Starwood Property Trust Inc.

Greetings. Welcome to the Starwood Property Trust first quarter 2021 earnings conference 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 Tannenbaum, Director of Investor Relations.

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 March 31, 2021, filed its Form 10-Q 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 a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied and 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 may be discussed on this conference call. A presentation of this information is not intended to be considered in isolation or as the substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures 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 Sternlich, the company's chairman and chief executive officer, Jeff DiMatteca, the company's president, Rina Paneri, 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. This quarter once again highlighted the power of our diverse platform, with distributable earnings, or DE, of $151 million, or 50 cents per share. We were active on both the left and right-hand sides of our balance sheet, deploying $2.7 billion of capital in the quarter and successfully completing two CLOs totaling $1.8 billion after quarter end. I will start my segment discussion with commercial and residential lending, which contributed DE of $147 million to the quarter. In commercial lending, We originated $2.2 billion across 12 loans for an average loan size of $184 million. We funded $2 billion of these new loans, along with $175 million of pre-existing loan commitments. These fundings were offset by $1.1 billion in loan repayments, bringing our commercial lending portfolio to a record $11.2 billion at quarter end. We continue to see strong credit performance in our loan portfolio. with our weighted average risk rating improving from 2.7 to 2.6 in the quarter and only one loan for $188 million rated in the five category. This loan comprises the majority of our limited retail exposure and was placed on non-accrual in the quarter. We believe that the principal and interest accrued to date on this loan are fully collectible. As of March 31st, only 2% of our loans are on non-accrual. The remainder are 100% current and we have seen nearly all of our loans, which required partial interest deferrals during COVID, return to performing status. Since COVID began, we granted 11 partial interest deferrals for loans with a UPB of $1.1 billion. Today, we have only one $41 million retail loan remaining on its partial interest deferral of $84,000 a month. Our weighted average LTV remains strong, falling again this quarter to 60.1%. We continue to see our sponsors support the significant equity in their assets with $582 million invested and $715 million committed since COVID began. Consistent with this positive credit performance, our general CECL reserve remained relatively flat at $61 million. As we have discussed previously, the CECL rules require that we take reserves on all loans, including newly originated loans. Although we recorded $1.4 million in reserves on new loans in the quarter, we also saw reductions in reserves for repayments and for improvements in performance on existing loans. As a reminder, these reserves are typically added back for DE purposes. However, during the quarter, we recognized a DE loss of $8 million related to an unsecured loan for which we recorded a specific GAAP CECL reserve last quarter. Just two years ago, we discussed with you our first foreclosure on a loan that was net leased to a single grocery tenant who filed for bankruptcy. The 440,000 square foot distribution center in Montgomery, Alabama had a loan balance of 17 million. And at the time, we established an $8 million GAAP reserve based on its appraised value. Over the past two years, we leveraged the Starwood platform to release and market the property. The property was sold this quarter for $31 million, resulting in a GAAP gain of $18 million and a DE gain of $8 million, a very successful outcome for our shareholders. Turning to our residential lending business, we securitized $384 million of loans in our 10th securitization for a net securitization DE gain of $13 million and sold 87 million of our high LTV loans for a net VE gain of 4 million. These sales, net of purchases of 209 million in the quarter, brought our loan portfolio to a balance of 596 million, a weighted average coupon of 5.9%, average LTV of 67%, and average FICO of 732. Over the past several months, we have worked to transition the loans on our $2 billion federal home loan bank facility which was fully repaid this quarter at its maturity. In connection with the transition, we executed a new $1 billion warehouse facility in the quarter, bringing our total non-QM financing capacity to $2 billion. With these new facilities, we expect to realize returns on our loan book that are consistent with historical levels. Next, I will discuss our property segment, which contributed $22 million of distributable earnings to the quarter, Credit performance remains strong in this segment, with rent collections at 98% and weighted average occupancy remaining steady at 97%. This quarter, we obtained supplemental financing of $83 million for Woodstar II, our second affordable housing portfolio. The upsides increased the cash-on-cash yield for this portfolio to 18.8% and increased yields on the overall segment to 16.9%. The performance of our Florida affordable housing portfolio continues to exceed our expectations. Area median income levels, which govern rent for the over 15,000 units in this portfolio, were recently released. Higher median income for Northern and Central Florida, where this portfolio is concentrated, resulted in a blended rent increase of 4.1% for 2021. This is in addition to the 4.7% increase released last year. These rents create a new floor from which rents cannot decrease going forward. Despite the new maximum rent levels, we did not increase rent on any of our affordable housing tenants last year due to COVID. We instead began rolling out these higher rents on January 1st and will continue to do so over the next 12 months. As a result, the effect on earnings will be gradual over the coming quarters. Next, I will turn to our investing and servicing segment. which reported DE of 24 million in the quarter. In our CMBS portfolio, we continued to opportunistically sell assets, with $12 million of securities sold in the quarter for a net DE gain of 3 million. In special servicing, 517 million of loans entered servicing in the quarter, while a similar amount resolved, resulting in our active servicing portfolio remaining steady at 8.8 billion. As we have said before, We expect slightly longer resolution times and thus delayed fee recognition for the assets which recently entered servicing. Our NAMES portfolio ended the quarter at $80 billion. And finally, in our conduit, we securitized $85 million of loans in one transaction at profit levels consistent with last quarter. We typically see lower securitization volume in Q1 and expect to see significantly higher volume next quarter. Concluding my business segment discussion today is our infrastructure lending segment, which contributed DE of $7 million to the quarter. We acquired $86 million related to new loans and funded $14 million under pre-existing loan commitments. These fundings were offset by repayments of $19 million, increasing the portfolio to $1.7 billion at quarter end. We continue to be pleased with the credit performance of this portfolio, which once again had 100% interest collections in the quarter. I will conclude this morning with a few comments about our liquidity and capitalization. Subsequent to quarter end, we completed two CLO financings, our inaugural $500 million infrastructure CLO, which was the first of its kind, and our $1.3 billion CRE CLO, the largest CRE CLO issued after the GFC. Both represent a significant expansion of our credit capacity and a continued diversification of our funding sources. They also include many structural benefits, including flexibility to provide replacement collateral, match funding, and the removal of recourse and credit marks. Jeff will discuss each of these in more detail during his remarks. We ended the quarter with $7.3 billion of availability under existing financing lines unencumbered assets of $2.8 billion, and an adjusted debt-to-undepreciated equity ratio of 2.3 times. Pro forma for the two CLOs, this ratio is 2.1 times, in line with last quarter. This credit capacity, in addition to our current liquidity of $642 million, provides us with ample dry powder to execute on our pipeline. With that, I'll turn the call over to Jeff for his comments.