Good day, and welcome to the Starwood Property Trust First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Andrew Sossen, Chief Operating Officer and General Counsel. Please go ahead, sir.

Good morning, everyone, and welcome to Starwood Property Trust Earnings Call for the Quarter Ended March 31, 2012. With me this morning are Barry Sternlicht, the Company's Chairman and Chief Executive Officer; Boyd Fellows, the Company's President; and Stew Ward, the Company's Chief Financial Officer. This morning, the company released its financial results for the quarter ended March 31, 2012, and filed its Form 10-Q with the SEC. In addition, the company has once again posted supplemental financial information 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'd 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 the 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 the 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 in the course of this call. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's 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 measures prepared in accordance with GAAP can be accessed through the company's filings with the SEC at www.sec.gov. With that, I'm now going to turn the call over to Stew.

Thank you, Andrew, and good morning. This is Stew Ward, the Chief Financial Officer of Starwood Property Trust. This morning, I will be reviewing Starwood Property Trust's financial results for the first quarter of 2012. I'll also highlight several items pertinent to both the first and second quarters as well as our overall business. Following my comments, Barry will discuss current market conditions, the state of our business and the opportunities we see as we look forward. For the first quarter of 2012, we reported $55 million of quarter earnings, 38% above the $39.8 million posted for the fourth quarter of 2011. On a per share basis, this translates to $0.58 per diluted share, again significantly above the $0.42 per share reported for the fourth quarter. The quarter increase included a $12.2 million gain associated with the early prepayment at par of a large U.K.-based mezzanine loan we purchased at a substantial discount in mid-2010. Importantly, quarter earnings, excluding onetime items, increased to $0.44 per diluted share from the $0.42 per diluted share for the fourth quarter of 2011, reflecting the full effect of the $333 million loan portfolio acquisition we closed during the last week of December 2011 as well as a significant first quarter investment and financing activity that I will discuss shortly. As of March 31, 2012, the fair value of our net assets was $19.52 per diluted share. For the same date, GAAP book value per diluted share was $18.96. Both of these figures are above the December 31 levels of $19.10 and $18.68, respectively. The primary driver in both cases was the continued improvement in the credit markets and credit spreads that began this last October, following last summer's market turmoil. Now let me outline some of our significant activities for both the fourth quarter…

Thanks, Stew. Thanks, Andrew. Good morning, everyone. Also here is Boyd Fellows, President of the REITs, and I'll turn to Boyd in a second to talk about some pipeline comments. But let me say it was a very good quarter for us. We actually looked this up because I've seen some releases from some banks, and it looks like Starwood Financial is now the 21st largest lender in the United States, including life companies. We originated, I think, $2.1 billion of credit in the last 12 months. Don't hold me to that, but it's a nice quote I can tell my mom this evening. It was a solid quarter because we did something that I think we've never done before. We increased book value at record earnings and we drove down the LTV of our portfolio. So, that's a trifecta; that's as good as it gets in this business. I think we've proved we are solid stewards of shareholder capital. From the very start, we've considered our shareholders' capital to be our very own. And the quarter had some highlights. The credit markets did a round trip when it's obviously tight and spreads have tightened. Interesting, some players just left the market in the fall, like Credit Suisse, which shut down a conduit business. Others have come forward. But in general, what we once had in our books, as Stew mentioned, is a $19 million loss with the peak of the credit crisis last summer. We just sold all those loans at a $1 million gain. So we have a very clean book today. And with the equity offering and lots of financial flexibility, we have the ability with proceeds like we just received to pay off some credit facilities. We can then draw them in as we delever our…

Almost $1.4 billion since the beginning of 2011.

