Starwood Property Trust Inc.

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 in the 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 an 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 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 Sossin, the company's chief operating officer. With that, I'm now going to turn the call over to Reena.

Thank you, Zach, and good morning, everyone. This quarter, we reported distributable earnings, or DE, of $162 million, or 51 cents per share. GAAP net income was $212 million, or 67 cents per share. Our GAAP book value grew by 22 cents in the quarter to $20.68, with undepreciated book value increasing 25 cents to $21.51, an increase of 26% from a year ago. We had an active quarter with $3.8 billion of new investments across our businesses and fundings of the same amount. The investments were funded by available cash and loan repayments, as well as existing and expanded asset-specific debt capacity, which I will discuss later. Beginning my segment discussion this morning is commercial and residential lending, which contributed DE of $153 million to the quarter, or 48 cents per share. In commercial lending, we originated $2.2 billion across 15 new senior loans, all of which were floating rate. We funded $2 billion of these loans as well as $239 million of pre-existing loan commitments, with most of our funding back-ended to the last month of the quarter. Given decreased and delayed market transaction volume, repayments were lower than our typical run rate at $319 million this quarter. While levels will still likely be lower than normal for the remainder of the year, we expect them to exceed what we had in the second quarter. To that end, for the month of July, we have received $283 million in repayments. Our loan portfolio ended the quarter at a record $16.5 billion, up 43% year-over-year. Of this amount, 92% represents senior secured first mortgage loans, and 99% is floating rates. Although we did not see a meaningful impact this quarter from rising interest rates due in part to some of our higher LIBOR floors, we expect to benefit more going forward. Company-wide, inclusive of floating rate assets and liabilities in all of our businesses, a 100 basis point increase in base rates would increase annual earnings by $33 million. With our continued investing outside of the U.S., particularly in Europe and Australia, International loans represented 58% of our second quarter originations and 28% of our loan portfolio at quarter end. We hedged 100% of our expected foreign currency cash flow exposure on these loans, including both principal and interest. As a result, despite significant volatility in currencies this quarter, the impact to book value was an increase of just six cents. The credit performance of our portfolio continues to be strong, with a second quarter origination LTV of 60%, a weighted average LTV of our overall portfolio of 61%, a weighted average risk rating improving to 2.5 from last quarter's 2.6, and 100% of loans current as of quarter end. On the CECL front, our general reserve increased by $8 million from last quarter to a balance of $59 million, reflecting market uncertainty and the impact of rising rates. During the quarter, we foreclosed on a five-rated $50 million first mortgage and med loan related to a 41-story office building located in the Galleria Office District of Houston. The net assets of the property, including the assumption of an $88 million third-party first mortgage, were recognized at the carryover basis of our loan because the appraised value of the property exceeded the debt. Our last dollar basis in the property is $102 per square foot. Next, I will walk through our residential business, where $1 billion of purchases were offset by sales and securitizations of the same amount. Despite repricing in the securitization markets and significant spread widening in the residential loan space, we securitized $828 million of loans in our 18th and 19th securitizations and sold $220 million of loans, all at breakeven as a result of related interest rate hedge unwinds. For the loans remaining on the balance sheet at quarter end, we recorded a $108 million unrealized negative mark-to-market adjustment for gap purposes, along with an offsetting $22 million unrealized positive mark-to-market on the related interest rate hedges. We continue to believe in the credit quality of these low LTV, high FICO loans, and as a result, have not recognized any DE losses for the loans remaining on balance sheet. Our loan portfolio ended the quarter at a balance of $2.2 billion, including $400 million of agency loans, average LTV of 68%, a weighted average coupon of 4.6%, and average FICO of 7.45%. Our retained RMBS portfolio ended the quarter at $416 million after retaining $142 million of bonds in our Q2 securitizations. Next, I will discuss our property segment, which contributed $21 million of DE, or 7 cents per share, to the quarter. Our Florida affordable housing portfolio continues to perform exceedingly well. For gap purposes, we recorded an unrealized fair value increase the Woodstar Fund this quarter of $292 million or $232 million net of non-controlling interest. The vast majority of the increase was driven by the fair value of the property, which increased by $263 million. In-place NOI increased this quarter due to the impact of HUD's recently released maximum rent levels, which were 9.7% higher than last year. The majority of these new