Starwood Property Trust Inc. · NYSE:STWD
Starwood Property Trust — Investor Day (December 2018)
129 slides from Starwood Property Trust's investor day presentation, Dec 14, 2018
Slide 1: Investor Day 2018
INVESTOR DAY 2018 December 14, 2018
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS This presentation contains certain forward-looking statements, including, without limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private
Slide 3: Agenda
AGENDA Section Attendees Welcome and Agenda Zach Tanenbaum – Head of Investor Strategy, Starwood Property Trust Opening Remarks Jeffrey DiModica, CFA – President, Starwood Property Trust Financial Overview Rina Paniry – Chief Financial Officer, Starwood Property Trust Guest Speaker Jim Grant – Grant
Slide 4: Agenda, Continued
AGENDA, CONTINUED Section Attendees Andrew Sossen – Chief Operating Officer, Starwood Property Trust (Moderator) Infrastructure Lending Himanshu Saxena – Chief Executive Officer, Starwood Energy Group Denise Persau Tait – President, Starwood Infrastructure Finance Brendan Brogan – Managing Director,
Slide 5: Opening Remarks
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 OPENING REMARKS Jeffrey DiModica, CFA, President
Slide 6: Starwood Property Trust Organization
STWD: SCALE, CREDIT, AND DIVERSIFICATION STARWOOD PROPERTY TRUST ORGANIZATION Real Estate Investing & Servicing Asset Management, Surveillance, Investing, Analytics Starwood Starwood Mortgage Capital 129 Infrastructure Finance Starwood Property Originations, Credit, Originations, Credit, Portfolio L
Slide 7: Starwood Global Footprint
STWD: SCALE, CREDIT, AND DIVERSIFICATION STARWOOD GLOBAL FOOTPRINT New York City Amsterdam Chicago Luxembourg San Francisco Greenwich London Charlotte Washington, D.C. Hong Kong Atlanta Miami Los Angeles Nearly 3,800 professionals in 13 offices and over 8,000 additional employees affiliated with Sta
Slide 8: Starwood Capital Diverse Real Estate Experience
STWD: SCALE, CREDIT, AND DIVERSIFICATION STARWOOD CAPITAL Starwood Capital Group has acquired $94 billion of assets across all major real estate asset classes since DIVERSE REAL ESTATE inception EXPERIENCE MULTIFAMILY HOTELS INDUSTRIAL OFFICE 177,000 2,900 40M 82M UNITS SQUARE FEET SQUARE FEET RETAI
Slide 9: Primary Investment Cylinders
STWD: SCALE, CREDIT, AND DIVERSIFICATION PRIMARY INVESTMENT CYLINDERS 2009 2013 2014 2016 2018 Commercial CMBS Special CMBS Loan Owned Residential Infrastructure Lending Investing Servicing Origination Real Estate Lending Lending Originate Invest in new issue Workout defaulted Originate fixed- Inves
Slide 10: Starwood Property Trust Today
STWD: SCALE, CREDIT, AND DIVERSIFICATION STARWOOD PROPERTY A leading diversified finance company with a core focus on the real estate and infrastructure sectors TRUST TODAY Premier Stability Management Low LTV Low Leverage Strong Information Credit Advantage Profile Risk Adjusted Return Access to Ca
Slide 11: Financial Overview
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 FINANCIAL OVERVIEW Rina Paniry, Chief Financial Officer
Slide 12: Segment Presentation
SEGMENT PRESENTATION (in millions) Segments Assets Liabilities Equity What’s New? What Isn’t New? Commercial Lending $7,967 $3,783 $4,184 Residential Lending 730 435 296 Q1 ’17 Property 3,043 2,003 1,040 Q4 ’14 Infrastructure Lending 2,037 1,518 519 Q3 ’18 Investing & Servicing 1,984 840 1,145 Corpo
Slide 13: Portfolio Transformation
PORTFOLIO TRANSFORMATION $ millions $15,000 $14,000 Infrastructure Lending 13% $13,000 $12,000 $11,000 Property 21% Property 23% $10,000 REO (REIS) 3% $9,000 REO (REIS) 3% Property 21% CMBS (REIS) 7% $8,000 Property 12% CMBS (REIS) 9% Residential Lending 5% REO (REIS) 2% REO (REIS) 3% Residential Le
Slide 14: Earnings Transformation
EARNINGS TRANSFORMATION $ millions $800 Property 10% Property 15% $700 Property 3% Other (REIS) 2% Other (REIS) 5% SMC (REIS) 3% Property 7% SMC (REIS) 4% SMC (REIS) 3% REO (REIS) 3% Other (REIS) 1% REO (REIS) 3% SMC (REIS) 5% REO (REIS) 4% $600 Special Servicing (REIS) REO (REIS) 1% Special Servici
Slide 15: Debt-to-Equity Ratios by Business
DEBT-TO-EQUITY RATIOS BY BUSINESS 3.50x 3.00x 2.96x 2.21x/2.85x 1.41x/2.53x 2.50x 2.03x/2.40x 0.64x 0.37x 2.00x 1.12x 1.32x 1.52x 1.52x 1.50x 2.96x 1.00x 2.03x 0.92x 1.41x 1.52x 0.50x 0.89x 0.61x 0.00x Total Commercial Lending Residential Lending Infrastructure Lending Property Investing & Servicing
Slide 16: Where Are We Going?