Since the beginning of 2011. What you didn't see is we had $1.4 billion of loans repaid or sold. And we redeployed that capital effectively. So that's why you'll do a $4.5 billion or $4.6 billion of loans and you have it going from the book of $2.8 billion because we've already handled the repayments of several loans, which we obviously knew were coming. But I will make a comment about our one-time gain in the quarter. As we grow and as the credit market shifts and properties increase in value and transaction volumes increase, we might see a, I call them, recurring and nonrecurring gains as the loans are paid off and the earnings are taken into our Core Earnings. They are cash earnings, it's real cash. And we will, as we mentioned in our earnings release, and Stew did not detail, the board has decided that we will pay a special dividend in the fourth quarter. That will be our current policy to adjust our dividend for the earnings of the company since we can't not but as is easily predict the timing and the level of these pay-offs and the gains we might be taking. We will have to adjust them to meet regs and true-up our dividend in the fourth quarter, which would bode well for shareholders. As we look forward also, what's going to be happening to us is, this year, one of our key goals is to become more and more efficient at what we do. We've said all along, and I think shareholders agree, that bigger is better. If we build a bigger base, that's going to allow us to secure hopefully in the very near future some corporate financing lines for ourselves. That would be a windfall because right now, when we…

Sure. This is Boyd, commenting on the pipeline. As Barry said, the world's competitive, but our scale continues to be a big competitive advantage for us. And 2 perfect examples of transactions: we expect to close 2 loans today or tomorrow that will total over $400 million. They're both office loans portfolios of offices. One's in New York City for a total of $170 million. It's a classic example of our scale. We'll -- we have taken down the entire mortgage. And then as Barry said, we'll hold that mortgage and then we will sell an A-note offer potentially, that's one deal. And then another deal, we're co-originating with 2 other partners in Washington, DC. This one was a total of $238 million, with us taking the junior $73 million. Interestingly enough, as Barry just said, the LTVs will be rising, but both of these loans have LTVs, our last dollar -- LTVs are right about where our portfolio average is, at about 65%. So we're excited about those transactions and we hope to close today or tomorrow.

So one other comment I'd make. As you know, we've talked about using our vehicle for acquiring other businesses. And I think you've heard us mention the triple-net leased business, which would create a depreciation shield and allow us to shelter earning. Today, we have not found anything that we wanted to acquire in scale in that space primarily because the debt on those portfolios is usually has heavy am, often straight-line am. And so while you have a reportable earnings, you don't have much distributable cash. And while we have to adjust our dividend and it hasn't really found -- we haven't found anything compelling enough at the moment to pull the trigger. One area that we are looking at and we added a short sentence to the last -- to this perspective. The last equity offering is the single-family whole market. It shows many characteristics of what we're doing with the current yields and depreciation, which would be interesting, and there are some depreciation shields involved too. That is something that we're exploring as well. So with that, we will take any questions.

[Operator Instructions] We will go first to Joshua Barber with Stifel, Nicolaus.

I was wondering if you could comment a little bit more on your European exposure and how that factors in going forward. I know that Starwood Capital recently hired a new lending team over there. Can you talk about what that means for the REIT and in which areas they are using the best opportunities?

So we -- as you know, Europe is a mess. And we have specific country focus, which we won't talk about. But we have -- about 9% of our book today is net in international investments primarily in the U.K., and that's going to be our biggest focus going forward. There's a lot of refinancing to do. There's very few lenders that will go beyond the 45%, 50% LTV. So a lot of this, just like in the U.S., these assets and capitalization structures have to be restacked. It -- they're not that many mezzanine lenders over there. It's a really good opportunity for us. We're very wary of demand destruction in these markets that will open up vacancy in markets and ultimately drive rents down, so we have to be super careful. I've got one loan we talked about that we rolled in the quarter. Those are the 4 most unusual resorts I've ever seen. I think they operated 95% occupancy and are booked a year in advance. And they grew cash flow right through the recession. So we're looking for unique opportunities to lend and deepen the capital stock. And we can get pretty high levered yields commensurate with what you'd get in the states. So maybe a little bit higher, probably wider, but they often are bigger numbers, they -- GBP 100 million is $160 million for big mezz note. We've actually -- as you looked in our earnings, we sold off a piece of one the mezzas that we originated. We expected a sort of a quid pro quo to get another loan from that shop and which will be then [ph]. And we've teamed with 4 or 5 other guys on several investments already. Like our business here, it's kind of hard to know the timing of these closings. There are people waiting on one transaction right now, which is a vast scale and we're just going to see if the buyer performs. But we're not stretching into the equity in -- at least, we're not trying to over there. We're trying to stay pretty deep in the stack and do what we've been doing, creating tremendously attractive risk-adjusted returns for shareholders.

