Good day, and welcome to the Starwood Property Trust Third Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. 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 September 30, 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 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 any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made during the course of this call. Additionally, certain non-GAAP financial measures will be discussed in this conference call. A presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov. Joining me on the call today are Barry 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 now going to turn the call over to Rina.

Thank you, Zach and good morning, everyone. Our performance this quarter once again demonstrated the strength of our multi-cylinder platform with all components of our business contributing to core earnings of $135.4 million, or $0.56 per diluted share, an increase of 8% from the $125.9 million or $0.53 per diluted share we reported just last quarter. This quarter, we continued to build upon our increasingly diversified asset base, funding $1.2 billion of capital across our lending, investing and servicing and property segments, while receiving $1.1 billion of capital back from these segments in the form of asset sales, maturities and repayments. For the left side of our balance sheet, we exercised patience under volatile market conditions and maintained our discipline credit-first approach when deploying new capital. On the right side of our balance sheet, we continued to maintain a conservative approach to leverage with our debt-to-equity ratio remaining consistent at 1.2 times. On a consolidated basis, our annualized return on equity this quarter remained attractive at 13%. I will begin the discussion of our third quarter results with our lending segment. During the quarter, this segment contributed core earnings of $107.8 million, or $0.44 per diluted share. We originated $310 million of new loans, of which we funded $283 million. We also funded an additional 133 million under pre-existing loan commitments. These fundings were made with recycled cash from the lending segment investment portfolio, which returned $684 million of capital during the quarter. Credit quality continues to be a priority for us, with the average LTV on our loan book at just under 62% and our track record of zero realized credit losses continuing across almost $16 billion of inceptions to date, loan origination and acquisitions. You will notice that we reduced our allowance for loan losses this quarter by…

Thanks. As Rina mentioned, our seasoned investment book continues to provide capital that will allow us to take advantage of the best investment opportunities available to us going forward. As we look globally for opportunities to deploy capital, we expect our new investments to return leverage yields that are higher than the yields that are rolling off in the coming year. In doing that, we will continue to employ the lowest leverage in our peer group to achieve these returns. Rina also mentioned that our ROE on a consolidated basis stands at 13% this quarter, which is up versus the last two quarters, and in line with the highest ROE since inception, as we continue to find the cracks in the real estate capital markets that are being created in its increasingly dull environment. We expect our opportunity set to continue to expand as our competition pulls back and we get closer to implementation of the Dodd Frank risk retention rules in late 2016. Reduced competition and increased volatility are bringing us more attractive investment opportunities. For example, as Rina mentioned, we've been able to kick out more than twice the number of loans in the CMBS that we invested in this year versus last year allowing us to invest in better product pools [ph] and at better yields. Additionally, we continue to partner on our BPs acquisition which allows us to diversify our capital across more CMBS deals while securing servicing on the full investment. When we look at the return of our CMBS book including the accompanying servicing fees, we really like the risk-reward profile available to us today. Despite seeing more opportunities than we have in a long time, we were less aggressive in signing up new loans in the third quarter as a result of the…

Thanks, Jeff. Thanks, Rina and Zach. Good morning, everyone. Actually I don't have that much to add. I think Jeff’s comment is fairly comprehensive. I am proud of the company, I think we did really good job in continued choppy waters. We saw they were choppy obviously with our position as a $50 billion asset manager, we are in the market as a borrower all the time and it looks like the sweat of high yield is offering, somebody quoted to me that it’s $400 million of high yield that have to get down by year end. The gap in the high yield market is spilled into the CMBS market widening it spreads dramatically. DDDs went from like 2.80 to 4.25. So in that market climate when the conduits start seeing 1% margins, one of the other finance companies reported this morning, they get nervous. That means the spread has widened for us. This is I think our fourth time this has happened and simply reversed in ‘09. We like it, it’s really good for us. We like being the guy with the biggest guy in the land and started taking our loan opportunities. So you step back and let the markets follow in and then you go forward. We also recognized that we have to be disciplined deploying the capital because we don’t have access to capital at these levels. Why? I mean, we are still trading at what looks like a premium to book, but our book value is dramatically understated today. When we bought LNR back in 2010 - ‘13, that long ago, we used a large 15% discount rate and that was on the maturity change of the maturing trust that was the 17, 16 and 17, which is the 10-year anniversary of the maturities. And…

Thank you. [Operator Instructions] And we will take our first question from Charles Nabhan with Wells Fargo.