WHERE ARE WE GOING? Undepreciated Equity by Business Equity Usage by Business EQUITY NEUTRAL Real Estate Investing & Servicing 15% Commercial Real Residential Lending Estate Lending Property Investing 25% 45% & Infrastructure Servicing Lending Commercial Property Lending Infrastructure Lending 10% R
Slide 17: Adjusted Book Value Per Share
ADJUSTED BOOK VALUE PER SHARE Illustrative upside to GAAP book value per share $30 ??? $25 $2.09 $20 $0.94 • Market premium • Special servicer upside $15 • SMC upside • Eventual equity gain reinvestment $10 $17.05 • Third party asset management $5 • Other $0 GAAP Book Value 1 Accumulated Depreciatio
Slide 18: Guest Presentation
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 GUEST PRESENTATION Jim Grant, Grant’s Interest Rate Observer
Slide 19: Commercial Lending
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 COMMERCIAL LENDING Jeffrey DiModica, CFA, President Dennis Schuh, Chief Originations Officer Mark Cagley, Chief Credit Officer Cary Carpenter, Head of CRE Capital Markets, Trading and Syndication Lorcain Egan, Head of Debt, Europe
Slide 20: Lending Portfolio Summary
LENDING PORTFOLIO SUMMARY Asset Carry Value $ millions $8,000 $7,505 $6,966 $6,289 $6,294 $6,338 $6,000 $4,834 $4,000 $3,446 87% $2,446 $2,000 $1,506 $459 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1 First mortgage loans Subordinated mortgages Mezzanine loans CMBS Preferred equity held for
Slide 21: Historical Originations/Acquisitions
HISTORICAL ORIGINATIONS/ACQUISITIONS $ millions $8,000 $7,000 $2,000+ $6,000 $5,000 $4,921 $4,152 $4,000 $3,214 $3,000 $2,515 $2,000 $1,000 $0 2015 2016 2017 2018 Term Sheet Signed 1 Closed Q4'18 QTD Data as of September 30, 2018, unless otherwise noted. Includes U.S. and European originations. 1 Te
Slide 22: Migration of Weighted Average LTV/LTC
MIGRATION OF WEIGHTED AVERAGE LTV/LTC 1 80.0% $8.0 Weighted Average Ending LTV / LTC of Loan Portfolio $7.0 75.0% $6.0 70.0% $5.0 Carrying Values 65.0% 62.9% 63.8% $4.0 61.9% 62.1% 62.5% $3.0 60.0% $2.0 55.0% $1.0 50.0% $0.0 2 2014 2015 2016 2017 2018 1 Underlying property values are determined by S
Slide 23: Portfolio Snapshot: Geographic Diversification
PORTFOLIO SNAPSHOT Geographic Diversification New York Washington 20.8% 1.3 % Ireland Illinois 2.9 % Pennsylvania 1.3 % 2.1 % UK Massachusetts 7.0% 1.9 % New Jersey Colorado D.C. 2.5 % 1.9 % 2.4 % Virginia Arizona 3.8 % 1.9 % California North Carolina 15.3 % 1.6 % Texas 1 Other 11.2 % Louisiana Flor
Slide 24: Portfolio Snapshot: Collateral Diversification
PORTFOLIO SNAPSHOT Collateral Diversification Property Type Investment Type Parking 2% 1 Investment Securities 6% Industrial 2% Other 3% Land 2% Mezzanine 5% Retail 2% Subordinated Residential 7% Office 35% Debt 2% First Mortgages Hotel 23% 87% As of September 30, 2018 1 Other Property type includes
Slide 25: Commercial Lending Organizational Overview
COMMERCIAL LENDING 62 dedicated employees in Starwood Property Trust’s ORGANIZATIONAL commercial lending organization OVERVIEW Dennis Schuh, Chief Originations Lorcain Egan, Head of Lending, Jeffrey DiModica, President, Mark Cagley, Chief Credit Officer, Cary Carpenter, Managing Director, Officer, S
Slide 26: Preliminary Investment Committee Memo – Example
PRELIMINARY INVESTMENT COMMITTEE MEMO– EXAMPLE STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 26
Slide 27: Competitive Advantages
COMPETITIVE ADVANTAGES Global Relationships Expertise Financing Starwood Large Loans Track Complexity Record One Stop Shopping STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 27
Slide 28: Broad Institutional Borrower Base
BROAD INSTITUTIONAL STWD benefits from its deep institutional borrower relationships and due to its superior process and BORROWER BASE execution, the Company has been able to turn most customers into repeat borrowers STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 28