Okay. Turning to something else, can you talk about, I guess, where you think your balance sheet could go over the next year or 2? I mean, your leverage is still less than 1x debt to equity. What would you see that becoming over the next year or 2? And you made some comments about you getting some additional balance sheet flexibility either through corporate lines or something else. Can you talk about, I guess, how that factors into how you're thinking about the balance sheet?

Yes, we hope to have something announced, let's say, in the next 30 days on our balance sheet. We think we have several unlevered -- as you mentioned, lots of unlevered positions that can serve as collateral for the facility that will allow us to recycle capital more efficiently. That's what the -- it's hard to predict because the bigger we get, the more base the lender's deal. So can we put together -- if we had a $3 billion, $4 billion equity base to a $500 million credit facility? I think, fairly easily. Could it be bigger? Possibly. Do we want to lever the book a lot? I -- JPMorgan produced the first securitization of an MTL portfolio just a few weeks ago. The world is changing so rapidly on as the world searches for yield that it's kind of hard to predict what's out there for us. As long as we -- I didn't mention and I had it in my notes that we have no issues in our portfolio. We have 94 investments today and we have a very thorough asset management team reviewing the loans, and we have no issues. We talk about even creating a loan loss reserve, but there's nothing to loss reserve against. So -- and it would create some interesting volatility entry for us. For the moment, it -- all is good and we really think it's a great portfolio. And we could probably liquidate it north of our share market value. We're not really stretching those valuations, but if you look at the amount value in the credit -- the value in the credit markets, our biggest concern are big repayments. And I would say that's -- the biggest risk is having a quarter where we're sitting on cash and we get a lot of repayment that we didn't anticipate. Now that's not that likely, but it is possible particularly in some of the corporate transactions we've lent against where there are dividend blockers in place and guys may have to refinance their debt just to pay themselves a dividend. So the supplement includes a management's estimated repayment schedule of debt. But again that's our estimate, so we're not much certain particularly. As I mentioned, they called the securities to refinance the company. I would -- can't know what they're thinking. And we don't know what the equity markets are for the specialized deals.

Do you think there's a good chance for having a second-generation CDO or something similar in the next 6 months?

Yes. Yes, one of our peers is going to do one. And so we're going to watch, just like we watched the MTL securitization and see how that's received in the market. But yes, I would think you're going to see second-generation CDOs, yes. The market wants yields. Show the yields in these books.

And we will go next to Gabe Poggi with FBR & Company.

Two quick questions for you. Barry and Stew and Boyd, I've heard you talk about kind of the idea of bigger is better. You guys had talked about, on the last conference call, co-originating opportunities with Lifecos and with the conduit players. And Boyd, you just mentioned an opportunity in the DC market where you're doing that. Are you seeing more of those bigger transaction opportunities? And how do you guys think about toggling between those big -- the big transactions and then just kind of some smaller dollar amount transactions?

It's interesting. We -- the parent company started capital. We have 102 lending relationships. And working on another deal, which Boyd didn't mention, where we're helping the guy. We're finishing the note but the guy's short on his senior, so we're helping him find more senior debt through our relationships with a dozen of more banks that could probably qualify. You have -- he's missing one syndicate lender in the senior. So I would say that, and Boyd can comment also, I think the -- this is all evolving. I think they're getting more and more of our scheme. They're getting more comfortable with us. And we still have that one patina, which is some borrowers think we still want their assets. And we're not jumping. And we do not do MTLs here. We're trying to be predictable and very transparent, very easy. So we don't want the asset. This is not MTLs here. We're not buying MTL loans. But there's a lot of paper out there today and there's a lot of guys. As you know, it's -- we're not telling you anything you don't know. There's a lot of paper rolling, and there's a lot of demand for debt all up and down the capital stack. So we're kind of feeling really good. We're just -- we're hoping to keep our yields as high as it had been in the past without -- again, we can produce much higher yields, though instead of going from 45% to 70% of the cap stack, we'd be going from 65% to 70% of the caps stack. We -- a couple of things that happened in the quarter, we did that FDIC B-note, right? And we were blown out of the water. We were...

