Starwood Property Trust, Inc. Price & Performance (STWD)

Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward looking statements which do not guarantee future events or performance.

Please refer to our 10 ks and press release for cautionary factors related to these statements. Additionally, certain non GAAP financial measures will be discussed on this call. For reconciliation of these non GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Sternlicht, the company's Chairman and Chief Executive Officer Jeff D'Amotica, the company's President and Rina Pinari, the company's Chief Financial Officer. With that, I'm now going to turn the call over to Rina. Thank you, Zach, and good morning, everyone. Today, we reported distributable earnings or DE of $167,000,000 or $0.48 per share for the quarter, and $675,000,000 or $2.02 per share for the year. Across businesses, we committed $1,600,000,000 towards new investments this quarter and $5,100,000,000 for the full year with 67% of our annual investing in businesses other than commercial lending, As a testament to our diverse business model, commercial real estate lending now comprises just 54% of our asset base. I will begin my segment discussion with commercial and residential lending, which contributed DE of $193,000,000 to the quarter or $0.55 per share. In commercial lending, we originated $477,000,000 of loans which brings our full year originations to $1,700,000,000 Repayments totaled $1,000,000,000 in the quarter and $3,600,000,000 in the year.

Our $13,700,000,000 loan portfolio ended the year with a weighted average risk rating of three point zero consistent with the prior quarter. In the quarter, we foreclosed on three previously five rated loans, totaling $190,000,000 all of which were multifamily, two in Texas and one in Phoenix. We obtained third party appraisals for all three assets with one indicating a value below our basis. We took a $15,000,000 specific CECL reserve against this $46,000,000 loan prior to foreclosure. In total, the three assets had $61,000,000 of lost sponsor equity. As we work to resolve our existing REO assets, we sold our previously mentioned Portland multifamily asset at our DE basis of $61,000,000 In addition, subsequent to quarter end, we received $39,000,000 in repayment of a non accrual loan secured by a hospitality asset in California that was destroyed in the twenty twenty wildfires.

The insurance proceeds were $1,000,000 in excess of our DE basis.

And finally, we are under contract to sell an REO multifamily asset in Texas at our DE basis. Our CECL reserve increased by $36,000,000 in the quarter to a balance of $482,000,000 dollars together with our previously taken REO impairments of $198,000,000 These reserves represent 4.6% of our lending and REO portfolios and translate to $2.02 per share of book value. Which is already reflected in today's undepreciated book value of $19.94 Next, I will turn to residential lending. Where our on balance sheet loan portfolio ended the year at $2,400,000,000 The loans in this portfolio continue to repay at par with $56,000,000 of repayments in the quarter and $256,000,000 for the year. Our retained RMBS portfolio ended the quarter at $421,000,000 with the slight decrease from last quarter driven by repayments, and offset by a positive mark to market.

In our Property segment, recognized $14,000,000 of DE or $0.04 per share in the quarter driven by our Florida affordable multifamily portfolio. For GAAP purposes, we recorded an unrealized fair value increase related to this portfolio of $60,000,000 in the quarter net of non controlling interest, The value was determined by an independent appraisal we are required to obtain annually. NOI for this portfolio increased 9% this year. We expect rents to increase again in 2025 once HUD releases its maximum rent levels in a couple of months. As a reminder, there was a 3.8% holdback from last year that we expect to implement in 2025. Turning to investing in servicing, which we often call REES, this segment contributed DE of $49,000,000 or $4 per share to the quarter Our conduit Starwood Mortgage Capital in 2024. During the quarter, we completed five securitizations totaling $595,000,000 at profit margins that were at or above historic levels. This brings our year to date total to 17 securitizations for approximately $1,600,000,000 the highest level since 2016. In our special servicer, our named servicing portfolio regained position as the largest named servicer in The U. S. Ending the year at $110,000,000,000 the highest level in a decade.

This was driven by $5,000,000,000 of new servicing assignments in the quarter and $24,000,000,000 during the year.

Our active servicing portfolio ended the year at $9,200,000,000 with $1,500,000,000 of new transfers nearly 60% of which were office. In our CMBS portfolio, we purchased a $49,000,000 B piece and in the segment's property portfolio, we acquired $14,000,000 of the investments Concluding my business segment discussion is our Infrastructure Lending segment. Which contributed DE of $22,000,000 or $0.06 per share to the quarter. Our strong investing pace continued this quarter with $532,000,000 of new loan commitments bringing our total for the year to $1,400,000,000 its highest annual level to date with this performing loan book ending the year at $2,600,000,000 And finally, this morning, I will address our liquidity and capitalization. During the quarter, we executed $2,300,000,000 in debt We repaid our $400,000,000 December unsecured at maturity and early repaid half or $250,000,000 of our March 2025 high yield maturity. After repaying the remaining $250,000,000 next month, we will have no other 2025 maturities, and our next corporate debt maturity is not until July 2026. Our liquidity position remains strong at $1,800,000,000 This does not include liquidity that could be generated through sales of assets in our Property segment direct leveraging of our $4,900,000,000 of unencumbered assets or issuing high yield or term loan B backed by these unencumbered assets.