Slide 29: Financing Options
FINANCING OPTIONS STWD has amongst the most diversified financing sources of any Commercial Mortgage REIT Liquidity Facilities Secured Facilities Senior Note Syndications Securitization Corporate Level Market Financing STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 29
Slide 30: 2018 Financing Sources
2018 FINANCING SOURCES Financing Sources Impact of Off-Balance Sheet Financing on Size of Portfolio Financing Asset On or Financing Sources Commitment % and Sales % Off Balance Sheet Co-origination 13% Total Assets that End Up Off Balance Sheet 29% Sale 16% Corporate Debt 8% Total Assets that End Up
Slide 31: Migration of Borrowing Costs
MIGRATION OF BORROWING COSTS 4.50% 85% 4.00% 3.875% 0.250% 80% 3.50% 3.00% 75% 2.50% 2.125% 70% 2.00% 0.250% 1.750% 3.625% 0.250% 1.50% 65% 1.00% 1.875% 1.500% 60% 0.50% 0.00% 55% 2012 2016 Today Financing Spread Expense Average AverageAdvance AvailableRate Advance Rate Note: As of September 30, 201
Slide 32: Underwriting and Portfolio Management
UNDERWRITING AND PORTFOLIO MANAGEMENT STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 32
Slide 33: Investment Committee Memo – Sample Pages
INVESTMENT COMMITTEE MEMO – SAMPLE PAGES STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 33
Slide 34: Starwood Property Trust Investment Committee
STARWOOD PROPERTY TRUST INVESTMENT COMMITTEE Andrew Sossen, Chief Dennis Schuh, Chief Christopher Graham, Senior Jeffrey Dishner, Senior Operating Officer, Starwood Originations Officer, Managing Director and Head Managing Director and Property Trust Starwood Property Trust of Real Estate Acquisitio
Slide 35: Quarterly Portfolio Review Meeting - Sample Slides
QUARTERLY PORTFOLIO REVIEW MEETING - SAMPLE SLIDES STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 35
Slide 36: Case Study & K Street
CASE STUDY 700 & 800 K STREET STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 36
Slide 37: 700 & 800 K Street
CASE STUDY 700 & 800 K STREET Exterior – From Mount Vernon Square Lobby Entrance on K Street Rooftop Space Plaza Retail STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 37
Slide 38: STWD European Originations
STWD EUROPEAN ORIGINATIONS $ millions $1,400 $405 $400+ $1,200 $1,000 $878 $800 $704 $600 $554 $440 $449 $400 $326 $227 $527 $200 $110 $71 $0 $27 2010 2011 2012 2013 2014 2015 2016 2017 2018 Term Sheet Signed 1 Loan Originations Dublin Real Estate Equity Portfolio Data as of September 30, 2018, unle
Slide 39: Case Study: One Braham
CASE STUDY ONE BRAHAM STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 39
Slide 40: Case Study: One Braham
CASE STUDY ONE BRAHAM STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 40
Slide 41: Investment Process Overview
INVESTMENT PROCESS OVERVIEW Origination In-Depth Underwriting and Management of Real Estate Credit Risk Portfolio Credit/ Management Underwriting Investment Transaction Committee Management STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 41
Slide 42: Intermission
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 INTERMISSION
Slide 43: Capital Markets and Financing Overview
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 CAPITAL MARKETS AND FINANCING OVERVIEW Andrew Sossen, Chief Operating Officer
Slide 44: Best in Class Credit Profile
BEST IN CLASS Responsible steward of capital, committed to prudent balance sheet management CREDIT PROFILE Significant Low leverage Diverse business model unencumbered asset base Unsecured debt Robust profitability Strong interest coverage Seasoned Proven access Stable funding management team to liq
Slide 45: Best in Class Balance Sheet