Yes, we were beat by 3 points on a $60 price. We were the cover, so they left 3 points on the table, too, which was an interesting portfolio, but...

But there are guys out there trying to get to they're taking slivers of the caps stacks. And it's just a different risk profile. And it may be the same yields, but it's a totally different risk profile if you're -- the leverage on it is some 70% to 73% of the cap stack where you are booked from dollars to euro to 66% average, whatever it is. It has the same coupon and totally different risk. And very hard for the markets to -- the equity markets, certainly the retail sales, to understand what on earth they're buying. They're not buying a sliver in the cap stack. They're buying this big white swap of -- I look at our book, and I've said it before, this is a significant amount of our paper. Maybe half our book is AAA, and it yields 150 over, 170 over there. So I mean, it is very unusual-looking portfolio.

One quick follow-up to that. And you've mentioned kind of obviously when did you have additional relationships added to the portfolio, seasons, I assume, than you can kind of point that what's the process of getting a revolver? Kind of, can you just kind of outline the process of that? And then I don't know if you said -- Barry, you said something in the next 30 days. I don't know if that was specific to a revolver or there's an additional facility similar to what you guys already have. But if you can elaborate there, that would be helpful.

Yes, it'd be a different kind of facility. We hope to use it as a revolver. And it will be secured by some of our assets and so which are currently not pledged. And that's all we're going to say about it right now, if that's okay. Let's get it done and then we'll -- we'll get it done and then we'll give you a press release.

And we will go next to Ken Bruce with Bank of America Merrill Lynch.

You have -- if you step back and just look at the last couple of years, I think you guys have done a tremendous job of delivering on what you initially set out to do. The market is evolving. I'm wondering, as you see more capital coming into the space and risk profiles changing around or return profiles changing around, if you feel like there's still as much opportunity as you initially thought, it just forces you to work a little harder in terms of how to position yourself either in the capital stack or how you finance the A-Notes and the like to achieve that. Or how do you kind of look at the market today versus maybe just a couple of years ago?

I'll start and Boyd -- or Andrew, I don't know if you want to comment. I mean, I think it's cyclical, right? There have been the 2 times since we went public in August in '09 where I thought there was nothing to do or it's gotten it's really, really hard. Now it's not actually one of those times. We really need to have -- to be big. I mean, I just -- we really need to be able to control the whole loan. As Boyd said, to quote $170 million first and then chop it up, is just such a better execution for our shareholders even if it's momentarily dilutive, [indiscernible] and so we can place the A-note. It is -- that is the way we can compete in the marketplace. Otherwise, we're like every other schmegegge with $30 million in their pocket. And those mezz is prepackaged or are again going below 9, in some cases. Recently, I just saw a mezz on an equity deal that we have at ELSO 600 [ph]. That's not very big. It's certainly on a mezz, but we -- we're not there. We can't -- we -- the good news is it's a $1 trillion markets and we're a $3 billion company, so we won't be at every dance. I think the other thing that's come to help us is we are relationship-based, right? We're going to be with these notes throughout their duration. And we can go left with a borrower, go right with the borrower or add a little more debt to the assets. I think that Hyatt Regency, one of our oldest loan originations -- if you remember, we did the Hyatt New Orleans and we sold the pieces down to a foreign bank, but they wanted another couple million bucks. The hotel, which we thought was going to do like $20 million EBITDA, I think the loan was $140 million gross and then we head cap $70 million, the other half of it, with a smaller end. I think that we're talking to $30 million gross. That was rocking and we're delighted to add more to that asset. And we're -- we'll just do it with amendment and we're done. So I mean, for borrowers who really want a relationship -- and we're not securitizing our paper, we're a fantastic execution for them. So we're not -- we don't fit everybody, but I think our team, our originators are quite lovable. And when people get to know them, they'll show them deals and we'll get some deals. And we're very -- if it's on the margin, we just don't do it. And we're being -- we're very flexible, though. That's always been in our calling card.