We continue to have significant credit with $10,500,000,000 of availability under our existing financing lines, and unencumbered assets of $4,900,000,000 Our leverage continues to remain low with an adjusted debt to undepreciated equity ratio of just 2.1 times its lowest level in over four years. With that, I will turn the call over to Jeff.

Thanks, Rina.

We ended 2024 with a flurry of capital markets transactions where we extended the average term on our corporate debt from 2.2 to three point five years. Repriced, upsized and extended $1,400,000,000 in term loans, extended and upsized our corporate revolver, and issued high yield unsecured debt, all of the tightest floating rate spreads in our company's history.

We raised almost $800,000,000 in incremental proceeds in this process leaving us with significant investable firepower as we enter 2025. We've seen significant spread compression across our investment cylinders in CRE, CMBS, [indiscernible] residential loan and financing spreads. And in CRE cap rates where spread tightening has offset most of the rate rise since the election. Liquidity has returned to all of these markets for both new transactions and the refinancing of the record loan originations volume from late twenty twenty through early twenty twenty two. Giving us as strong a loan pipeline as we have seen in three years. Banks continue to earn significantly higher ROEs lending to non bank lenders like us than making their own direct whole loans to borrowers. They've also reduced our lending spreads to us in line with the spread compression I spoke about allowing us to compete at tighter spreads across our platform on higher quality low leverage loans at today's lower basis. Which we believe will create outsized opportunities for us in 2025. We've already closed $1,500,000,000 of loans in the first quarter and our business plan for 2025 is to write the most loans we have in any year since our inception which was a record year for lenders across the board.

Our unique diversified business model has a cycle load debt to equity ratio of 2.1x today. Leaving us significant room to invest our near record cash levels while still maintaining our low leverage business model.

Investing an incremental $1,000,000,000 of equity will offset the drag created by our REO and non accrual balances today. Given we can borrow today at record low spreads, allowing us to more than absorb tighter lending spreads. Our approximately three fifty employees at Thierry Property Trust in addition to the employees of our manager, Starwood Capital Group, are working toward this goal of significantly increasing our investing pace across Although we have a lot of work to do, we believe we will be able to start exiting legacy non accrual and REO assets at a faster pace.

We presented our Board with our 2025 plan this quarter and in that we have a plan to reduce this portfolio, which has caused significant drag on earnings. By half in 2025 then by half again in 2026 as we look to exit our difficult legacy positions by 2027. While we have earned our dividend in these difficult years where CRE was the hardest hit by the Fed's unprecedented interest rate increases, freeing up this trapped equity while simultaneously taking advantage of tighter spreads to grow our investment portfolio will allow us to increase earnings in the coming years, while holding on to the vast majority of our over $1,500,000,000 in unique harvestable gains in our owned real estate portfolio. We had $3,600,000,000 in repayments in CRE, and with near record liquidity and access to capital, we have looked at resolutions differently than most of our peers. And focused on the highest NPV to shareholders after fact versus improving performance and waiting for a better exit window. We work with our managers to start with capital with over 110,000,000,000 under management across nearly all CRE asset classes, to find the most accretive business plan for difficult assets. If you'll recall, back in 2021 and '22, we made $93,000,000 for shareholders after foreclosing holding and repositioning our first defaulted loans.

Two former Winn Dixie industrial assets. This quarter, we sold our Portland REO Multi at our basis looking to Q1 of twenty twenty five, we will sell an REO multi in Texas at our basis and we already were repaid on a hotel in Napa that burned down at $1,000,000 above our basis All of these were as we expected and signaled. We are beginning interior demolition on a $115,000,000 office building we've foreclosed on in DC are converting it into a beautiful multifamily which you will see on the cover of our supplemental. Rather than sell this asset in a depressed D. C. Office market, our underwriting has us returning a gain to shareholders upon completion. We have resolved or modified 25 assets totaling $2,800,000,000 to date with 12 modifications and 12 assets we have taken into REO to reposition or sell as we did in the previous example. With markets repairing, we as I mentioned previously. RENA mentioned our significant liquidity and I will add that we are through the vast majority of our projected deleveraging. Our four and five rated loans which were optimally levered with $794,000,000 of repo and $9.00 $1,000,000 of CLO debt. Today have only $144,000,000 and $620,000,000 of debt respectively.

