Starwood Property Trust Inc.

Greetings. Welcome to the Starwood Property Trust fourth quarter and full year 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the call over to your host, Zach Tanenbaum, Head of Investor Relations. You may begin.

Thank you, Operator. Good morning and welcome to Starwood Property Trust's earnings call. This morning, the company released its financial results for the quarter ended December 31, 2020, filed its Form 10-K with the Securities and Exchange Commission, and posted its earnings supplement to its website. These documents are available in the Investor Relations section of the company's website at www.starwoodpropertytrust.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. I refer you to the company's filings made with the SEC for more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made during the course of this call. Additionally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measure prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov. Joining me on the call today are Barry Sternlicht, the company's Chairman and Chief Executive Officer, Jeff DiModica, the company's President, the company's chief financial officer, and Andrew Sossin, the company's chief operating officer. With that, I am now going to turn the call over to Rina.

Thank you, Zach, and good morning, everyone. Before I walk through our financial results, I wanted to briefly comment on our non-GAAP earnings measure. What we used to call core earnings is now called distributable earnings, or DE, in order to more accurately describe what this metric represents. While the term has changed, the calculation has remained the same. You will find additional disclosures about this non-GAAP measure in our 10-K. Despite a volatile market backdrop caused by COVID, the fourth quarter capped off another successful year for us, with DE of 50 cents per share for the quarter and $1.98 for the year. Throughout 2020, our liquidity and capital deployment were strong, which would not have been possible without the strength of our balance sheet and our diverse platform with multiple business lines. Even after 4.6 Billion dollars of capital deployment, three billion of which occurred during COVID. And after early retiring $500 million of unsecured debt, we maintained an average cash position of over $700 million post COVID. I will start my segment discussion this morning with commercial and residential lending, which contributed DE of $141 million to the quarter. In commercial lending, We originated five loans and a small upsize for a total of $454 million in the quarter, bringing our full year volume to $1.9 billion. Of this amount, $1.1 billion was originated after Q1. During the fourth quarter, we funded $333 million related to new loans and an additional $334 million under pre-existing loan commitments. We also received $250 million from loan repayments, and $47 million from a note sale, bringing our commercial loan portfolio to a record $10.2 billion at year end. Our interest collections remain strong, with 98% of our loans current as of quarter end. We continue to see improvements in loans, which required partial interest deferrals post-COVID, particularly in loans secured by hospitality assets. At year-end, we had five loans which continued to require the partial interest deferrals granted to them post-COVID. The quarterly deferred interest related to these loans is $4.6 million. These modifications were short-term, generally permitting only the temporary deferrals of interest and the repurposing of reserves, and were often coupled with additional equity commitments from sponsors, which totaled $650 million since COVID began. On the CECL front, We reduced our reserve by $27 million this quarter, bringing our general reserve to $62 million and our specific reserve to $16 million. The decline was primarily due to the write-off of a $22 million specific reserve related to a $71 million loan on a residential project in New York City, which is now reflected as property on our balance sheet. We also fully reserved for an $8 million unsecured loan related to this project. Because these loans were on non-accrual, there is no impact to interest income going forward. We ended the quarter with a weighted average risk rating of 2.7 on our five-point scale, down from last quarter's 2.9 and in line with pre-COVID levels. Our residential business was also active in 2020, with four securitizations totaling $1.8 billion and loan acquisitions of $1.6 billion. of which $1.2 billion were acquired after Q1. During the fourth quarter, we unwound the first of our nine life-to-date non-QM securitizations, which will allow us to significantly reduce the financing cost of these loans once they are resecuritized. In addition to the $177 million of loans we acquired in the unwind, we purchased another $146 million of loans in the quarter. We also securitized $327 million of loans in our ninth securitization, bringing our loan portfolio to a year-end balance of $933 million, a weighted average coupon of 6%, and an average FICO of $727. Our retained RMBS portfolio ended the year at $236 million after selling $136 million of bonds that we retained from our second quarter securitization at a gain to our cost basis. On the financing front, we executed two new facilities for $725 million, one during the quarter and one subsequent to quarter end. After the quarter, we repaid our federal home loan bank facility and transitioned the loan secured by that line onto our existing facilities. Next, I will discuss our property segment, which contributed $19 million of distributable earnings to the quarter. This portfolio continues to perform very well. with blended cash on cash yields of 15.7%. 2020 rent collections were strong at 98% and weighted average occupancy remained steady at 97%. In our investing and servicing segment, we reported DE of 32 million in the quarter. Our special servicer was very active in 2020 with $5 billion of loans transferring into special servicing since the onset of the pandemic. This does not include and a named portfolio of $81 billion. In our conduit, spread tightening in the fourth quarter allowed us to achieve record execution levels as we securitized $455 million of loans in two transactions. This brings our total securitization volume for the year to $942 million in five transactions. Concluding my business segment discussion is our infrastructure lending segment, which contributed DE of $6 million to the quarter. We funded $81 million related to new loans and $22 million under pre-existing loan commitments. These fundings were offset by repayments of $103 million and sales of $22 million, leaving the portfolio at $1.6 billion at year end. We continue to be pleased with the credit performance of this portfolio, which had 100% interest collections in the quarter. We also recognized a $7 million decrease in our CECL reserve, due to improved macroeconomic conditions in the project's finance space. Subsequent to quarter end, we priced our inaugural infrastructure CLO, which Jeff will discuss in more detail during his remarks. I will conclude this morning with a few comments about our liquidity and capitalization. As we mentioned last quarter, we executed two debt offerings in October, a $250 million upsize to our term loan B, and our first $300 million sustainability bond issuance. As I mentioned before, we also early retired our $500 million unsecured debt that was due in February 2021. We continue to have ample credit capacity across our business line, ending the year with undrawn debt capacity of $7 billion, unencumbered assets of $3 billion and an adjusted debt to undepreciated equity ratio of 2.2 times. In addition, our liquidity remains strong with cash and approved undrawn debt capacity of $649 million as of Friday, providing us with ample capacity to execute on our pipeline. With that, I'll turn the call over to Jeff for his comments.