rents were implemented in June, so you will see just a partial impact to earnings this quarter. Our valuation only factored in these increases to NOI. We did not assume any change to the cap rate, which continues to be based on the third-party transaction price established at inception of the fund in November of last year. We also recorded a $24 million increase related to the favorable debt on the portfolio. due to market interest rates exceeding the 3.7% blended fixed and floating rate debt we currently have in place. Next, I will discuss our investing and servicing segment, which contributed DE of $34 million, or 11 cents per share, to the quarter. In our conduit, Starwood Mortgage Capital, we completed two securitizations and priced an additional securitization totaling $372 million in the quarter. all at profits consistent with historic level. Consistent with past practice, the transaction which priced in June but settled in July is treated as realized for DE purposes. As of quarter end, all securitizable loans have been priced or securitized, leaving no mark-to-market exposure on balance sheet. And in our special servicer, we obtained nine new special servicing assignments totaling $9 billion during the quarter, bringing our named servicing portfolio to $105 billion, its highest level since 2016. Concluding my business segment discussion is our infrastructure lending segment, which contributed DE of $13 million, or 4 cents per share, to the quarter. We funded $191 million of our $196 million in new loan commitments, along with $14 million under pre-existing loan commitments. These fundings outpaced repayments of $58 million increasing the portfolio to $2.4 billion from $2.2 billion last quarter. We also entered into a new $500 million credit facility, which carries a three-year revolving period and two one-year extension options. This is a non-mark-to-market facility where the margin call provisions do not permit valuation adjustments based on capital market events. I will conclude this morning with a few comments about our liquidity and capitalization. In addition to the new infrastructure financing facility, we entered into new facilities and commercial lending totaling $920 million and completed $300 million in upsizes. As a reminder, 90% of our outstanding on and off balance sheet debt is non-mark to market. We also entered into an ATM agreement with the Syndicate of Financial Institutions to sell up to $500 million of common stock through an at-the-market equity offering program. We issued 1.4 million shares this quarter for gross proceeds of $33 million at an average share price of $23.54. In addition to financing capacity available to us via the corporate debt and equity and securitization markets, we continue to have ample credit capacity across our business lines, ending the quarter with $9.3 billion of availability under our existing financing lines, unencumbered assets of $4 billion, and an adjusted debt to undepreciated equity ratio of 2.3 times. With that, I'll turn the call over to Jeff.

Thanks, Rena. As Rena said, we once again used market volatility to our advantage, adding nearly $4 billion of investments in the quarter, bringing our portfolio to a record $27 billion today. We have already closed $1 billion of CRE loans in Q3, which will bring our total for 2022 floating rate CRE lending to over $5 billion year-to-date. That said, we reduced our investment pace in recent months, recognizing that there would be great opportunities to invest at higher returns later in the year. In early COVID, we had the unique ability to create significant liquidity from our unencumbered assets and own CRE portfolio, and we have the option to do that again today should loan repayments decline. Reduced investment pace does not mean reduced distributable earnings. In lower volume periods, we have a sharpshooter mentality to laser focus on only the most accretive deals, and that is our second half plan. Executing our plan is less dependent on volume of investments and is more dependent on timing sector rotation, the performance of our credit, and staying optimally invested, therefore not sitting on too much or too little capital. Finally, interest rate sensitivities continue to move in our favor. Rena mentioned our interest rate floors and SOFR is now over 150 basis points above our average floor. So we will continue to make more money as rates rise. And importantly, our new loans will have floors at today's SOFR levels, which will have a big benefit should SOFR decline in the future faster than the forward curve. Our $3 billion owned property portfolio continues to be our best performing investment. And as Rena mentioned, we wrote up our Florida multifamily valuation, not on cap rate, but based on experience rent growth, which we expect to continue to rise with median income growth in the future. We still believe the cap rate on our minority sale last year is significantly higher than where a similar portfolio would trade today and are optimistic we will recognize more embedded value in this portfolio in the coming years. Our net lease and medical office assets also continue to perform exceptionally well and have significant gains. At our marks, we have nearly $5 per share of gains in our owned property portfolio today that can be harvested, reinvested, distributed, or we can continue to create long-term shareholder value by holding them. Today's higher borrowing costs will not hurt our own real estate