Down 8131% on the same asset base. Having paid down 81% of our repo borrowings already on these 4s and 5s, we are left with only $144,000,000 of repo debt subject to any potential margin calls remaining on these assets. As a result, we have significantly more clarity into our future liquidity than we have had at any point in this higher rate cycle. Which gives us comfort that now is the time to go fully on off [indiscernible] as Rina just mentioned. We will also use tighter spreads to continue to increase our unsecured corporate debt as a percentage of our overall debt. And we'll use proceeds to continue to pay down secured asset level debt, we believe will put us in discussions with our rating agencies to upgrade our corporate debt ratings. Thereby further reducing our cost of capital and making our planned growth even more accretive to shareholders and keeping us on our stated path of getting to investment grade In commercial real estate lending, our four and five rated loans were down this quarter. We have said in the past that late cycle multifamily loans will be the hardest hit by stubbornly high forward so far as undercapitalized borrowers will struggle to buy new caps and extend loans.

While more work for our asset managers our manager is one of the largest owners of multifamily in the country with 106,000 units and we expect as we have done in the past, that we will quickly improve performance and be able to exit these assets at or near our basis we have done multiple times recently, or choose to hold them as accretive long term investments. As I mentioned, financing costs continue to improve. And our pipeline is as big as it's been in years. We plan to add to our personnel again this year to take advantage of what we see as one of the best new lending environments we've seen. In infrastructure lending, CLO and borrowing spreads continue to move down. Offsetting tighter lending spreads and after making $1,400,000,000 in accretive investments 2024, we expect to grow at a much faster pace in 2025 given tailwinds in the energy sector and the much discussed need for incremental power in our country. We're off to a strong start. $229,000,000 closed and $763,000,000 in the process of closing.

All a blended ROE in excess of what we can earn in our core CRE lending business. We hope and expect this business will continue to grow and become a bigger part of our asset going forward. In our Real Estate Investing and Servicing division, as Rina mentioned, are now named special servicer on $110,000,000,000 of CMBS loans, our most since 2015, in the growing CMBS market. In a slow CRE lending year, REITs was a strong contributor to earnings in both special servicing and our CMBS conduit SMC, highlighting once again the benefit of our multi cylinder platform and the positive carry credit hedge embedded in our business as our servicer will again make more money as the workouts of loans made in a lower interest rate environment continue to come through in the coming years. With that, I'll turn the call to Barry. Thank you. Thanks, Zach. Thanks, Rene, and thanks, Jeff. This is going to be one of the interesting calls. I've posted in ten years. I think we kind of talk about the macros and probably the windshield has never been murkier Nobody really knows the effect of tariffs or if they're going to go in or they'll be targeted or broad, But there's one short term conclusion, which is definitely go to the manufacturers, they can go to the consumer, they can be split between the two of them.

And take steel tariffs, for example, American producers will raise prices something less 25% increase on foreign imports. So I think we'll have to wait and see And I think I was joking internally for the last nine months, 99 out of 100 economists would have thought with our deficits that ten year was going four, five to five is [indiscernible] both been fairly public about significant increases in the tenure We sit this morning with the tenure at like four twenty eight and at those huge rally showing the inherent weakness in The U. S. Economy, what you're seeing in The U. S. Economy is 10% of the population is spending half the money. And the bottom half is not participating because the AI explosion that has led to commitments close to $300,000,000,000 from seven companies levered is $1,000,000,000,000 that is the same thing as the infrastructure bill except it's getting spent much faster. That's the exceptionalism of The U. S. Economy. It's not anything else certainly out of I look at just [indiscernible] So we have a sort of a distorted economy. And you're seeing the consumer sentiment fall because the uncertainty coming out of the White House We'll see if it's tactical or not.

And what but every day of course we have new news feeds and we have to readjust our thesis. What it means for real estate though is interesting. I mean, we're sort of We're sitting in a good place. I mean, construction has come down. You've heard it from our peers. Multifamily starts down 60%, 70%. Industrial starts down 70%. Buying real estate today with today's interest rates are usually buying it way below replacement cost. We've talked about that means by the way that rents have to rise in order to justify new construction in many cases. It's bullish for loans we have in place and bullish for existing assets. And with Canadian tariffs, for example, you'll see imports of wood, lumber, will be more expensive creating shortage of housing, additional shortage housing if steel prices rise, additional shortages of everything else in real estate because construction are going up.

It leads to future inflation. If we have a continued short of multifamily, rents will rise looking at some numbers in Denver the other day going from 17,000 homes completed in the quarter to 3,000.

You can see the patterns, rents go up double digit. Those factor into CPI and there are a third of and you'll see that probably in late 'twenty six, 'twenty seven. So we're kind of caught we want low rates to refinance our debt. Great for the real estate complex, great for LTVs, great for cap rates, And then we also don't mind high rates because we can lend at higher spreads.

And we make more money on the new book. So it's a little bit of a tug of war between both ends of the spectrum. We don't mind higher rates. Although one of the reasons that we're so busy and our peers are talking about going back on offense is that rates are stable, people and probably in the last months [indiscernible] actually changed again And we still we're looking at sulfur less than four again. I mean, just wait a week and we'll change again.

But really depends on what this economy does. And, nobody really knows. We really don't know today. It's soft. Two weeks ago, it was a runaway freight train.

