Please standby, we're about to begin. Good day ladies and gentlemen. Welcome to the Starwood Property Trust First Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Zach Tanenbaum, Director of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning the Company released its financial results for the quarter ended March 31, 2015, filed its form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website. These documents are available on 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 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 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 the 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 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 our filings with the SEC at www.sec.gov. Joining me on the call today are Barry Sternlicht, the Company's CEO; Rina Paniry, the Company's CFO; Jeff DiModica, the Company's President; and Andrew Sossen, the Company's COO. With that, I'm going to turn the call over to Rina.

Thank you Zach and good morning everyone. I will begin this morning by reviewing the Company's first quarter results, both on a consolidated basis and for each of our segments. I will also provide some information regarding our recent equity offering and the pending acquisition of a portfolio of commercial real estate assets in Europe. We began 2015 with a very strong start, reporting core earnings of $123.7 million or $0.55 per diluted share in the first quarter. This is up 10% from the $112.1 million of core earnings or $0.50 per diluted share we reported just last quarter. During the quarter we deployed $1.2 billion of capital across a variety of asset classes, including $721 million from our lending segment and $487 million from our investing and servicing segment. I will discuss the composition of this capital deployment in greater detail when I walk through the results of each segment. As of March 31, book value per diluted share stood at $16.67 reflecting a 1% decline from the $16.84 that we reported at the end of last quarter. This decline is principally due to the impact of the end of money portion of our convert, which is included in our diluted share count under GAAP. After adjusting for our share issuance in April, our pro forma book value per share would have been $17.06, which would have been an increase of 1% over the last quarter. Before I turn to our segment results you may have noticed that we incorporated a slightly different segment presentation this quarter. We established a separate column for corporate overheads in an effort to identify those items that are not directly allocable to our business segments. Previously these costs have been included in either the lending or investing and servicing segment. The corporate column…

Thanks Rina. Last month Barry and 16 members of our management team hosted our first Investor Day in New York, which I believe highlighted the great depth of our management team. I'd like share some of the main takeaways with you. We walked through the depth of our global organization with over 1,400 people in the Starwood franchise and nearly 500 of them in Starwood alone. We have added our Credit First philosophy and our goal to lend on and buy great properties and great locations globally with great sponsors. Credit is always more important to us than yield and our scale allows us to sift through hundreds of loans and properties to allocate capital to investments with the best risk adjusted return. We looked at nearly a 100 billion in loans in 2014, we chose only 5% of those to lend on, asking on hundreds of deals and closing of approximately one deal a week with an average size of $95 million, and a levered yield as Rina said of 10.6%. And that trend has continued to in the first quarter this year. We utilized our manager and all of its subsidiaries to sift through these opportunities, and as Rina mentioned are very proud to have taken -- never taken $1 of realized loss in over five years. At 62 LTV, our book is setup to continue that trend. And importantly our scale allows us to analyze, underwrite and service all of our loans in house and we meet consistently and constantly to discuss every loan in our book. We talked in depth about our credit process, which is led today by 30 year veteran Carl Tash, who worked with Barry at J&B in the 80s and though we have a committee approach to investing, it's important to note…

Good morning everyone, thanks Jeff, thanks Rina. Rina's comments get longer and then we added Jeff to talk so my comments and get shorter. I am just going to talk about the overall market for a second. It is a competitive world as you can imagine with rates around the world hovering around zero. When the German [ph] tenured at 7 basis points and then has a complete meltdown to yield 34 basis points, it's really irrelevant. It's still a super competitive world. I think our team is doing a great job, looking under lots of rocks to find the jewels that fit our risk profile and everything in this market today, both on the equity side on the debt side is about risk and reward, and there we are not a bank. We can go up and down, sideways, around, we'll structure ourselves, work quickly. I think our greatest strength has always been, and continues to be our speed and knowledge and experience. We've seen a lot of these rodeos. And for that reason, as you've seen we're diversifying into the equity space. Rina mentioned an IRR which I'd say is a guess. I can tell you the cash on cash yield in excess of 10% is not a guess, but the duration of 6.2 years on leases and 99% leased portfolio, we can that kind of return, which is accredited to our dividend yield and our reserve overheard as a firm, our management fees. Then we will probably do those investments if we think it’s consistent with the key core theme of our Company, which was producing attractive dividend yield, to be predictable, transparent and search to the globe for great opportunities that afford themselves on a risk reward basis. So these are great office buildings. It's a…