Right. I would add that it's -- we're a new company and we're building momentum as we go. Barry referred to the real estate lending business as a relationship business. And as we, each quarter, do another $500 million, what's happening is we're -- the borrowers out there realize that we perform. So you have a combination of 2 things. One is the borrowers realizing that, if we say we'll do something, we actually will do it, which is not always that consistently the way it works in the real estate lending business. And then also, like, all of the various banks and insurance companies that we co-originate with have the same results -- I mean, the same feelings. So a number of these deals, we're winning because, whether it's Wells, Citi, BofA -- you go down the list, they're very comfortable now that, if we're they're partner co-originating, we're going to show up, fund, we're going to -- and we've now closed and co-originated loans, multiple loans, with virtually every large bank. And so we've now negotiated our way through credit agreements with them several times. All of that kind of creates a foundation that we're now going to continue to move forward with.

And when you think about the CDO or the potential for a CDO structure, I mean, do you lose any of the flexibility or control over how you deal with those relationships?

I don't think so. We're going to retain the equity, right, so it's just a financing vehicle, right? So we've never executed one, but you can take all the loans that are placed online and basically pay them off with a CDO and reboot the line. It's not a -- it's just a question of what the pricing would be and how accretive it might be to the line. And then if it isn't accretive to the line, we'll do it.

It's an issue. That's been an issue today, but there's -- it's something that you do about.

So we also -- as we originate loans and we started piling up things for a CDO -- so we keep the first on this office building in New York, for example, we sort of put it aside. And then we use that payment as a base for a CDO. We just got to see if it's a more proficient way to finance. It does free up a lot of capacity for us with our existing lenders also, which would be nice, so that they think they have an -- and they -- the market we're involved in, there are 2 banks in the equity side. People are having a bitch of a time originating loans today, the banks. And so you see a bank like -- CapSource, does ,like, I guess, a couple of $100 million originations for the quarter. I mean, it's not -- there isn't that much demand. And I think a lot of existing lenders are just rolling on -- driving the spreads and rolling loans because if you look at the outstanding bucket of CMBS in the world today, it's -- I think it's down a couple hundred billion. And that HOPE debt in the real estate market probably getting its value to form or down. So there's not -- the credit deleveraging going on in the real estate world. And the nature of buyers today, guy's are saying, "I'm okay earning 12 or 13 levered return in the equity even, in some cases, 7 and 8," so they're not borrowing a lot. So the nature of the capital, the core capital coming into the market is not borrowing 80%. Of course, there are guys who want to borrow 90%. And there are deals getting refinanced that, I think, at 105% of LTV. And those are the ones we definitely are trying to stay away from.

Right. And my last question is just probably a little bit of a sensitive subject for you, Barry. But when you look at Starwood, it's generated a very attractive yield in the last couple of years and has been growing. If you look at that relative to some of the residential mortgage REIT tiers, which have higher absolute returns, that tends to -- you'd be obviously levered in differences in risk. But the investors, as you pointed out, don't necessarily appreciate those differences. And it's got to be a little bit of a competitive issue just in terms of attracting capital to Starwood. How do you think through that? I mean, does that feel like -- or do you -- does that put any pressure on you to rethink on how you operate the business or do you think we'll just have to go through enough time where some of these leverage strategies run across some tougher times that shows the risk and that will -- maybe that'll kind of lead the market to a different path?