So, the markets are confused companies are confused and it leads to a problem of course for the average company, not Amazon or Microsoft or Meta or Facebook Google, for the average company on what their capital spending should look like. And I also while we applaud the concept of building manufacturing back in The United States in 13 of 160,000,000 jobs today. And we have a four point something percent unemployment rate. Hard to imagine how you can instantly produce manufacturing jobs in the manufacturing sector that doesn't have workers.

Of course, add that with the [indiscernible] last couple of days that includes significant funds to deport millions of people That will put pressure on wages again and of course many of these working construction.

So that also increases construction costs. So you'll see a lack of a rebound in construction and these are the jobs that these people have taken, whether it's an Uber driver, or construction job, landscaping job, agriculture job, Those are the jobs that many of these people have taken. So the good news is the markets are clearly bought. Now that's barring a runaway move in the ten year. But right now that doesn't look like it's the case though. Obviously, Trump's policies, I think, by general consensus, will increase the deficit especially if the Senate blocks the spending cuts that the House just put in.

I want to talk about us now because I think the company is really in fantastic shape. Probably best shape it's been in in years. And even with our non accrual loans, look at the balance sheet, 2.1 turns of leverage, it's down from almost a turn We can easily borrow money, as Jeff said, and increase our leverage and increase our earnings power. We're going to, we're going to be aggressive on our lending book. Take some things we didn't talk about. Our construction book was 24% of the of our loan book today. It's down to 3%.

Forward fundings under those loans were 34% of our real estate book. I would say lending book today it's 8%. So we don't have any really and then you look at our how we've delevered on our repos and there's a mention by Reno, the future funding required could be required on any margin calls that are de minimis. In the context of the firm. So the company is really in a rock solid foundation with $1,800,000,000 of liquidity.

And maybe better than we've ever been in that context. And I think it's really exciting to see our businesses like the conduit through 17 securitizations, 17, that's more than one a month. That means we're just a manufacturing facility. We take in paper, we package it up, pretty it up, put a bow tie on it and sell it We get a record year and that continues actually into the New Year, which is I pleased to see. And then LNR now is again the largest servicer in the nation. That should bode well for future earnings from that subsidiary. Both of those businesses, as you know, are unique to us in the mortgage area. And have enabled us to be the only mortgage REIT not to cut a dividend in the last eleven years, I guess it's been.

The multifamily, every time we report foreclose, I kind of throw a little party, the lending group throws a little fit. Because I'd like to own these assets because we lend 65% of cost typically and by definition we're below a replacement cost. And we all know that the multifamily markets will stabilize as the new supply is absorbed. It won't happen this year, There's still too much supply coming in this year, but it will fall off cliff in 2026 and you can see buyers positioning themselves probably multifamily cap rates are in 75 basis points already and probably will go further as the future growth becomes more apparent to more people and you want to get in as late as you can, but not too late because you have to pay up for the future growth in rents. We'll also because L and R is so big, we will have as we've always had a front row seat to these restructuring. It's a proprietary deal pipeline for us. It's unique to us and allows us to work with borrowers and offer them solutions to their borrowing issues whether it's preferreds or seniors or equity, we can play in that all those bases.

I think we'll wind up picking up our residential lending business again, which is a a vertical that's been closed for quite some time. We'll be looking at that, looking at HPA. And deciding soon how much capital to deploy there. SIF, our energy business, I mean, really want to grow it dramatically. It's been a gift that keeps on giving. So good that the loans are being paid off pretty fast. And while rates are high, everyone mentions and all our peers have mentioned, spreads have come in dramatically that crashed. So overall borrowing cost are probably pretty much where they are. And the CMBS markets are wide open.

Had one of the biggest days in history two weeks ago.

And you can refinance pretty much anything in the CMBS market. And you will, including office by the way, the markets of the market has accepted large refinancings of large office buildings, which are much harder to do in the private market. And that's good for us because all of us, including us, have some exposure to their office markets. I want to say that with all these businesses growing, I'll mention two other things we're doing. One, we've done our first massive data center loan We're going to make two more.

That we have in our book and our pipeline. This will be a big business for us. It's an infrastructure sleeve. I was asking Jeff what we should call infrastructure or commercial real estate lending. They're unique loans as you know, you're making a loan usually to a credit the best credits in the world AAA credits. There are fifteen year leases in places with bumps. And you're usually financing something like at a nine, ten debt yield. So these are great loans and the market's becoming very competitive, but we're finding ourselves as able to create the returns we need for our vehicle making those loans too. So you'll see hopefully that business grow and grow and grow.