Thanks, and good morning. Given your visibility into the maturing vintages over the next couple of years, I was wondering if there has been any change in your expectations in terms of defaults as it pertains to the specialty servicing book over the next couple of years.

Adam Behlman, do you want to talk to that?

I apologize, I am Adam Behlman, I’m the President of the real estate investing servicing segment down here in Miami. Yeah. We are seeing the beginnings of the loans that were expected to mature - have some issues and come in. I’d say we’re low to middle of our expectation, really things start heating up coming to 2006. So we're starting to see some people call in, informing us that potentially they may wind up in special servicing, which is typical signs of issues with getting refinances on their loan. So it's a little early to say at, above or below expectation. We’re starting to see that flow begin now.

Okay. Switching to the leading segment, you alluded to patience with respect to the origination pace in the third quarter, but there appears to be a fair amount of volume in the pipeline or the closing process right now. So my question is, has anything changed in the environment in your view or are you simply seeing just finding pockets of opportunity and I think you alluded to those pockets of opportunity. So if you could specify maybe whether it's by geography or property type and what's causing that dislocation that you've been able to capitalize on in the marketplace?

Well, I think we felt that the market kind of bottoms here. So we can put our capital and worry about having to. It’s sad how bad the market was or is or how transitional. We were actually doing an equity deal for the REIT and financing while we got from a major investment bank, it was I think 280 and it went to 400 and that was the end of that deal. So it was a dramatic widening of spreads, probably in 30 days. So one of my call that’s being retraded, but in the lending business in your bank, you just don’t want to make loans you’re going to lose the money on, there are some high yield deals that were told to Jeff, the last $60 million on the deal. So the bank has got really nervous and really widened their gaps. And even those were like best effort quotes, they weren’t even giving you firm commitments. So in that environment, we found ourselves looking at loans and we had of course, we had outstanding that were not going to be good loans and I think that we’re appropriate, given where the market has moved. So once now that you have this gaping out, I actually think the mouse will pass through the snake fairly through, maybe the first quarter of the next year and the balloon of supply coming in the market. It’s supply led and a thin market because nobody wants to catch a falling knife. So but we think these trades work for us at these spreads with our financing lines and we have the capital. So we do have to deploy it in cash otherwise. So we’ve been a little more aggressive. I would say it is not, Andrew, I don’t think it’s…

Barry, you talked about spread widening in CMBS, but you're also going to have significantly less volume be down I think the street is now thinking 95 billion or 96 billion this year versus 120 billion that people thought three or four months ago, deals did not get done in to the volatility of the summer. So that deal is getting done and the bank is pulling back, certainly, the bank is pulling back on single asset deals, which have really executed poorly over the few months and you have had an opportunity to pick out mezzanine security there if you want to at significantly higher spreads than we've seen, so we won't be doing much in single assets and those are debt allowances that we tend to fall through. What we’ve seen is borrowers coming to us, saying, if you can be here, we can do a deal as opposed to you're in competition with five other guys and put your best foot forward, we're really able to be price givers as opposed to price takers, so then a better -

And the other thing that’s probably down the pipe will be the change in the risk retention rules. Now, it's going to be free frail. Nobody is going to know how it’s all going to play out, but everyone is talking about it for the first time, even though we talked about it every call, now the banks are talking about it. The one thing you know is debt is going to get more expensive, so spreads will wide, I guess, the whole stack reached that 25 basis points. And if you know that's going to happen, maybe 35 basis points. At what point, we even had booked that into the market right now, right, why would you write a loan [indiscernible] 435 over. So, we're working on that and I'm sure everyone is working on where the opportunities are for us, because the non-regulated entity, that seems pretty exciting to me, [Technical Difficulty] participating in that structural change, which has to be good for us.

Great. I appreciate the color guys. Thank you.

[Operator Instructions] We'll take our next question from Jade Rahmani from KBW.

Good morning. Thanks for taking my questions. On the lending business, can you talk to what drove the slower originations, was it purely caution on market conditions? And based on where you sit today, that business is still attractive, has anything changed for example on the personnel side to inhibit a re-acceleration in originations?