(Operator Instructions) And we'll take our first question from Dan Altscher from FBR

Thanks. I was wondering on the doubling portfolio, if you could just dive in a little bit deeper on that, I think it probably follows in the core plus strategy, kind of exploring -- can you kind of just give us a little sense of why -- what makes it maybe a core plus with the underlying credits states, whether it's the restoration or the occupancy? On the whole it looked pretty good.

So Dublin is an office market that's almost fully recovered, enjoys a single-digit vacancy rate and rents are rising, which is good but not that relevant to get released. But when we roll we expect events will rise. We've already undergone an asset by asset review to see everyone to -- individual assets earlier. The IRR that Rina decided didn’t have that. I actually got a memo yesterday about one building that the guys might want to sell. The credit quality is extraordinary, but I'm going to ask Andrew to give you stats, or Rina after the call on individual basis, because we haven’t gone into that level of detail, but there are very good quality tenants. I just don’t have that at my fingertips.

Okay. That's not a problem. I'm wondering

I'd say its core plus. It isn’t an asset management intensive portfolio, and we actually bid on this portfolio. So I should also say that our opportunities on bid and lost this deal. So we knew these assets really well.

I just wondering if we could talk a little bit may be though, the capital return -- one of your peer recently participated in a very large transaction. I'm just wondering, you guys took a look at that deal, whether it's on the FGC front or the REIT front or have any thoughts about it or there is maybe just in general some more big portfolios to be coming from them or maybe someone else in that world that might that have some regulatory release issues or regulatory needs to shrink.

We didn't see the deal. It was a -- I have subsequent energy trends and executives at EG [ph] that I know including very senior executives. It was a book purchase. They played book. And book was [indiscernible] free prices. So it was a solid price, meaning it was I'd say fair, whole and fair, and leveraging their 9 to 1 in the mortgage with some very aggressive debt by wells, 186 over I think was the spread if I recall correctly. And then a warehouse line on top of that. So we've never done that. We've never used leverage like that. $9 billion of the $24.5 billion went through equity wells. And then there was an equity purchase where they put out another roughly $1 billion. There is several hundred billion dollars of assets left at GE, and you can be assured that they know we're going to look. There will be a business that will be sold. The bid will come in Thursday. We're not participating in that particular business that's being sold, but they have -- of their several hundred billion in assets, about 40% of it’s in the U.S., and about 30% is in Europe and then rest is scattered. So we would have an interest in the U.S. and European stuff, including entire businesses that might fit somewhere in our portfolio. You do know we have a $5.5 billion -- $5.6 billion opportunity fund. So as we've done before on occasion, the two entities could partner up and [indiscernible] split portfolios where the loans stay with us and Tier and other crap, that doesn't sit in RIET might go in the opportunity fund and/or InterCore vehicle is one of our capital partners. I think we represent more than a dozen sovereign wealth funds ourselves, some of which we don't share with Blackstone. So you can be assured that we certainly will look.

And then one other final one. Recently in the residential space there seems to be a lot more of the mortgage REITs that have I guess gained access to the FHLB, despite the moratorium being in place. I suspect you guys may have been in the early stages or early processes of that also before the moratorium came in. Can you give any thoughts on that, as if it's an option at this point or something that you are still exploring?

Little bit more trend it was lifted and it's something we’re looking at. So we will let you know if we do something.

Our next question comes from Douglas Harter from Credit Suisse.

Can you just talk about the -- on the specialty servicing side, the balances were flat but can you talk about the pace of inflows and outflows that you saw in the first quarter and kind of expectations for the rest of the year.