Of course, I think as we grow and add more diversity to the four five hundred basis point hurricane that the Fed threw to us the more we can actually convince the rating agencies to give us that investment grade rating and we're a couple of notches away, but we are the highest credit in the REIT world. And hopefully that will translate into making us maybe like better loans at lower spreads and financing tighter than our peers and become a very powerful machine One other business that we've kind of put on hold is coming back in possibilities today is buying equity real estate. And I think it's one of the best investments Starwood Capital ever made was the 17,000, 15,000 homes affordable housing units that are in STWD, as you know, we have nearly a $2,000,000,000 gain. We have no net equity invested [indiscernible] And we could take that off at any time, but it's the gift that keeps on giving. With 8% trailing rent growth and 8% forecast for this year. There's no better place to have your investors, your capital. Of course, you're always full And I think Jeff has talked in the past about the built in rent growth these assets come off other affordable restrictions and then we negotiate moving them closer to market.

So we think we're really comfortable with that portfolio and that would lead us to enter other businesses again like triple net lease and other areas. So we are looking on expanding our equity book And again, we can do $3,000,000,000 to $4,000,000,000 of investments without issuing equity.

We can do this just by increasing the leverage on the company to more normal levels. I'd say we're under And but we don't really have a need to borrow the moment. But if the pipeline gets really big, we will be levering ourselves to probably a more normal level for us and not not have the one of the lowest leverage. It might be the lowest leverage ratio in the REIT universe. So I'm really pleased the team is intact. They're working hard. We're excited to be able to open going offense again as we have been for quarters. But this is full on open. We're open. We're actually losing deals again, which [indiscernible] Even office construction loans, we've lost a few. Which is kind of funny.

And the spreads are good, but it is competitive. There are a lot of players today that want to put out private and real estate one of those sleeves are [indiscernible] history has been doing large large deals.

And because they're a scale, we get that phone call. And one of these data center deals, the mezz is $500,000,000 There's not a lot of people who can call for that. So and we could take that whole thing down. So we're very pleased. I mean, I'm happy with The good news also as we do resolve non accrual loans, which are way too big.

And inevitably, we'll run into other problems in the portfolio. All that money comes back and can go back into earnings and is available firepower, if you will. And we're pretty excited about that possibility. And you can do the math or and figure out the earnings power. The goal of this is to not call us a real estate REIT. We want to be thought of as a finance company. In a REIT form, which is the most passionate or passionate. It's the most tax efficient way to pay out our earnings. But we're a company clearly we're a company with multiple business lines and we'll continue to add business lines.

We have looked at buying some DUS lenders, Jeff was debating whether we should talk about it. We weren't competitive. On one that's being sold now.

But there are other businesses that we're looking at to add to the portfolio and grow others other lines of business. So with that, I think I'll stop and thank operator, pass it to the operator. Thank you.

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Stephen Laws with Raymond James. Please proceed with your question.

Hi, good morning. A few few topics I want to hit on with Woodstar. First on the expense side, you know Cost of rental operations a little higher in Q4.

Looks like that's been the case the last couple of years. So is that seasonal and how we think about that moving forward?

And then on the interest the debt there? And how do you think about what that's going to cost when you look to refinance that?

Yes. Thanks, Stephen. Appreciate it. We have two point five years remaining debt there and we will be you look at the way we've treated our unsecured debt where we've gone early a number of times, we're going to do the same here when the market gives us a window, two point five years is plenty of runway. And expenses were really up because of the hurricanes. There was some maintenance that needed to be done in that is not run rate, but we expect that that will come back to run rate. And as Barry said, with 8% rent growth and probably another 8% coming next year with moderating expenses. I think we feel pretty good.

This year. '25, yes.

Great. And then just as I think about the fair value mark, we typically have seen that take place in the second quarter around those annual rent increases. How do I get my hands around what drove that valuation gain this quarter? And how do I think about forecasting that as we move forward? [indiscernible] I know it's probably difficult to look at the quarter where the ten year went up the fourth quarter. I'll note that it's down 27 basis since year end In the second, third first, second and third quarter, we used desktop underwriting. In the fourth quarter every year, get an appraisal.

The appraisal is a discounted cash flow method It backs into a 4.43% cap, which our portfolio premium from the appraisal would be equivalent of a 4.68 cap.

I have a list of the last 20 trades in this sector in Florida, in our markets. And the last 20 of them for significant size have a 4.6% blended cap. As Barry said, cap rates have come down and they are coming down and we're seeing spread tightening and I would expect they will continue to come down certainly as we So being higher than the last 20 trades, which date back to '20 and have some of the higher cap rate assumptions in them based on the market being weaker than we feel like we are very much in the middle of the range the most important thing here is this is an appraisal. Discounted cash flow method. Looking at assumptions over time. I'll say on top of that, they look at the rent growth for this year and we only effectively get half of that because it's only for six months. If you take all of that it's all of that just the 3.8% that's been held back is worth about 19 basis points in cap. So if I add if I do six months, it's equivalent of 10 basis points the four sixty eight asset level cap that is effectively used in the appraisal is almost before 7.8.

So we're 18 basis points [indiscernible] the average of the last eighteen months.

Which should have gone down. [indiscernible] while it was tighter than where we were on a desktop basis, feel really comfortable that it is where the market is today at worst. Our next question comes from Rick Shane with JPMorgan.