Yes, there's -- the whole capital markets have different risk-reward spectrums when it comes to dividends. And you have the C-corps and the REITs with 3% dividend yields and there's still some REITs that are record highs. And I'd argue that, if you're buying apartment buildings at 4 caps and 5 caps and most at 5 caps, I mean, you're not going to get a 12. If you take our dividend and lever it, borrow 40% on margins, you'll earn a 12 levering essentially investment-grade paper, which you cannot reproduce. There's one thing that -- my mom is a former stockbroker and she likes those 14% leverage yields of the revenue REITs. She actually likes our 8.5% dividend yield also. But there really is no comparison. I mean, they're levered 5:1, 6:1, 7:1 and stocks like Chimera, just pick to one, has lost 25% of its capital value back down from 4, I think, to 3 or 2.60 or something. So you're getting your 14 and you're losing 33% of your principal. I mean, obviously, that has not been the case for us. We think our -- as property values depreciate, our entire book is deleveraging, essentially. The LTV is getting better. The credit quality is getting better. The cash flows are rising. And so we're basically -- we're apples and oranges. It's -- we're sort of relatively unlevered to levered. And a better example might be an HBT, which has a tremendous retail following and has, I think, 5 or 6 spin-offs of itself and has -- I guess it's around 8 dividend raising [ph] issues in their portfolio today with leased coverage. But the one thing about that company, which I'm jealous of, is that their stock is held primarily by retail investors. And we are not. And…

[Operator Instructions] We will go next to Joel Houck with Wells Fargo.

I guess you want to do that with echo, that Ken was mentioning is I don't think investors appreciate the fact that all of your assets are permanently financed and that's not the case, with the revenue REIT drivers sort of going to grow repo quite often so the financing risk here is night and day. And hopefully, investors on the call, new investors, tend to appreciate that over time. The question I had is related to the accelerated discount accretion, the 13% gain in the quarter. How -- obviously, that is real cash and Core Earnings, but it's clear you're not going -- you're going to use that as a special dividend to kind of true-up at year end. The question is, what -- in terms of the existing portfolio is still embedded either if you could -- we could see similar events like this for prepayments, or have you structured in prepayment penalties or exit fees in some of the loans that you originated [indiscernible]?

Yes, so they're all over the place. We originate loans with yield maintenance, prepayment penalties. We buy loans at a discount, we bought some stuff in the high 80s, it's now 94. We could sell tomorrow and create gains. But we don't -- we're not assuming -- and we take the -- we think it's to our paper. We're accreting that gain into our earnings over time. But if it gets paid off early, then there's an acceleration of the gain and that's what you saw kind of happen in that U.K. deal. The IRR is interesting. The IRRs in these deals are really good. I'm seeing their heights 18, 19, 20 off a virtually unleveraged piece of paper we can give you. It's kind of fun to do it. I -- it actually pisses me off because the IRRs are higher than the equity deals we're doing. But returns are quite good and have been for some time as these loans get repaid early. And don't forget, you got fees up front often for originating these deals and the borrowers paying their due diligence costs. The only thing weed is a dead yield cost if we don't make it. But even there, sometimes if he changes horses, we -- he pays large due diligence, so you see, there's not a lot of dead yield costs rippling through the earnings. It's -- I can't really -- I don't think we have a number because it involves so many assumptions of repayment. But most loans today -- I mean, we don't do very short paper. The deal is going to be out for like 6 months or a year, or we don't do it. And one of the keys is when you -- that's why you have to do the whole loan, by the way. Because if you do a whole loan at 6.5%, 7% there are going to be a lot of 5's, and whatever the numbers we need to return is depending on how big an annual term we sell. The borrower is happy to borrow it at 6 and walk away for 5 years. He's not happy to borrow at 12 and walk away for 5 years. We need to make that sausage away from him, right, so he doesn't see it and we create that yield us for ourselves. I think there might be a number Stew can put out, but we are -- as you know, when we started, we also felt rates would rise faster, earlier, so we kept our durations shorter. And lately, we've been extending our durations. And Stew has a number for you.

I was going to say, if you look in the Q, on Page 15, there's a chart, there's probably -- it's probably in the -- might be in the press release as well, but there's a chart that has the both -- the details of both the carrying value as well as the face amount of our target portfolio. Pardon?

[indiscernible] March.