This is an amazing book. Again you know that the maturities for 2016 and 2017 and we are expecting to trod the year this year. And the business continues because of balance from the various five businesses we operate and it continues to do ok. And the due rate is slower than we expected. Partly that’s the way we manage the book and partly that’s the way borrowers are managing their own maturities. Do you want to add anything Rina?

It's a steady flow, really of ins and out. We thought it would be lower but again we continue to purchase new deals and get additional info because of that. We don't specifically attribute our net transfers in to whether or not they came from purchases or books that was existing, but it's equal pace.

The one thing that we’re doing that is, is that we are shaping the pools we buy. So we’re buying BPs since we’re kicking out loans fairly regularly I'd say right?

If you look back to last year I would Christmas of 13 or so you were able to kick out a number of loans out of a pool. This is a hundred loan pool. You could probably kick out eight or 10, and as the year heated up in 2014, you were unable do that with a lot of hedge funds and others paying up for BPs. And then as the year ended last year, and into today, you are getting more opportunities once again to shape the pool and kick out loans, which is giving you a pool that you're more comfortable owning for as long as the investments and mid-teens yield.

I don't think that BP is currently [indiscernible] actually show this material on our balance sheet, because they are all future cash listings. So to your question of why the servicing balance looks so confident, the loan book looks so bad, it is because of book isn’t deteriorating at the pace we've anticipated.

That's right. And the inflows that are coming in really aren't off of the new purchases. So you're not going to see the benefit as it is inflows until a much later date. So really just an evening on the legacy book on the 1.0.

Stuff coming in and stuff going out.

And then just shifting to the lending segment, you have been able to keep the optimal -- the levered return fairly constant despite some asset yield compression because of improvements on the financing side. Is there any more room for that to happen, or if we continue to see asset yield compression will levered returns decline at this point?

Interesting question. We argue ourselves and talk to the Board, should we low our targets because it's for safety right, and we’re all about safety and yield. Like why we’re doing some of these transitional yields for higher returns, because this model worked differently and arguably just as well. We won't be able to return 10.5%. And that number, our peer, our largest peer, fits about half our size, they actually report with the corporate leverage. So they give you higher number and Rina said it will be much higher. It's probably another couple of hundred basis points higher, 12.5% and we, do, do that. We take our corporate debt and we assign it to our unlevered loans and we literally run a model for optimum leverage, how much capacity do we have or we have a first mortgage let's say Hudson [ph] Yards. It is an epic office building now fully leased. We have it unlevered, right. There is no debt against it. So we can say, okay it will take $200 million of our corporate spread or conversion assigned to that asset and how much more leverage would we be comfortable with assigning to that construction loan, and that gives us an idea of the overall leverage of the whole Company that we'd be comfortable with. So I gave you I would say a silly number to 10.6, but that’s not the way we think about the Company. I think about the Company as the right leverage on an asset base we have. And so that’s more or like 12.5% or 13%, even though what the number is, but it's much higher. We're borrowing at 4% on a converse and some are even tighter than that, so. My mother's calling from the hospital. So I apologize. One second,…

And we'll take our next question from Eric Beardsley from Goldman Sachs.

I was wondering if you could just talk a little bit about the cash through the upcoming quarter. It looks like you have some more maturities and pre-payments expected than you had over the last few quarters, but you still did the equity raise. I guess outside of the Dublin portfolio that you're acquiring, is there anything else that's relatively large in the pipeline right now.

We've modeled a steady deployment of equity capital throughout the year, quarter by quarter. And if we do that, we actually are pretty self-funding this year. If we were to do a large transaction, another -- anything of scale, probably we would -- we would probably have to come back to the market. So far everything we’ve done has been accretive. So I think that's attractive that's very fair and driven.