Please proceed with your question.

Hey guys, thanks for taking my question this morning. Look, one of the anomalies in the market is that you guys are one of the opportunities I should say in the market is that you guys are trading at a significant premium to virtually all of your peers. And that creates an interesting arbitrage in terms of acquisition. When we normally raise this question, companies' responses, hey, why do we want to buy anybody else's problems? But the reality is that giving experience in terms of special servicing, it is analysis that you guys can do really thoughtfully in which probably a lot of loans you've looked at in the past. Does it make sense to scale the business at this point by inorganic opportunities as well the organic opportunities.

We're agnostic I mean, any business line that needs a return of capital and is accretive, we'll look at. I want to say we don't really have any peers. And we pay a whopping dividend and given the diversity of our business model and its historic ability to cover its dividend from whatever is it twelve years or something, thirteen years, I can't even keep track, 02/2009.

Fourteen years, fifteen years.

So I mean, I think we should be training at eight dividend yield or 7.5%, not the 9.5% reflects broken companies basically that are completely busted or have cut their dividend. There's some of them are not continuing to cover their dividend. So yes, I mean you could say that it's booked with then you have to believe us on our books and maybe that is what it is. But the ability to pay a dividend that's too large given the risk inherent in the dividend I think that pushes us beyond book. And I think I think if we that's why I say we're a company not a REIT. And I know we're a REIT, but it is if you look at it as a company with efficient tax structure to pay out, it's then we could and should trade away to a to a dividend yield that reflects the risk of our business model.

And I think we have a we're in a really good position and perhaps there are that we should look at other vehicles which we have considered spinning out businesses and things, which will not trade at the discount we do. As a book, when we bought our SIP portfolio, our business, the GE Energy Lending business, we inherited, I think it's like $2,500,000,000 book of loans.

And we paid a lot. We were moaning and groaning that we've paid a lot. And as that book paid off inevitably it We replaced it with a book three times as good. I mean, higher spreads, better credits, much better financing, CLO financing, [indiscernible] That's going to happen to our real estate books. You're going to wind up getting a bigger and bigger two point zero book and less and less of a one point zero book. And my guess is we trade where we trade because of the when we made these loans. And otherwise, why would you have a 9.5 dividend yield?

So, I think I think we're way down fault due respect by the analyst community that just focuses on multiple to book. And we ask you to look at the diversity of our business. The lending business is half of our business. 54% of our assets.

I mean, there's no peer to that. Don't have anyone that comes close to that.

In our lending group. They don't look like us.

And yet you talk about them as if they're the same as us and we're totally different. And we have 300 employees in the REITs.

There's no one else that's 300 employees in the REIT. So we are a company in a REIT form.

And we're trying to build a diversified credit business. Rick, I'd add to that and say, our undepreciated book value is $19.94 were below that on Monday. Right? And today, we're a little bit above that. We've averaged close to 1.2 times because of our diversified business model, because we have businesses like Starwood Mortgage Capital and LNR that make fee based revenue, we should trade at a significant premium to our peers. What some of the parts We had one of the analysts that covers us and some of our peers last week put us on and made us a sell. I think it's our only sell and has one as a buy and one as a hold.

And we were told within that note that we have the best management team and the best business model, but we trade too close to book value. I think that's a ridiculous statement.

We've traded at $1,200,000,000 We have businesses that that will perform on an ROE basis. We also have the ability to grow our book value.

Woodstar is going to go up. Rents are going to go up.

And if you look at forward book value, forward book value is going to be higher. We have $700,000,000 in reserves, about 5% of our book if I take in the REO reserves that we've taken asset specific reserves and our general CECL reserve. We could certainly undershoot that. But that is our conservative number, right? So why should we trade? At or below book with these very accretive businesses with the ability to grow book value internally and with the fact that our WoodStar portfolio, which is such a gift that keeps giving, is going to keep going up in value for the next handful of years at a minimum. And as Barry just said, more likely rent increases across the board, never mind just in this. So I think we're completely mispriced. If we were back at $1.2 would be $4 or $5 higher.

But that's not management's job, that's for people on this call. So to determine, but we're going to grow the business significantly this year and try to prove [indiscernible] Guys, look, I appreciate your passion on this issue and I'm not saying it's unfounded, but Sort of going back to the original question, regardless of what your absolute multiple is, it is at a significant premium to these other companies, call them peers, don't call them peers. Does it in fact take make sense to take advantage of that potential arbitrage at whatever level and acquire additional assets.

We'd love to acquire other companies at a discount, but they don't seem to want to do that. So we're going to grow as fast as we can.

The fact is 10% of our assets are on U. S. Office.

U. S. Office is still difficult. Our peers have significantly higher exposure to U. S. Office So I would say look into why they trade where they do rather than why we trade where we do. But we should be at a premium.

Our next question comes from Jade Rahmani with KBW.

Please proceed with your question.