BEST IN CLASS BALANCE SHEET Total Capitalization Secured vs. Unsecured $ millions Secured Equity Unsecured Debt, Market Debt $2,056 $8,672 Cap., $6,090 $16.8B $10.7B Unsecured Secured Debt Debt, $8,672 $2,056 Debt by Type Debt by Margin Call Type Unsecured, $2,056 No Margin Calls $3,894 Secured Revo
Slide 46: Corporate Debt Maturity Schedule
CORPORATE DEBT MATURITY SCHEDULE $ millions $1,500M $1,500 Freely prepayable Dec ’21 $1,000 Dec ’21 11 months in between $500M $500 $250M Feb ’21 Mar ’25 1 $78M Apr ’23 $0 2019 2020 2021 2022 2023 2024 2025 Convertible Notes Outstanding Senior Unsecured Q1’21 Senior Unsecured Q4’21 Term Loan A Senio
Slide 47: Best in Class Access to Capital
BEST IN CLASS ACCESS TO CAPITAL Capital Offerings Over Time $ millions $3,500 $10.1B of total capital raised since 2009, including: $3,000 • $5.6B of Equity raised at $2,500 an average premium to $2,000 book value of 1.22x $1,500 • $1.7B of Convertible Senior Notes $1,000 • $1.7B of Senior $500 Unse
Slide 48: Rating Agency Review
RATING AGENCY REVIEW RATING OUTLOOK RATING OUTLOOK Ba2 Positive BB Stable “On September 26, 2018 we revised Starwood’s rating outlook to positive to reflect the “Stable outlook reflects our expectation that Starwood Property Trust Inc.’s company’s growing revenue diversification and scale, including
Slide 49: Path to Investment Grade
PATH TO INVESTMENT GRADE 2017 • Issued $500M of 2015 7-year senior unsecured notes 2013 • Receive initial ratings from S&P and • Increase real Moody’s: BB/Ba3 property exposure • LNR acquisition provides vertically integrated operating platform and new investment cylinders 2018 2016 • Issued $500M o
Slide 50: Path to Investment Grade
PATH TO INVESTMENT GRADE Diversified Property Exposure Business Model Low Leverage Unencumbered Unsecured Debt Assets STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 50
Slide 51: Property Segment
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 PROPERTY SEGMENT Chris Graham, Senior Managing Director, Starwood Capital Group Lorcain Egan, Head of Lending Europe, Starwood Capital Group Andres Panza, Vice President, Starwood Capital Group
Slide 52: Overview
OVERVIEW High Quality Stabilized Assets with Select Operating Statistics1 Attractive Current Return Profile W.A. Occupancy Rate 97.7% • Focused on investing in high quality real estate with: –Stable current cash-on-cash returns Number of Properties 125 –Potential for capital appreciation –Longer dur
Slide 53: Case Studies
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 CASE STUDIES
Slide 54: Woodstar I & II Portfolios
WOODSTAR I & II PORTFOLIOS Units by Metro STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 54
Slide 55: Woodstar I & II Portfolios: Original Investment Thesis
WOODSTAR I & II PORTFOLIOS Original Investment Thesis • 15,057 affordable housing units across 59 properties in Florida –Acquired in two, separate portfolio transactions in 2015 and 2017 • Top tier of quality within the affordable housing sector • Stable high single, low double-digit cash yields –Lo
Slide 56: Woodstar I Portfolio
Westchase – Fort Myers, FL (352 Units) WOODSTAR I PORTFOLIO Investment Update • Cash yield and NOI have significantly outperformed – 13% cash-on-cash yield vs. expectation and industry average of 9-10% – NOI is 14% above expectations. Outperformance driven by: • +5% rent growth in 2018 and +4-5% pro
Slide 57: Woodstar II Portfolio
Pointe Vista – Orlando, FL (388 units) WOODSTAR II PORTFOLIO Investment Update • Cash yield and NOI have outperformed expectations and industry averages – 11% cash-on-cash yield vs. expectation and industry average of 9-10% – NOI is 5% higher than expected. Outperformance driven by: • +4% rent growt
Slide 58: Dublin Office Portfolio
