I think right and to on it to

are over Miami, it’s Nashville watch Houston, benefit Texas Orlando, benefiting from from There coming And other probably cloud Austin, think Boston’s whether Capital, there Tampa, values, this. but Florida this I affect the kind that’s will and could or other Jacksonville, larger cities And these of it property Dallas, places Georgia. cities. or out cities. issues otherwise, we will for. fine, are in something

Jeff DiModica

really has portfolio That’s them is And a three one it. of X% loans. three office. and loan Manhattan of be pushed loans, feel taking good large in a the less will a our office. but is on bulk tenant of about including percentage Manhattan long portfolio to We those portfolio, small this Two way are us our diversified of for and investment grade Don, than I but expect say Barry in very time, we again, small

Operator

Thank you. Ladies and from come question. line proceed with gentlemen KBW. our Rahmani last question for with today of the your will Jade Please

Jade Rahmani

the of Thank New get some future New the city loans lot in York on terms wondering could performance? that much. Starwood, a very are credit positioned also provide might quantify exposure. they I And if you that I in specific commentary and was to how questions of as market you be York few and

Jeff DiModica

is area today. Great, basis. In are total, book City question. in XX% exposure for our thanks have office. York the XX% the including there About condos There that significantly low of New of and loan Jade, about is all these condos

believe a have in feel as about spoken the few very that I our we a condo good before on at reserve would, You of loan, XX we the talked that that. have of months is in about that, I recourse across and them guarantee of we feel on a And one process pretty we again, We have months that that units full have and so the condos. from book I selling that condo we XX to be the do it with past, the good. the still will next recourse. have taken portfolio, it, still feels look that done we away rest in about with

Barry Sternlicht

in it interrupting you X%? question, on reconcile to said York the just and last question. you New you, in in comment, New XX% Jade’s the it answer I’m can first your And was you said [indiscernible] York was You

Jeff DiModica

Absolutely.

of in X% Brooklyn Long the or is in And at so that, is about in book or we’re office total, and our Manhattan. here look So XX% as X% of rest I is Island.

condo office hotel out includes of New portfolio our of our all about York portfolio So X% then XX% multifamily, City of, office Barry. and is and

one only Our million… is hotel loan $XX

Barry Sternlicht

of north the loan $X.X. $XX our and In is billion book

in got you too. You said mind

Jade Rahmani

loan loan the this then terms of the recent in given percentage at the just portfolio Great. what of for A-note out is taking overall point? being the Thanks portfolio And sales, questions.

Jeff DiModica

I want don’t I give to number. exact have you exact can sure an that number. make we

the Rina, obviously the a my it CLO to XX% would we’re have don’t tongue B-note. bank about the exact unless we think we Jade, rest I have of And you effectively come noticed, have on and I but with for you can today percentage lines. B-notes large number the back on tip

Rina Paniry

to do you. I not. come will I back

Barry Sternlicht

just point or about but just real not on that line estate. I books, we out have have energy anymore estate warehouse a talking on set different the this again lines you real of line, FHLB

Andrew Sossen

commercial the know, billion $XXX book. $XXX of million, out lending There’s preferred Andrew, you about it’s and around Jade about, a $XXX equity. $X.X million million in

out the assets. call value of $X.X So around that’s $XXX billion. And million of carrying

Jeff DiModica

Andrew, I think he’s A note. we considering where sold also things

should think him back to the we get I number So includes with exact that.

Jade Rahmani

Thank on you very follow later. much. that I’ll up

Operator

floor session. you. comments. back turn final Thank I’ll that to and gentlemen, Mr. for the Ladies question-and-answer our Sternlicht concludes any

Barry Sternlicht

The thanks questions and for operator, fact joining so we’re available proud of your the to for without we’ve you, going your say today. I’d Thank one seven And answer to a [indiscernible] And very that years so. thing us to is, questions for row. I’m this always in do and and award won

we’re Have you you consider appreciate and with great in the and things Take care. we without a Thanks. us us. list to want the we doing understand, what book holiday. So time supporting proprietary, spending

Operator

today’s This concludes you. conference. Thank

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

Starwood Property Trust (STWD) 5 Aug 202020 Q2 Earnings call transcript