Yes, I think our philosophy on capital raising remained consistent since we went public five and a half years ago and we raised equity capital and we have a pipeline of new investments that are equity or debt, that need to close. We don't have the kind of self-funding sources to close. And some call it a just in time capital model. There's other ways to describe it but raising equity is just one way that we continue to grow. As we talked about Investor Day you know we're looking at the senior unsecured market as a way to grow the Company with an overall goal as Barry mentioned before, getting to investment grade. I think Eric seeing a supplement we have -- I think we've quoted a $1.5 billion, $1.540 billion of capacity as of April 30, 2015. So that gives us some significant runway to close the investments -- the pipeline for the foreseeable future. As Barry mentioned if anything really material comes in, that that might necessitate into some needs for capital but that doesn't necessarily need to be equity.

Got it, and if you just evaluate the opportunities, first the U.S. at this point when you're looking at the core plus equity, I guess how does it stack up with the returns and just I guess the quantity of opportunities.

So we're hamstrung so far by trying to cover our pay rate right, on equity, without over levering the assets that we're buying on the equity side. So -- and we are trying to do deals, when I say, what do you call them, the value add IRR range. IRRs for REIT investors having run several REITs in my career are not that relevant to you, because you don't know when I'm going to sell the asset and you don't know if I'm investing for a 20 or 25 or 14. You really don’t know. I could tell you but how could you verify that. So it was one of my great frustrations running Starwood Hotels. I was doing 30 IRRs yields but nobody cared. And if it didn't show up in current earnings and that's what we're really about here, nobody cared. In fact one of the great frustrations at Starwood was pre-opening centers from hotels, hit earnings, were dilutive, they were great private company IRRs, but GAAP accounting was horrific, showing value creation, equity [indiscernible]. So here I would say that our discipline has been stability, quality of assets, ability to hold them for a longer period of time, maybe forever. We're using our sourcing ability and we're one of the most active equity investors in the globe. We're agnostic to the U.S. versus Europe, but I would say even Steven we'd take the U.S. any day, because it's here, tax codes and everything else, currency issues -- by the way we hedge all of our cash flow streams on the Irish deal. All the cash flow streams.

And those were included in the…

And they were included in the cash on cash yields. But we like Europe. We -- actually I would say from an equity shop, just look at how Starwood Capital has evolved over the past five years. Our 8s funnel is 93% U.S. and 7% other. Our 9s fund which is $4.2 billion with a two-thirds one-third U.S. Europe and our 10th funds and I am skipping a small change though is country represented, was running around half and half. There is a lot for sale in Europe as you know and, and Europe -- there is a lot of debt in Europe and that I think is the biggest surprise as how hard it is and how competitive the lending market has become in Europe with the bank staying inter-border and lending aggressively in within their border. So English banks' lending to England and German banks in Germany, the French banks in France, not that we'd ever borrow there. And we've done deals in the equity funds in Poland and Czech Republic, in Norway, Sweden, Ireland, UK, Spain, and is lending aggressive and at tight spreads. So we continue to look for stuff to do. We made a large loan on a building in the City of London -- which is a great loan and it was a transitional loan and I won't go into the details but it's a great brand new office building. So we cherry pick and we're agnostic as long as the returns meet our criteria and the risk profile suits us.

Just jumping back to the [indiscernible] Andrew mentioned $1.5 billion or so that we have remaining, you have to remember also that more than half of what we do today, we finance in the A note market by selling off a senior mortgage as opposed to putting it on a warehouse fund. So we have significantly higher capacity to the extent that we do sell off A notes and create mezzanine versus some of our peers who will look just at the warehouse fund capacity.

Actually in your exhibit, there is a slide that shows what we expect the capacity originally required, which should outline how we get to a $1.5 billion. So.

And we will take our next question from Jade Rahmani from KBW.

I was wondering if you could elaborate on how you are thinking about diversifying the business. You mentioned exploring large transactions, can you give any sense for the kinds of things that could make sense. Is it geared toward lending for example, spaces that you might not be active in such as multifamily, healthcare, maybe international or even residential, or is it focused equity or otherwise services such as events in sales or even investment management?