75 St Stephens Green DUBLIN OFFICE PORTFOLIO Original Investment Thesis Iveagh Court • 600,000 square feet portfolio which includes 12 office and residential buildings all located in prime Dublin areas (residential block includes 45 units) • The portfolio of A and A- office assets which were 99% occ
Slide 59: STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 59
Slide 60: STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 60
Slide 61: Dublin Office Portfolio: Investment Update
Watermarque Building DUBLIN OFFICE PORTFOLIO Investment Update • Rental income has increased by 10.7% from €25.7M in 2015 to €28.5M in Q3 2018 • Equates to an increase of 12.5% of average rent per square foot from €42.27 to €47.55 • Growth was driven by: – Refurbishment program on vacated space, sub
Slide 62: Medical Office Portfolio
MEDICAL OFFICE PORTFOLIO Metros by Square Footage 362 94 47 68 278 153 65 State SF ('000) TX 457 NY 362 IN 278 58 202 45 TN 202 CA 153 60 90 CO 94 71 154 GA 90 61 NJ 68 NV 65 60 53 AZ 60 IL 47 28 NC 45 FL 28 Total 1,949 STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 62
Slide 63: Medical Office Portfolio: Original Investment Thesis
MEDICAL OFFICE PORTFOLIO Emory Hospital MOB – Brentwood MOB – Atlanta MSA (90,148 sf) San Francisco MSA (51,599 sf) Original Investment Thesis Rockwall MOB – Dallas MSA (85,474 sf) • Rare opportunity to acquire large, high quality medical office portfolio –Nearly 2 million square feet across 34 prop
Slide 64: Medical Office Portfolio: Investment Update
MEDICAL OFFICE PORTFOLIO Shenandoah MOB – Tempe MOB – Houston MSA (59,906 sf) Phoenix MSA (59,808 sf)) Investment Update • The medical office portfolio has performed as expected – 9% cash-on-cash yield, in-line with expectations – 93% occupied (vs. REIT sector average of 92%)1 • In-place debt is fav
Slide 65: Master Lease Portfolio
MASTER LEASE PORTFOLIO Metros by Square Footage City State SF ('000) Triadelphia WV 1,166 Retail Industrial 67 Prairie du Chien WI 1,141 Tooele UT 600 Dundee MI 227 * Retail & Industrial bubbles on 186 different scales Hammond IN 189 Rogers MN 186 162 San Antonio TX 185 1,141 227 Lehi UT 170 189 Owa
Slide 66: Master Lease Portfolio: Original Investment Thesis
MASTER LEASE PORTFOLIO Original Investment Thesis • Sale leaseback portfolio sold as part of Bass Pro Shop and Cabela’s merger –5.3M square feet across 20 retail and 3 industrial Cabela’s and Bass Pro properties across the U.S. • Stable low double-digit cash yields –Long-term (25 year) NNN leased –I
Slide 67: Master Lease Portfolio: Investment Update
MASTER LEASE PORTFOLIO Investment Update • Sold 3 properties on average 13% above purchase price – Average exit cap rate of 6.6% vs. acquisition of 7.6% • Remaining portfolio is high quality – Projected 10 year cash-on-cash yield increased from 11% to 13% – Improving corporate credit: Bass Pro is ah
Slide 68: Taubman Portfolio
TAUBMAN PORTFOLIO Investment Overview • In October 2014, STWD committed and later contributed $150M for a 33% equity interest in a newly formed retail fund established for the purpose of acquiring and operating four leading regional shopping malls located in Florida, Michigan, North Carolina and Vir
Slide 69: Fair Market Value Summary
FAIR MARKET VALUE SUMMARY Net Carrying Fair Market Per Value Value1 Upside Share Property Portfolios Woodstar I $622 $796 $174 $0.61 Woodstar II 600 678 78 0.27 Ireland Portfolio 527 585 58 0.20 Medical Office Portfolio 760 840 80 0.28 Master Lease Portfolio 505 627 122 0.43 Regional Mall Portfolio
Slide 70: Infrastructure Lending Segment
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 INFRASTRUCTURE LENDING SEGMENT Andrew Sossen, Chief Operating Officer Himanshu Saxena, Chief Executive Officer, Starwood Energy Group Denise Persau Tait, President, Starwood Infrastructure Finance
Slide 71: Transaction Overview
