Starwood Property Trust Inc.

Greetings. Welcome to the Starwood Property Trust fourth quarter and full year 2021 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. And please note that this conference is being recorded. I would now like to turn the conference over to Zach Tannenbaum, head of investor relations. Thank you. 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 31st, 2021, 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 statement. I refer you to the company's filings made with the SEC for a more detailed discussion on 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 in this conference call. A 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. Reconciliation 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, Reena Paneri, the company's chief financial officer, and Andrew Sossins, the company's chief operating officer. With that, I am now going to turn the call over to Reena.

Thank you, Zach, and good morning, everyone. The fourth quarter capped off a record year for us with distributable earnings, or DE, of $335 million, or $1.10 per share for the quarter, and $794 million or $2.63 for the year. DE in both periods includes a $191 million or 62 cents per share gain related to the sale of an interest in our newly established Woodstar Affordable Housing Investment Fund, which I will walk you through later. Throughout 2021, we were active on both the left and right-hand sides of our balance sheet with a record $16.7 billion of new investments across businesses funded by multiple capital sources, including inequity issuance, corporate debt, and CLOs. I will start my segment discussion this morning with commercial and residential lending, which contributed DE of $126 million to the quarter. In commercial lending, we originated $4.4 billion across 33 loans in the quarter, bringing our full year volume to $10 billion across 72 loans, the highest origination quarter and year in our 13-year history. Of the full year amount, 42% was multifamily and 15% industrial, contributing to the transformation of our collateral mix, which is now 27% multifamily versus 16% a year ago. During the quarter, we funded $2.6 billion of new loans and $244 million of pre-existing loan commitments, with most of our funding back-ended to the last 35 days of the quarter. We continue to see increasing lending opportunities across Europe and Australia, with international loans representing 33% of our fourth quarter originations and 28% of the full year. The $10 billion of loans we originated this year were 100% floating rate, and 98% of our $14 billion year-end balance is likewise floating rate. We maintained LIBOR floors on nearly all of our domestic loans as rates were rising. Our weighted average floor has declined as some of our higher LIBOR floors have repaid. Our domestic loans started the year with a weighted average floor of 141 basis points, which is now 66 basis points today. Our existing above-market floors will become less impactful to earnings over time as older loans repay. During the quarter, we received $600 million from loan repayments and $64 million from A-note sales. bringing total repayments for the year to $3.7 billion and A note sales to $330 million. Nearly a third of our 2021 repayments were in the office sector, which is now less than 30% of our loan portfolio. The credit performance of our portfolio continues to be strong, with a weighted average LTV still at 61% and a weighted average risk rating falling to 2.6 this quarter. Our CECL reserve remained relatively flat to last quarter, at $59 million, with reserves for new loans mostly offset by a $7 million charge-off related to a loan on a Chicago department store out parcel. We previously impaired this loan for GAP purposes and recognized the reduction to DE this quarter due to an expected sale of the asset and a corporate guarantee that we previously deemed to be partially collectible. In our residential business, we acquired $1.8 billion of loans during the quarter bringing our total purchases for the year to a record $4.5 billion. Our on-balance sheet loan portfolio ended the year at $2.6 billion, a weighted average coupon of 4.2%, average LTB of 67%, and average FICO of 748. A billion dollars of our year-end balance represents agency investor loans, which we acquired opportunistically and which carry coupons that are approximately 90 basis points tighter than non-QM. Subsequent to quarter end, we sold $745 million of these loans to a third party, bringing our agency investor loan portfolio to $360 million today. On the non-QM side, we securitized $870 million of loans in our 14th and 15th securitizations this quarter, bringing our full year volume to six securitizations totaling $2.3 billion. Our retained RMVF portfolio ended the year at $250 million. Next, I will discuss our property segment, which contributed $203 million of DE to the quarter. As discussed on our last earnings call, during the fourth quarter, we established the Woodstar Fund to hold our over 15,000 affordable housing units in Florida. The fund was actively marketed, and an aggregate 20.6% interest was sold to sophisticated global institutional investors at an asset valuation of $2.3 billion. You will notice a change in the presentation of our financial statements as a result of the accounting for this fund. For GAAP purposes, the fund follows investment company accounting, with investments reported on its balance sheet at fair value and changes in value recognized through GAAP earnings each quarter. Because we serve as managing member, we consolidate the accounts of the fund into our financial statements, which means we retain the fair value basis of accounting for this investment. Due to this accounting change, we recognized a $1.2 billion increase to GAAP equity for the step up of 100% of our existing basis from depreciated costs to fair value. Because we received cash for the 20.6% interest that was sold, you will see a GAAP to DE adjustment for our recognition of a $191 million DE gain related to this portion. Prior to establishment of the fund, we upsized the debt of Woodstar One by $163 million in October at a coupon of LIBOR plus 211 with LIBOR capped at 1%. Our refinancings to date for this portfolio total $350 million, more than fully returning our original equity basis in this investment. In connection with the upsize, we wrote off deferred debt issuance costs of $5 million which flowed through both GAAP and DE for the quarter. Despite both the gain and the refinancing generating distribution requirements, we did not pay a special tax distribution. This is because we were able to meet 100% of our distribution requirements via our carryover dividend from the fourth quarter of 2020 and a full four quarters of dividends in 2021. We have now largely exhausted our dividend cushion and will not easily be able to shelter future gains of this magnitude. Next, I will discuss our investing and servicing segment, which contributed DE of $44 million in the quarter. This year proved to be another record year for our conduit, Starwood Mortgage Capital, who completed two securitizations totaling $207 million in the quarter, bringing our total securitization volume for the year to $1.2 billion in a transaction. In our special servicer, we obtained six new servicing assignments totaling $5 billion during the quarter and 26 assignments totaling $21 billion during the year, bringing our named servicing portfolio to $95 billion, the highest level since 2017. Our active servicing portfolio remained steady at $7.3 billion as $500 million of resolutions were offset by transfers into servicing of the same amount. Concluding my business segment discussion is our infrastructure lending segment, or SIF, which contributed DE of $12 million to the quarter. We acquired $427 million of loans in the quarter, bringing our total volume for the year to $772 million. In the quarter, we funded $411 million related to new loans and $17 million under pre-existing loan commitments. These fundings outpaced repayments of $148 million increasing the portfolio to $2.1 billion from $1.8 billion last quarter. I will conclude this morning with a few comments about our liquidity and capitalization. We continue to focus on non-recourse and non-mark-to-market financing. Since quarter end, we completed two CLOs, a $1 billion CRE CLO and a $500 million infrastructure CLO. We also completed our fourth sustainability bond issuance, a five-year $500 million issue with a fixed coupon of four and three-eighths percent. This is in addition to our fourth quarter capital raises where we issued $400 million of three-year sustainability bonds at a fixed coupon of three and three-quarters percent and raised $393 million of common equity at a premium to book value. We are able to issue these bonds given our unique platform which has investments across the green and ESG spectrum. including loans on green certified buildings and commercial lending, loans to homebuyers within residential lending, affordable housing within our property segment, and renewable energy within our infrastructure segment. In addition to financing capacity available to us via the corporate debt and securitization markets, we continue to have ample credit capacity across our business line, ending the year with $6.9 billion of availability under our existing financing lines, unencumbered assets of $3.4 billion, and an adjusted debt to undepreciated equity ratio of 2.3 times, which is down from 2.5 times last quarter. With that, I'll turn the call over to Jeff.