All the above, thanks for the question. No seriously, we like to -- we're looking at lending businesses that fit our criteria. Obviously I would rather not talk about it because we do have competition and -- but we're not, we've always been transparent, just one disclosure again from NAREIT. We're telling you heads up, we're been looking for five years, we haven’t done anything major. I mentioned at the Investor Day that we looked at a company like Caplease [ph] that had great credit, triple net, bond like equivalent, but had fully amortizing debt which meant that all the income we had wasn’t actually cash and we'd have to pay out a dividend based on and borrow the money to pay you a dividend, and yeah it could work, but I didn’t want to do it. I didn’t want to borrow, we like to pay our dividend on cash we earn each quarter and safety and security is pretty constant theme. And we are -- this is not a high wire act and we won't lend into a high wire act. We won't do that. And the guys who asked me on our road show how do I know that your mortgage REIT loan acts like other mortgage REIT's, it's welcome because we're going to not lend. And so you see us beginning to diversify into equity. And actually if you don’t like, you should sell the stock, because I'm not going to drive this Company into the ground and run at a high credit risk book, I just won't do it. So I'm not interested in that. We're going to make money for you long-term and do our best trying to do so.

Okay, a related question.

That's an aggressive answer.

A related question.

I think you don't do it, that's the moral of the story.

A related question, which I think was mentioned at the Investor Day. Can you, what can you say about whether the management or Board is looking at a cost benefit rationale to potential internalization transactions with the manager?

It hasn’t really come up. At the Board level we haven’t raised this discussion. I think even today our overheads are nine figures, more than nine figures, Starwood Enterprises, 1,500 executives or people in our enterprise. It's interesting. We just have -- every Monday morning we have our acquisition meetings with equity teams and the debt guys come in and listen in we're getting very -- we've spread our stock to the equity guys too and sent them to bring us deals. And one of the things we're going to have to think about is it is all about yield, it is just yield, if we're consistent growing yield, agnostic to real estate asset class or we pick one asset class and we're doing x a triple net because we've talked about it and loans and/or the way we're going to do, are we going to do. And that's something we'll discuss at our Board meeting and probably make a decision, are we going to a [indiscernible] of very carefully curated assets across the globe that produced the kinds of consistent high cash. Look, the equity REITs are yielding 3, 3.5 I think. Some of them are yielding 2. We're yielding 8. So we can keep this up. And as you've seen, as the companies like Colony [ph] which have internalized and NorthStar, well NorthStar is little bit of a hybrid but Colony [ph] seems to guide credit and the yield for moving into the equity space recently and they were always sort of a hybrid REIT, a very complicated and hard to understand, not a bad thing. They're different than us we are looking at that because we’re going to -- if we are doing an equity REIT, dividend falls sort 3.5% to 4% or 5% then our stock goes to 35. So something we’re considering although we've to look at that and I think that’s something we’re thinking about. We are not in this core business -- core plus business, Starwood Capital Group, and as you know there is a bright line which is -- and over five years I think we've crossed it twice, where -- three times maybe. We’re the investment higher than a 14 IRR and we split it, the REIT gets 75% and the fund gets 25%. It happens in all small multi deals, small deals this year and the LRN acquisition.

Lastly on risk retention, I wasn’t sure if in Rina's comments there was an offset that it may benefit the Company. Can you just elaborate on your thoughts there?

We've anticipated Jade, that we thought it would benefit us. We continue to believe that but the issue really is at the tier implementation period which is fairly long period of time, and there is a lot of back and forth as to what exactly the roles mean and how they are going to be implemented. So we continue to believe it will benefit us for the reasons we've mentioned before that we’re able to hold -- to put our capital longer term and hold on to it, which may restrict others and so we still think there is a benefit there but we just don’t know it's the way that gets implemented is how we think it's going to be. Two years, it's just a period of time.

And Jade, we have our best and brightest in Grenache and Miami looking at it. Part of it is, it's a competitive world and to the extent we could find a better mouse trap, we obviously want to get that proprietary versus and talk about it publically.

And the regulators will have a difficult time holding up the spirit of what they originally proposed, as there will be a number of lawyers and investment banks and others trying to figure out ways around it. The original spirit is a great benefit to us and we'll see what their ability is to, to maintain that original spirit as we get closer to our implementation.