TRANSACTION OVERVIEW • GE Capital’s Energy Project Finance Debt Business (“Energy Project Finance Debt Business”) − Full-service platform, including seasoned leadership team and 18 employees across loan origination, underwriting, capital markets and asset management Acquisition Details − $2.5 billio
Slide 72: Strategic Rationale and Investment Highlights
STRATEGIC RATIONALE AND INVESTMENT Compelling HIGHLIGHTS Returns with Strong Credit Profile Why did STWD acquire GE’s Energy Project Finance Debt Business? Leverages Existing Attractive Portfolio Expertise Characteristics at Starwood Energy Leverages Existing Expertise Highly Scalable at Starwood Op
Slide 73: Starwood Energy Group Overview
STARWOOD ENERGY GROUP OVERVIEW Leading energy infrastructure investment firm • Starwood Energy specializes in energy infrastructure investments, with a focus on power generation, transmission, storage and related projects Leading Value-Add • Starwood Energy has raised approximately $3 billion of cap
Slide 74: Starwood Infrastructure Finance Team
STARWOOD Seasoned Leadership Team with an average of 11+ Years Working Together INFRASTRUCTURE and 21+ Years of Industry Experience FINANCE TEAM Denise Persau Tait President, Starwood Infrastructure Finance Originations Underwriting & Portfolio Management General Counsel Capital Markets Claudine DiS
Slide 75: Project Finance 101
PROJECT FINANCE 101 Financing of long-term infrastructure assets based upon projected cash flows from the project Infrastructure Sub-Sectors Revenue Model: Increased Exposure to Market Pricing Mitigated by a Lower LTV Contracted Thermal Power Renewable Power Upstream/Midstream/ Downstream Partially
Slide 76: High Quality & Diversified Portfolio
HIGH QUALITY & DIVERSIFIED PORTFOLIO Revenue Model Construction vs. Operating Partly Contracted Construction 18% 37% Contracted 58% Key Statistics Operating 82% Merchant 5% • Commitments: $2.5B across 50 investments • Current All-In Interest Rate: 5.0%1 Project Type Fixed vs. Floating • Weighted Avg
Slide 77: Project Finance Market Overview
PROJECT FINANCE MARKET OVERVIEW Attractive dynamics create significant growth opportunities $ in billions GLOBAL UNITED STATES SECTOR 2017 VOLUME 2017 VOLUME Strong Fundamentals Driving the Need for Project Finance Thermal Power $62.0 $17.9 Renewable Power 75.4 13.8 ~$3.3T of investment needed annua
Slide 78: Macro Dynamics for Thermal and Renewables
MACRO DYNAMICS FOR THERMAL AND RENEWABLES Low Natural Gas Prices . . . . . . and Declining Costs for Solar and Wind1. . . U.S. Based Levelized Cost of Energy ($ / MWh) . . . Drive increased investment in Thermal and Renewable Sector Net Generation By Fuel Type (2008) Net Generation By Fuel Type 2018
Slide 79: Collaboration with Starwood Energy Group to Determine Underwriting Strike Zone
COLLABORATION WITH STARWOOD ENERGY GROUP TO DETERMINE OPTIMAL UNDERWRITING STRIKE ZONE Project type, characteristics and credit profile are the key lending criteria Project Description Debt Instrument & Characteristics Credit Risk Assessment • Sector • Security • LTV • Country • Tenor • Debt Profile
Slide 80: Risk Return Matrix
RISK RETURN MATRIX Starwood Infrastructure Pipeline by Rating and Return Risk | Return Matrix Strike Zone Deal Size $MM IG 25 50 BB+ 75 Credit Rating 150 BB BB- Thermal Midstream Renewable B+ B <B - <8% 9% 10% 11% 12% 13% 14% 15% 16%+ IRR STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 80
Slide 81: South Field Energy LLC
CASE STUDY SOUTH FIELD ENERGY LLC 1,182-mw natural gas-fired combined-cycle power plant STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 81
Slide 82: South Field Energy LLC