Hey, Jade. This is Jeff. On the originations side, I think at one point in the middle of the China crisis late August, we walked down on a Monday morning and Christian Dalzell, our Head of Originations got something like 18 new calls on launch, it’s difficult to have about 100 loans in our pipeline, we typically do about 4% of those, we had more calls into that volatility from people who were seeing their opportunities away from us, go away, bank pulling back and others, we probably increased that opportunity set to 120 rather than 100. And again, we've historically done about 4% of it. I think we could have done 3 billion instead of 300 million and we certainly could have done it at high leverage and you guys would have afforded significant volume increase, but we chose at that time to pull back and see where the world settled in and within the coming ensuing month or so, it settled in a little bit better and also we are a borrower on that side and with our warehouse lines, we want to make sure that we have our financing set up. So we felt it was good to be patient and we led a - what was a larger pipeline than we probably ever seen, kind of go by the way side of it and we found some deals as Barry said, that was really high cash flowing that we loved the stories on in the fourth quarter. So we'll take that lease and probably take advantage of it a little more.

And today, do you think they are the returns in that business still attractive and you mentioned the GE Capital Healthcare business, are there other business lines, product lines you're looking to add to the segments that you feel could just bolster the offering for example GSC multi-family as one.

So on a return profile, I think we've run a little bit higher than 11% on our loan book levered since I came on in September of last year, which is higher than the book that we inherited. Over the next year or so, the roll off in our book will be significantly lower than that, as a decent number of constructions loans that Barry talked about earlier that will be rolling off at lower yields that are generally unlevered. So I look at the next year and think that continuing to do 11% IRRs should be something that is our goal and we'll continue to be our target and I think we'll see that opportunity set and we'll be reinvesting against a roll off that's significantly lower and so I think it will be a good year for us in terms of pick up in interest income for the same amount of dollars. You asked a second question and I forgot what it was.

Just about adding additional business lines or products to the lending segment?

I think we think we’re in like seven businesses, one business we don't actually talk about is our auction.com, which is another business that we have, which we support by giving their asset to sell and we've learned a lot [Technical Difficulty]. So, but this isn't pretty good, they have made attractive investments in Google and I will see what happens to them, also we have a kicker in [Technical Difficulty] So that's an exciting development, but we own 20% interest in the equity of the project. So, but there are many lines of business we’re thinking about, but [Technical Difficulty].

We did hire a Head of new business development, a 25-year Wall Street veteran this quarter in Miami, so we're looking at doing a lot of new things.

And then just on the guidance for 4Q, implying a sequential downtick in earnings, can you just give any further color, is that conservative, is that embedding a slowdown in LNR, special servicing revenues or maybe just timing lag on capital redeployments, how to characterize the 4Q earnings?

No, it’s the yearend bonuses and accruals and stuff all getting into play, so you’re guessing more or less, we can have a pretty good runway, it’s November, so we like to overlook quite.

I’d say that loans close and repay, because of repayment penalties and we didn’t take any gains specifically in the quarter we just passed. We have - we always do, I mean, we always have gains in our CMBS book and RMBS book and then we didn’t need them, so we just put them away for maybe a day, and we will see - it’s the business, it’s what we do, it’s like our bank, and then always going to stuff happen, so we gave you our best guess, it could be higher. It’s not like they will be lower and we just continue them. It is since that, I mean, we can see the loan book accelerated again and we signed $800 million in the loan book alone and what is I guess - something like that. So not even five weeks. And we are always looking at our dividend. We sure like to increase the balance, I think it doesn’t make a difference right now, I think the climate is such for the company that we are waiting for the two of that. I think as I said, all the mortgage rates got hit, all the REITs got hit, I was surprised when rates tick down from 2.20 to 2.00 and then actually below 2. We are not - that’s a 10-years and 5-years 1.50, 1.60. I was surprised it would rebound, but it didn’t, and I just don’t think we seem to have big an audience working on that or the trip coming out to Asia for the team, talk about us, and back in the team, we are doing a good job. But the good job would be back in 25, that would be a good job. And then dividend yields commensurate with the risk in…

Our final question will come from Dan Altscher with FBR.

Hey, thanks and good morning everyone. I wanted to just ask about access to the FHLB, you mentioned before it took a long time to get in finally here. What type of collateral do you plan on pledging against that? Is it going to be some of the CMBS positions or maybe an account or is there may be some actual multifamily loans or how do you plan on using that?

