Starwood Property Trust Inc.

Greetings and welcome to the Starwood Property Trust first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Tannenbaum, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good morning and welcome to Starwood Property Trust earnings call. This morning we filed our 10-Q and issued a press release with a presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance. Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Sternlich, the company's chairman and chief executive officer, Jeff DiMatteca, the company's president, and Rena Paneri, the company's chief financial officer. With that, I am now going to turn the call over to Rena.

Thank you, Zach, and good morning, everyone. This quarter, we reported distributable earnings, or DE, of $156 million, or 45 cents per share. Gap net income was $112 million, or 33 cents per share. Across businesses, we committed $2.3 billion towards new investments, our highest quarter in nearly three years, with infrastructure lending committing its highest level of capital in a single quarter since we acquired the business from GE in 2018. Our overall strong investing pace continued after quarter end with 1.3 billion already closed. I will begin my segment discussion this morning with commercial and residential lending, which contributed DE of 179 million to the quarter, or 51 cents per share. In commercial lending, we grew our loan book by 859 million, which will help drive our long-term earnings potential. We originated 1.4 billion of loans of which $886 million was funded, and funded another $250 million of pre-existing loan commitments. Many of our originations were back-ended to the last half of the quarter, so the full earnings potential will not be realized until Q2. Repayments totaled $363 million, which is higher than we expected, leaving the book at $14.5 billion at quarter end. The growth in our portfolio also led to a slight decrease in our weighted average risk rating from 3.0 last quarter to 2.9. We began executing on the resolution plan that we discussed on our last call and have resolved $230 million across three assets so far this year at pricing at or above our GAAP basis. The first is a $38 million non-accrual loan secured by a hospitality asset in California. During the quarter, we received $39 million in full repayment of the loan, resulting in a $1 million gap and DE gain. The second is a $55 million apartment building in Texas that we foreclosed on in 2024. Subsequent to quarter end, we sold the asset at our undepreciated gap basis, which is the same as our DE basis for this asset because we never took any gap reserves. The third is a $137 million office building in Texas that we foreclosed on in 2022. Subsequent to quarter end, we sold this asset for a $5 million premium to our GAAP basis, reflecting the adequacy of the GAAP reserve we recorded in 2023. The corresponding DE loss of $44 million will be recognized in the second quarter. To clarify, we do not consider an asset to be resolved until it has legally exited our balance sheet. So the resolutions I just mentioned exclude this quarter's foreclosure of a $45 million previously five-rated non-accrual loan on a multifamily property in Georgia. We obtained a third-party appraisal for the asset, which indicated a value above or at our basis, so no reserve was recorded. Our CECL reserve decreased by $26 million in the quarter to a balance of $456 million, reflecting the macroeconomic forecast. Together with our previously taken REO impairments of $198 million, these reserves represent 4.2 percent of our lending and REO portfolios and translate to $1.93 per share of book value, which is already reflected in today's undepreciated book value of $19.76. Next, I will turn to residential lending, where our on-balance sheet loan portfolio ended the quarter at $2.4 billion. The loans in this portfolio continue to repay at par, with $55 million of repayments this quarter. Our retained RMBS portfolio ended the quarter relatively flat at $422 million, with an $8 million positive mark-to-market offset by repayments. In our property segment, we recognized $16 million of DE, or 5 cents per share, in the quarter, driven by our Florida affordable multifamily portfolio. Subsequent to quarter end, HUD released the new maximum rent levels, which were set 8.4% higher than last year. Certain properties were in geographies where the rent increases were once again capped by HUD, which resulted in 6.7% of incremental rent growth being deferred to next year. This would be in addition to any increase determined by the HUD formula in 2026. As a reminder, the majority of these rent increases will be implemented in June, so the impact to earnings will not be fully reflected until the third quarter. Turning to investing and servicing, this segment contributed DE of $50 million or 14 cents per share to the quarter. Our conduit, Starwood Mortgage Capital, completed four securitizations totaling $268 million at profit margins that were at or above historic levels. In our special servicer, we continue to be ranked the number one conduit special servicer, a ranking we have maintained over the last two and a half years. Our active servicing portfolio ended the quarter at $9.6 billion, with $800 million of new transfers, which were again dominated by office properties. Our named servicing portfolio ended the quarter at $107 billion. In our CMBS portfolio, two large loan payoffs resulted in principal collections of $62 million. We also added new purchases of $12 million. Concluding my business segment discussion is our infrastructure lending segment, which contributed DE of $20 million or 6 cents per share to the quarter. As I mentioned earlier, we committed to a record $677 million of loans, of which $601 million was funded. Repayments totaled $436 million, bringing the portfolio to a record $2.8 billion at quarter end. As with the growth in our commercial loan book, growth in this portfolio will likewise help drive our overall long-term earnings potential. Subsequent to quarter end, we completed our fifth infrastructure CLO, for $500 million with a record low cost of funds and a weighted average coupon of SOFR plus 173. This brings our term non-mark-to-market CLO financing to 58% of infrastructure debt and our non-mark-to-market financing for the entire company to 84%. And finally this morning, I will address our liquidity and capitalization. Subsequent to quarter end, we completed the $500 million issuance of our five and a half year, six and a half percent senior unsecured sustainability notes, which we swapped to a floating rate of SOFR plus 261. In addition, we repaid the remaining $250 million of our $500 million March 2025 high yield notes at maturity. Our corporate debt activity over the past two quarters increased our weighted average corporate debt maturity from 2.2 to 3.7 years. and leaves us with no corporate debt maturities until July 2026, when $400 million matures. Our current liquidity stands at $1.5 billion, which does not include liquidity that could be generated from cash-out refinancings, sales of assets in our property segment, direct leveraging of our $4.9 billion of unencumbered assets, issuing high yields backed by these unencumbered assets, or issuing term loan B. We also continue to have significant credit capacity across our business lines with $9.5 billion of availability. Our adjusted debt-to-undepreciated equity ratio ended the quarter at 2.25 times. With that, I'll turn the call over to Jeff.