CASE STUDY SOUTH FIELD ENERGY LLC Opportunity • Co-lead and Admin Agent for $750MM of senior debt financing for the construction and operation of the 1,182-MW South Field Energy Center natural gas-fired combined-cycle power plant in Columbiana County, OH. Result • Equipped with GE’s latest H-class g
Slide 83: Conclusion & Outlook
CONCLUSION & OUTLOOK 1 2 3 Cohesive and Continued need for Project Strong structural experienced team with Finance loans due to ~$3.3 protections in Project an average of 21+ trillion in annual Finance loans provide years industry investment for global attractive risk-adjusted experience infrastruct
Slide 84: Residential Lending
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 RESIDENTIAL LENDING Brendan Brogan, Managing Director Starwood Capital Group Steven Ujvary, Senior Vice President Starwood Capital Group
Slide 85: Starwood Non-Agency Lending
STARWOOD NON-AGENCY LENDING Starwood Capital Group has invested heavily across the residential space including: Multi-Family One of the largest owners of multi-family units in the US Single-Family Acquired nearly 50,000 single-family homes Acquired over $2B of non-performing and re-performing NPL/RP
Slide 86: Residential Housing Landscape
RESIDENTIAL HOUSING LANDSCAPE Home Ownership Rates 70 68 66 64 62 Consumer balance sheets and access to credit improving 60 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Residential Housing Prices 250 200 150 100 Lack of supply; housing valuation 50 fundam
Slide 87: US Residential Housing Landscape
US RESIDENTIAL HOUSING LANDSCAPE High quality borrowers boxed out of housing market Agency vs. Non-Agency RMBS Volume 3,000 Agency $ Billions Non-Agency 2,500 2,000 Residential • Most non-bank mortgage originators went origination market out of business post-crisis 1,500 collapsed post- • Non-agency
Slide 88: What Is a Non-QM Mortgage?
WHAT IS A NON-QM MORTGAGE? • In 2014, the Ability-to-Repay rule (“ATR Rule”) was established by the CFPB, which created the Qualified Mortgage (“QM”) definition. • The ATR Rule established that a creditor must evaluate a borrower’s ability to repay all residential mortgage loans (i.e., no ‘no-docume
Slide 89: Target Borrowers
TARGET BORROWERS Our underwriting programs target high-quality borrowers who have been unable to access credit for housing, outside of government provided financing, since the financial crisis EXAMPLE 1 Unable to Access Financing because… Small Business Owners and Borrower does not report significan
Slide 90: Starwood Non-Agency Lending Growth
STARWOOD NON-AGENCY LENDING GROWTH 2016-Q4 2017-Q3 2018-Q1 2018-Q3 2018-Q4 Starwood Non- Access to Rating Agency $600mm Forward Second Non-QM Agency Lending FHLBC Reviews Commitment with Securitization Formed Borrowings Completed Origination Partner STAR 2018-IMC2 2017-Q1 2017-Q4 2018-Q1 2018-Q3 Ini
Slide 91: Underwriting & Servicing
UNDERWRITING & SERVICING Underwriting Guidelines Experienced Partners Mortgage Servicing Underwriting guidelines require Our origination partners have Active portfolio management borrowers have significant financial significant experience in through direct integration with our resources, clean credi
Slide 92: Securitization Benefits
SECURITIZATION BENEFITS The primary benefits of Funding Cost Reduction Non-Recourse Financing securitizations are to Securitization allows for asset Securitization provides off-balance reduce funding costs, and financing at lower levels than Wall sheet non-recourse financing secure non-recourse, Str
Slide 93: Keynote Presentation
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 KEYNOTE PRESENTATION Barry Sternlicht – Chairman and Chief Executive Officer, Starwood Capital Group and Starwood Property Trust
Slide 94: Real Estate Investing & Servicing