Thank you very much. Life Science has been an area of significant challenge due to oversupply and also The basis, many of these projects that are spec are being looked at as conversions to office because that's the cheapest stop The only problem is the rents are much lower per square foot in office. So could you just discuss the OneLife Science downgrade you experienced and what the outlook is there? Yes. Thanks, Jade.

We've never really leaned in on Life Science. We saw all the conversion deals We ended up doing one loan and it's under $100,000,000 It was in Boston in a great location. In the Seaport. We still like our basis versus today's now lower rates. If we can sign a lease somewhere near $90 a foot, which we believe the market is 92 We are out of that loan, but we need to find that lease. Life Science is having a difficult run, as you said, because of supply. Always joke that we don't need three times as much lab space if we're not graduating three times a scientist.

Going forward, I think it's more difficult than that. I think AI, if you look at a certain gene or something that you want to take on, in the life sciences world, AI is going to take 20 possible conclusions and knock it down to two.

Or some smaller number. And so I think the need for lab space is going to continue to go down. Fortunately, we probably have the least amount of life science exposure of any of our peers. Did that one get through, but we've had a similar reaction to yours that the basis is high. It's difficult to convert back to office. And if you do, you're not going to return the equity and you may not return a loan balance but these are difficult problems and and I think the market is going to become more aware that it's a more difficult sector than everybody thought it was a handful of years ago when we converted anything that didn't work as hoping to get higher rents. Thanks, Jed.

Yes. And then on new initiatives, GSE Multifamily, I know business that you've been interested in, has historically and maybe you're uncertain about what the new administration does as to privatization and what the implications are there. Meantime, the existing assets generate really good servicing fees. So is there potentially a move in that direction without making a huge bet for joint venture that you might be interested in?

Jade, you're a little distorted for us on the call. Did you say GSE Multi?

GSE Multi.

What are GSE multi? Multifamily average, Dufflenders. Oh, Dufflenders.

Yeah, we'd love to get one.

You got one for us, James? It's hard. There are certainly people that have reasons they would want to buy them brokers, etcetera. We've tried now three times to buy one, did have to sort of buy into if the caps, dollars 140,000,000,000 caps today, If we go through this privatization sort of what happens there, some people could argue would argue that although you're going to pay about 12 or 13 basis points more and securitization for G fees, that you will actually see them able to increase volume because that $140,000,000,000 has really been driven by mission low income housing type of or green housing type of mandate. So it would open it up for the GSE lenders if we we do that at a slightly higher cost, which is probably competitive with CMBS, but not as much inside of CMBS it is today and certainly inside of where bridge lenders are, but as a bridge lender, we're doing transitional assets These are not transitional properties. These are properties with high cash flows that they are a assuming are near the top of cash flows, which is why they're locking in ten year debt. So we really like the business.

Getting licenses has been is difficult.

Adding brokers who you have to pay multiyear guarantees to go to a golf club and schmooze and we like being in the office sixty hours a week. It's hard to justify having 50 people that you're going to pay an awful lot of money for and not know for sure where the market is going. It's a bullish trade of rate go down for us if we started one Starwood. But not having the legacy servicing portfolio if we started one de novo certainly makes it a little bit difficult if rates go up. So we wrestle with these things. We've been competitive bidding on them. You asked about JVs. Some of our peers have entered JVs There's not a tremendous amount of volume that has come out of those JVs. We've looked at them and ultimately every time we look we end up getting somebody else's underwriting and we don't like their underwriting.

It's much as we like our own underwriting. And so if we if they think we're getting in at 75 LTV when we look at what they've done, we think getting it at 85 LTV and those JVs stick you with something that I think is not cycle agnostic that can actually underperform the book that we would put on our own in an unhealthy market. So It's been a hard thing for us. We would love to grow. We have a lot of other places to grow that our peers don't.

Our energy infrastructure business is great. Barry said we want to start getting back into resi. We said we want to potentially start adding property again. And we're going to have a great year in CRE lending. We have plenty of places to put money out. We struggle with this one love to own one. The cost of entry tie and we will continue to look at every one of them to come. We'll continue to look at JVs, but have to be on our credit terms, not in someone else's credit box.

Our next question comes from Doug Harter with UBS. Please proceed with your question. Thanks. You talked about expanding owned getting back into buying properties. Do you think that would come with selling down some of the existing or would that just be in deploying some of the excess liquidity that you have? [indiscernible] Yes. If we started buying properties, we'd use our excess liquidity. Or would we look to sell down any of our existing No. First, Sorry, Mike was not. First, we use our excess liquidity. That's the most accretive way to an issue unsecured To do so, if we didn't obviously have a blended cash and other availability, so it's not for the foreseeable future. But Yes, we would not need to sell anything to buy something, I don't think. We do look at, as Jeff mentioned, that office building twelve zero one ks DC, I've toured it myself. I mean, it's a really good resi conversion. So And we've decided we want to do it or have outside do it. We've made a lot of money in the REO business historically.