Oh, I'm looking at March? I'm sorry. Oh, here we go, sorry. Page 14. If you look at those, on -- as of March 31, we had an aggregate carrying value of the target portfolio of $2.38 billion and an aggregate face amount of $2.48 billion. So we have about, just in -- unamortized discount, we have about $100 million that will either be incorporated into earnings over from a level yield perspective -- we follow GAAP in a very technical way. But as Barry mentioned, to the extent at which the loans prepay earlier than we were modeling effectively, and we're -- we take a conservative but not ridiculously conservative approach to the way that they're going repay. Then there'll be some acceleration. For example, that $12 million gain is a loan that we had -- that, over time, we had been modeling as maturing on its originally scheduled maturity date, which was about a year from now. So anyway, we can -- in aggregate, we have $100 million of discount...

And just Stew, one thing to add, that -- the $100 million that Stew just mentioned is our loan portfolio. One of our largest investments that we've talked about is actually carried as a CMBS position. And there's about another $43 million of discount in that [indiscernible]. So this portfolio as a whole is probably closer to $140 million to $150 million.

And then a whole another -- I mean, if you try to quantify the prepayment penalties and back-end fees...

Well -- and those are also modeled. It's a lot. I mean, we also have -- yes, we take exit fees, we have extension fees, we have a variety of things. And we incorporate some of those into the level yield to the extent at which they're due under every possible scenario but to the extent at which they're not. For example, extension fees and those kinds of things, they're not explicitly -- they're not incorporated into the level yields per se.

We put a $400 million pool of loans from where the money is in our banks, not this quarter, last quarter. And we underwrote it knowing we probably were really light on the prepayment fees that we're going to get from that portfolio. And that was the generation of my comment that you're going to see a recurring number, recurring fee gains that are just kind of becoming hard to model. And that's why we -- it's hard to set a dividend on them because you don't know when they're going to happen. But the good news is: Our dividend will be rising, it looks like.

Yes, that was really the heart of the matter, right? The $0.44 dividend looks really safe and secure given it's hard to predict in any one quarter where it comes in. But over time, it would seem like the economics of what you structured so far is much higher than kind of the current return on the portfolio. So I appreciate the additional color around the quantitative aspect of this.

[Operator Instructions] We will go next to Jade Rahmani with KBW.

Last quarter, you indicated a pipeline in excess of $1 billion, whereas this quarter you just provided the $425 million of investments in due diligence on the term sheets. I wanted to find out if the difference was primarily the 1Q investment activity and if you could speak to the size of the pipeline beyond what you're doing diligence on.

We've decided to take that sentence out of the earnings release because it didn't really tell you very much. I mean, the pipeline itself, we probably have $5 billion worth of deals that we're currently evaluating. And we were -- we didn't want to overstate it, so the last few quarters, we've said that we have at least $1 billion because we thought telling you we had $5 billion or $6 billion sounded sort of ridiculous even though it was true. And we still have a large pipeline that we're evaluating, but as Barry commented before, many of these deals will never happen. And so what we've taken -- we've decided to do is use a much more discreet and factual basis to disclose the pipeline, which is to tell you how many deals have term sheets signed that we believe are likely to close, and that's very factual. Behind that, the pipeline actually is very robust and we feel really good about it. As I mentioned earlier, we're hoping to close 2 transactions in the next 24 hours: 1 is a $238 million loan in DC, which will be $73 million of our $73 million -- the $170 million. Those are in the pipeline. And hopefully, there are a lot more behind it, but...

Again, as the -- you don't really exactly know what to say because you don't know. I mean, I mentioned this deal in U.K., and we're sitting right at the table and we're still not sure it's closing, so -- and it's really significant. So we'll know more, but we don't -- we have a term sheet, they've accepted the term sheet, but we don't know if they're going to show up with their equity. So it's kind of a dance. The good news is the book is so big now, and the cash -- it's not earning, all it's capacity has been freed up on the lines. We paid off 3% debt and 3.5% debt and 4% debt, but at least, it's earning something, we're earning the -- what we would have paid as interest expense. But it's still dilutive. I mean, it's raising money and operating as we waited and waited and waited until we really felt absolutely we had to do the offering to fund the pipeline. And you can see why, these 2 deals that Boyd just mentioned were the reason we did the equity offering. And as you know, they exercise the shoe, which we were sort of, "Okay, what is it they really want, to exercise the shoe?" And but they did and it's fine. We'll put the money to work, as we have always in the past. But it's okay. I mean, the company is strong and a good -- it's a great book.