Hey, Dan, it’s Andrew. I mean, I think, to start out, we are being fairly conservative. As you know, there has been a lot of dialog coming out of FHSA around captive insurance companies and their ability to actually access banking system. Actually at the end of October, there was a bill introduced in the House, HR 3808, which has put forth by four representatives that actually should help because of lot of captive insurance companies that’s effectively trying to put a - trying to block what the FHSA has been doing vis-à-vis captive insurers. So in total, kind of all that plays out, I think we are being conservative in terms of how much we are going to access via the FHLB, we do have a $1 billion approved line going in and they’ve told us that I think we have the ability probably to double that over time to the extent we may be consistent in our business plans. But in terms of the type of the collateral, kind of really runs the gamut, probably seeing obviously some of our peers and some of the agency REITs as opposed to [ph] securities. I think we have the ability to finance kind of high-rated CMBS via the home loan banking system. We also have the ability to access our - to finance our whole loan business as well. So there is very - they will take very collateral into the system. I think it can be a great source of being a low-cost stable financing going forward once all the uncertainties settles in Washington.

Okay. That’s a helpful update, well, people watch on that. And if I can sneak on more in, just broader I think some of the comments alluded to year-end, folks getting all backwards, maybe little capacity coming out of the system, I mean, are you seeing some of the more traditional players like the banks, like the insurance companies and kind of really pulling back towards year-end, kind of maybe reaching caps or maybe on the agency side, the GSEs kind of getting to their caps, is there may be kind of supply demand imbalance if you will kind of as you approach the last two quarters of the year?

Really there is clear supply/demand imbalance. At the last count, I was told $450 million of high yield paper that has to get done and that didn’t include the [indiscernible] But against that backdrop, don’t forget the highest market is going to be tremendously influenced by the paper in the oil and gas industry. That’s going to - on its way to the duration as the hedges will - and so the whole market, the whole - these are the same guys, the guys who are buying some of the high yields 5s and our 8s, are looking at CMBS and they are saying, I am not going to buy that at 4, I want 5. It’s not that stable market. I was hearing some horror stories about people calling up to try to sell some AAAs to a major money center bank and the bid was making this up, 72, 73, and they went to sell this 2 million position and the bank quoted 65. And then they said, are you going to sell the rest of your AAAs. So they were like, they were afraid it was like beginning of our torrent of paper coming out. There is clearly odd things happening in the debt world right beyond my expertise, but in that environment you’re cautious and you are careful and it’s good for us. Yes, I would say in general, the conduits, many of which are fully [indiscernible] interesting. I think there are 40 conduits that are operating today, maybe the number is little higher. There were 250 of them back into - so I think it’s a lot, but it’s not lot compared to what we used to be dealing with and they are all looking at dramatically lower conduit margins and that makes you very careful about probably earning a 1.5 or above 1 and we are 2 something in the quarter. If you fully loaded the overhead of the business into that I am not sure you’re making any money. So that means non-diversified companies that are just doing that are really nervous and they have to get better spreads, they have to widen their spreads on every quote because they are not able to make any money. So we - whether it’s a down period because we are making $500 million a year something like that, [indiscernible]

$500 million.

$500 million, so we can observe that quarter in the conduit business, no problem. That is the design of the company, that is what we have.

And we’ll have over $500 million of commercial real estate transactions this year, first time since ‘07 that you have the insurance companies, total transaction bunker. So you have the insurance companies still up a little bit more than they normally would or the multifamily sector has been on fire as you know. The agencies going back for a while, went to wider spreads, the insurance companies and others build in some of that gap, the agencies are coming up closer to their cap, so I think the insurance companies have done probably more than they anticipated this year and you are looking at probably a lighter fourth quarter across the board for a lot of our competition. So you might have an opportunity here to put more money to work at the end of the year.

Maybe just one simple yes or no question, your multifamily deal that you are working on right now, is that totally just coincidental time at the same time as the equity residential deal or are these related?

This one preceded those two and the equity residential deal and this is affordable, very high quality newer buildings but we thought with the 18-year fixed debt stable and growing double-digit yield, but we didn’t think it was going to be - so it was kind of thing we decided and shareholders and we own probably $150 million of stock we would like to own and we thought no downside growth [indiscernible] This is probably what we think is a sub-14 IRR but we think it’s going to double-digit cash yield, but that’s of course we are not selling it either. We intend to hold on to this for a while, this is really good stuff and it’s well-financed and it’s just 98% occupancy. This is not kind of stuff [indiscernible] portfolio.

That’s great. Thank you so much.

You’re welcome.

Thanks everyone. We really appreciate your time today and the team is available to answer any of your questions as they always are. So have a great afternoon and [indiscernible].

That concludes today's conference. Thank you for your participation today.