Serious hits on an office building in Houston that we got blocked by a tenant that wouldn't leave. We had a pretty nifty deal drafted for that building, but tenant would leave and we had to sell it as an office building. That's unfortunate. The user showed up. So it's pretty good. But it's not anywhere near the loan balance. But again, this money went out You look at our balance sheet is where we stand today.

So we have a liquidity I think we have an adequate CECL reserve quite a large amount of capacity both liquid and then levering. So we have billions of things we can do before we have to bother stuff.

If the market show up, if they're opportunities and people approach us to buy something and it's attractive, we'll just sell it, of course, We thought we also had Blackstone Mortgage Trust announced that they're getting into lease. We're really happy they are. We'd love all of our peers to be diversified. It would be great for the sector. To see more stable earnings across the board. That's something we've looked at. And if you look at the REIT on the triple net side like triple N or whatever, they're 7.6% cap rate I think on their more recent acquisitions. I think that's that is something we could make work accretively and would actually have positive financing leverage and get you a 10 cash or something like that. I'm a little afraid 56% of the triple net business is industrial and a lot of the rest is gas stations and bank branches and whatever. We have a great credit, you have to pay up for the credit. And I think if that brings it down below a 6.4% cap rate or so, it's very difficult for us to justify versus our elevated dividend today. If we get our dividend down, I'd love to do low high credit deals.

I'm not sure we're ready to wade into lower credit deals to sort of chase mid-7s cap rates today. I think the market on the things we like are 100 basis points or so tight, but we have a group that's our capital group that's has been looking and will continue to look and continue to show us opportunities. That's an obvious place where we could potentially add some more exposure there going forward. Great. Thank you.

Our next question comes from Don Fandetti with Wells Fargo. Please Hi. Can you talk about the Washington D. C. Office and multifamily market? I mean, more people coming to work, but potentially fewer people How are you thinking about that area?

Well, we have one building, I think, in Virginia.

And two in DC which includes the 1201?

That would have been free.

Yes. So It's not good. We don't know.

Going to happen there. I mean, even last night, or this morning, I heard that they were firing 65% of EPA and they changed it to the lower expenses by 60%. Not necessarily fire that many people. You have two countervailing forces return to work which is really good. And people will show up in DC. It would be good for retail at grade, the coffee shops, laundry mats and the tenants at the base of our buildings. We'll have a field day But we don't know yet really the outcome. It's not good for the D. C. Office market. I don't know how you could say it would be. We do have some pretty good tenancy and duration percent percent leased on our biggest loan in DC and in our other loan in DC, just had another re up. So two aren't terrible. Our Virginia asset, we signed two leases this quarter, but it's I think it's only 64% leased. So that's probably more difficult, but it's a much smaller loan at $120,000,000 But our two larger DCs we certainly are hoping that the government isn't shuttered for new leases because that market is certainly very dependent on GSA leases and you just haven't seen them sign.

The lab, four years. So we need to get back to work and it's great to see people coming back to work and being forced back to work and and that could give some green shoots. To the market, but we're launching it like you are.

If I had to guess, Sort of interesting. I mean, my guess is you'll have these these layoffs, they'll hit different sectors of the government differently. Many of these people being laid off or being laid off in government owned buildings and government they may come back on the market I don't know. And then my guess is you'll be rehiring to fill they had to do with air traffic control people and I'm not sure America knows that Park Ranges are getting laid off. The national parks will have no one in them.

This summer.

Think most people, including me, are super in favor of cutting government waste and bringing accountability to the federal government's It's actually of the 50,000,000 people employed by government, only 3,000,000 are federal. It's really the municipalities of the states where the bureaucracy continues to be an impediment to construction development and you shouldn't have to get take eighteen months to get a permit.

And that we'll see how that that works shakes out if any of this trickles out of federal government into the regional local municipalities and states.

Because it is I mean, it is ridiculous how long it takes to get permit. Of course, that's all built into the system. But if you want to fix the housing crisis, you can't people to wait eighteen months to get your permits and then the building [indiscernible] lethal.

So It will change slowly. So some of it's really good. We went in one direction with Lena Khan. We're going the other direction now.

And but I firmly believe capitalism needs guardrails.

So it cannot be left to its own. It will be CapEx as we did in 07/2008.

So let's see how this lays out.

And we gave you a sense that only have, I think, dollars 144,000,000 of margin call eligible credit mark eligible, repo on our lending book the two assets in DC and the one in Virginia. I don't think have any. I'm going to confirm that now, but I think we don't have any. We paid off completely on one of them and I don't think we have any repo debt left on any of the three. So if it gets worse, it's not going to cause it's not going to be a liquidity problem. It's going to figuring out our exit timeline, which may be longer.

Got it. Thanks. We've reached the end of the question and answer session. I'd now like to turn the call back over to Barry Sternlicht for closing comments.

Thanks everyone for joining us today and good luck in this Fascinating environment we're in. And we wish you well and we'll see you next quarter.