portfolio in the coming years. We have significant remaining term on our debt across this portfolio and don't need to refinance any debt until November 2024. Medical office portfolio, August 2026 for our Woodstar portfolio, and October 2027 for our TripleNet portfolio. Our below-market debt on this portfolio is a valuable asset as long-term holders. Our CRE lending business had another great quarter, with $2.2 billion of new originations at just 60% loan-to-value. Inclusive of A-Note sales we have made, our CRE loan book is now $20 billion for the first time, with two-thirds of those originations coming post-COVID. Although CRE transaction volume is expected to slow in the second half, lending competition is thinner as the single asset CMBS market, less well-capitalized debt funds, and many banks are on the sidelines. We therefore expect to get better structure and pricing on what we do in the second half of the year than at almost any time in our history. The $3 billion of CLOs we issued in prior years at very low borrowing rates are actively managed giving us the ability to replace assets that pay off in them with other assets that would otherwise be financed at today's higher spread. Reinvesting allows us to finance higher coupon loans originated in 2022 and 2023 at 2020 and 2021 financing spreads, which are 100 to 150 basis points lower than today and among the lowest in history. 100 basis points of tighter financing increases the return on these new investments by almost 500 basis points. We have replaced over $600 million of maturing loans in our CLOs over the last 12 months and have projected reinvestment requirements of $1.5 billion through 2023. Said simply, in the next year, we expect to be able to lever $1.5 billion of higher coupon new originations at financing spreads well below current market rates. and earn an outsized levered return. You will see in our supplemental that we have completely repositioned our loan book since COVID, focusing on the most defensive sectors, multifamily and industrial. As the agencies and CMBS market were forced to pull back post-COVID, we filled the void. More than half of the loans we wrote since COVID are multifamily, which is now by far our largest asset class, representing one-third of our portfolio. versus just 13% pre-COVID and 11% in Q1 2020. We have significantly decreased our exposure to office, hotel, and mixed-use investments in that time as well. With a payoff and a loan sale at par on a previously disclosed four-rated loan subsequent to quarter end, we now have zero loan exposure in the difficult San Francisco market, and less than 3% of our assets are on loans in Manhattan. making our 61% loan-to-value portfolio the most diversified, recession-proof portfolio in our history. International lending continues to be a growing and important part of our CRE origination. We have had large teams in these markets for decades, and this exposure provides diversification in our lending segment collateral types at attracted levered and unlevered returns that continue to increase as rates move higher. As a reminder, we fully hedge foreign exchange risk for interest and principal payments through our expected maturity. Given dollar strength this year, those hedges have a very significant $118 million gain that will protect us should the dollar weaken in the future. Non-agency credit spreads have widened significantly since the Fed stopped buying mortgage-backed securities in February. As a pullback in senior bond buyers with concern about fixed income outflows has kept spreads wider than expected. In our residential lending portfolio, we always hedge interest rate risk, but the spread widening has made financing our loan book more expensive. We were able to execute two securitizations in the quarter at breakeven after unwinding hedges. Over the past couple weeks, liquidity is returning to the non-QM securitization market, as five to six deals priced this past week alone, and spreads are moving in. At the same time, we are buying significantly higher coupon loans that we expect to be accretive in the future. As the markets repair, we will look to securitize the balance of our loans, which will remain on our financing facilities until securitization is more economically viable. Like in our CMBS, CRE, and energy infrastructure lending businesses, we have the balance sheet to be long-term holders who will securitize when accretive. Our 59% LTV energy infrastructure portfolio increased to $2.4 billion, and we were on pace for a record origination here in very accretive return environments. Our LPVs have fallen this year as power plants became more profitable. There is significantly less competition lending in this space. We like the credits and expect to earn mid-teens returns on current origination. We recently added an experienced Houston-based originator with over two decades of lending in the energy markets to take advantage of these opportunities. As Rena mentioned, we added another term financing facility in this sector as well and hope to execute our third CLO later in the year. Finally, in Reese, our CMBS conduit originations business continues to outperform in a volatile environment. As Rena mentioned, our named special servicing portfolio is now back over $100 billion. This is important as the servicer is a long-term positive carry credit hedge that will make more money for shareholders should markets roll over in the future. With that, I will turn the call to Barry.