[indiscernible]

That's helpful. On the timing of capital deployment and your guidance, I wanted to just clarify if the guidance does anticipate second quarter and third quarter dilution with respect to the adjusted $0.44 core number you gave and if you would -- I mean, you did earlier mention the dividend should be on a trajectory to go up, but if you care to comment on your comfort with the current dividend level.

We're comfortable with the current dividend. And we said it will true-up whatever we need to pay out in the fourth quarter because we will have to, at the current run rate, to pay an excess, an extra dividend. And the -- we do not -- I think the way we do this, Stew, is we don't anticipate future capital offering and we don't anticipate future needs for it anymore...

Yes, the capital is right here...

It is reflective of the equity deal that we just did in April, but -- and it's reflective from a range perspective on sort of the success or failure of the current pipeline with some reasonable scenarios that kind of bound that, but it doesn't incorporate sort of future growth of the equity, a bunch of unidentifieds, where we might be originating loans by next December, that kind of thing. It's really -- it's sort of a more in short somewhat.

And it's really the next 3 months look beyond the thing. And we're trying to get ahead of ourselves.

Yes, in your supplemental slides, you gave a schedule of legal maturities and expected prepayments. And the -- in the legal maturity slide, the 2012 balance went up significantly while the expected repayment balance was unchanged. Can you just discuss what drove those items quarter-over-quarter?

We'll provide some -- as I mentioned in my remarks, some of the larger loans are -- assets that we put on in the first quarter have a -- are conceptually open for prepayment now. They're -- it was again a large -- we've added discount basis to one of our favorite positions in the -- it's a corporate financing that Barry mentioned. We expect that thing has a contraction maturity that's about 40 months, 42 months from now. When we run the projected returns and those kinds of things we assume it runs to maturity, I think that's what's in the expected maturity, actually, is that it runs. But there are a number of other, there -- it is open for prepayment today. So it would conceptually show up that full amount in 2012. And it could prepay at any point in time probably between those 2 days.

And just to be clear, I think the equity in that position is $176 million. I'm not sure of the schedule, it doesn't show the whole position included...

I think it would. It Would show the full asset...

So the equity in that position is $176 million. There's a corporate financing. This is probably going to be paid off -- hitting maturity, I think it's '15. And we think they'll pay it off in '14. This is probably going to be paid off with an IPO, or maybe not. I mean, it's not -- it's cheap for them and it works for us. So it's -- we were able to finance that position pretty attractively, so that's how we could get the yields we wanted. And it will normalize, I think, with 22 debt yields.

Well, and another great point on that asset is that we're -- our basis, our investment basis, dollar price, is in the low 90s. So if it did prepay, we would have a fairly large [indiscernible]. That's $43 million, right?

It's the gain that we mentioned earlier today.

So that's a good hedge in the event that did happen.

The windfall -- the IRR. The IRR would be probably 20% of the deployed capital.

This is like a home run. But we have to go figure out what to do with the $176-million-plus of [indiscernible].

It's another reason why that's one of our -- at least our favorite investment in the portfolio, or one of them.

Anyway, we are able to do that only because we were able to get very good financing from our friends on the Street who helped us with those positions. And we could note this is not something you can do at home. Don't try this at home. You won't get this financing. Thanks, everybody, appreciate your time today. And we're here: Stew, myself, Boyd, Andrew and the rest of the team. Come visit us in our San Francisco offices where I spent a week last week, and see the team out there and also here in Connecticut. Thanks, everyone. Have a great one.

And this concludes today's conference. We thank you for your participation.