And we will take our next question from Charles Nabhan from Wells Fargo.

Could you comment on the ramp up and profitability of the Ireland transaction? How we think about that from a timing standpoint? And if we should expect any expenses to be incurred over the next couple of quarters?

Its cash planned out of the box. The reason they ramp up get -- the cash flows do ramp but they start out as consistent with what Rina said, as better n than 10% cash return on our equity investment.

And I all the deal that will expense at the [indiscernible] question all embedded in cash-on-cash.

There is no fee there is no acquisition fees or anything paid to Starwood Capital Group. There is nothing -- we received no compensation. That's -- we get paid for that out of our management say. It's very straight up, that was a 100% purchase and that was done to further benefit.

It's 99% leased, with not many leases rolling in the near-term. So you don't have a lot of leasing upside and there is no TI to bring you back down on the other side. So we expect this yield.

There is leasing upside. It's the opposite of what you think. Some of the markets are moving so fast it was like the [indiscernible], but that would pick your hopes high, that that would happen.

On the liquidity side, could you comment on the 904 million in the expected maturities prepayments and sales? I believe that might include -- that might include some construction loan sales. But could you give us a little color on the composition of that $904 million?

I know like this for example more of our peers are selling a large company, which we’re actually bidding on. And so we know that that will be repaid. And we would love to buy but I don't think that we'll be able to. So we would act in there. And as far as construction loans, there are some but I don't have the details in front of me.

I would say it's probably spread evenly between sales participations and expected repayments.

And as far as managed versus senior, could you comment on that?

You mean what's being repaid?

Yes.

Well, all-in-all, since you're asking for a lot of detail, I'm not necessary comfortable sharing. I'd say that we gave you earnings for the year. So we kind of know what's coming back in and we've modelled it into the earnings guidance we have. So I don't think, we don't think I don't know of anything. We’re big enough now, at $9.3 billion or $9.4 billion asset base that it’s really, it's hinderable.

I would say that the earnings guidance we gave you and we go through a very rigorous asset management process on a quarterly basis where the entire management team gets in a room and looks at every asset obviously on a more granular basis for asset managers and just we’re looking at our assets on a daily basis. Before of that quarterly review process as we every asset come up with an expected maturity date. And those expected maturity dates are actually what we've used to come up with our forecast on yearly basis and I would say this $904 million is coming back. The assets that are in there are coming into our expected maturity days. So those are actually in our numbers getting that cash back. And it is [indiscernible] sales come from the construction loan.

And one last thing where this is a 5.5 year mature REIT you will see four year loans, three years loans, and two year loans rolling off, and when you compare that other people who have ramped up a portfolio in the last year or two and don't show much in terms of those prepayments, it's a function of maturity of our business?

There was a comment I shouldn’t say about purchase of the GE by one of our competitors, but it had three year duration. And that was the same duration of portfolio. We've tended not to try to do deals that are so short because we have to redeploy the capital just 12 months later. So we've tried -- one of the tricks in the business has been to get lock outs and again, that’s one of the trickiest things that our lending today which we have three prepayments, the money could come back 43 minutes after we lent it, planning the legal fees put the deal out. And so that’s one of the challenges of staying in the lending business. Yes, a guy borrows from us at our rates of return, which by the way we can lever of 4.5% loan or 4 loan for [indiscernible] and create nice piece of paper today, given our borrowing are plus few hundred, but it will repay us once the asset stabilized and we need duration. We cannot roll $9 billion of loans every five minutes. That would be a really hard thing to do. So it's another reason to stretch our book into the equity side or build such as amazing origination machine, that we can keep lot of think -- a $1.10 billion loan. So that's an alternative for us. We require a new type of organization something. We'll have to consider, like an insurance company or a bank or something where we don't look like the large loans lender that we've been but we’re creative.

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Barry Sternlicht for any closing remarks.

All right just want to thank everyone for being with us. And we appreciate your attention and your partnership. Thanks. Have a great day.

And once gain ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.