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 REAL ESTATE INVESTING & SERVICING Adam Behlman (Moderator), President & Chief Investment Officer Larry Brown, President, Starwood Mortgage Capital Rich Highfield, Chief Credit Officer, Starwood Mortgage Capital Jason Nick , Chief Investment Officer –
Slide 95: Multi-Cylinder Investment Process
MULTI-CYLINDER INVESTMENT PROCESS The Real Estate Investing & Servicing Division is comprised of CMBS investment, conduit loan origination, special servicing, and real estate investing functions CMBS Special Investing Servicing Conduit Loan Owned Real Origination Estate STARWOOD PROPERTY TRUST, INC
Slide 96: Investing & Servicing Organizational Chart
INVESTING & SERVICING ORGANIZATIONAL CHART Barry Sternlicht Chief Executive Officer, Starwood Property Trust Jeff DiModica, CFA President, Starwood Property Trust Adam Behlman President and Chief Investment Officer, Real Estate Investment and Servicing, LNR CRE Debt Investing Investing / Trading Spe
Slide 97: CMBS Bond Structure
CMBS BOND A CMBS bond is comprised of a series of tranches backed by mortgage loans secured by commercial real STRUCTURE estate properties. CMBS is divided into investment grade and non-investment grade (B-piece) securities. Grade Securities Investment AAA AAA Payment Priority Loss Allocation Commer
Slide 98: Starwood Mortgage Capital
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 STARWOOD MORTGAGE CAPITAL 98
Slide 99: Starwood Mortgage Capital
STARWOOD MORTGAGE CAPITAL 75% financing on Sell the loan to a one of four credit CMBS securitization Originate mortgage lines shortly after trust for profit on loans secured by Strong return origination the principal loan commercial real on equity amount, typically estate property 30-40 days after 2
Slide 100: Over $10B of Securitization Volume Since 2013
STARWOOD MORTGAGE CAPITAL Over $10B of securitization volume since 2013 $ millions $2,070 $1,823 $1,619 $1,517 $1,518 $1,511 $692M securitized post Q3 2018 10 11 18 14 8 7 2013 2014 2015 2016 2017 2018 Securitization volume # Number of securitizations Note: Figures as of September 30, 2018, unless o
Slide 101: CMBS
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 CMBS 101
Slide 102: The CMBS Market Evolution
THE CMBS MARKET Following the crisis, new regulation, better underwriting standards on underlying loans and less EVOLUTION levered deal structures changed the CMBS market Pre 2009 1 Post Crisis 1 2 Loan Structures Reserves Minimal/Borrower Guarantees Cash Reserves (upfront and ongoing) Carve-out Gua
Slide 103: Shaping the CMBS Pool
SHAPING THE STWD’s internal credit team works with loan sellers to improve the overall credit quality of the CMBS CMBS POOL loan pool throughout the due diligence process How STWD’s B-piece buyer Loan Kick-outs and Restructures as a Percentage of Deal Balance1 45% shapes the pool: 40% 38.3% “Kick-ou
Slide 104: Regulatory Changes: Risk Retention
REGULATORY Risk-Retention Rules1 require a sponsor or qualified B-piece purchaser to hold 5% of a new issue CMBS CHANGES: transaction with limited ability to transfer, hedge or RISK RETENTION finance its position Types of Risk Horizontal Vertical Vertical / L-Shaped (TPP) Sponsor-Retained L-Shaped R
Slide 105: New Issue B-Piece Investing
NEW ISSUE B-PIECE INVESTING 2015 - 2018 Activity • Purchased 23 deals with 9 unique partners • Underwrote 13 deals as a third party assignment and was named special servicer 2015-2018 New Issue B-Piece Investments and Servicing Assignments Participation Deal Count STWD Investment Securitized UPB STW
Slide 106: $1.03B CMBS Portfolio
$1.03B CMBS PORTFOLIO $ millions CMBS 1.0 9% Carrying Value CMBS 2.0/3.0 91% $250 $200 $150 $100 $50 $0 '08 & Prior '11 '12 '13 '14 '15 '16 '17 '18 CMBS 1.0 CMBS 2.0 CMBS 3.0 Note: Figures as of September 30, 2018, unless otherwise noted; CMBS represents carrying value. CMBS 1.0 deals were originate
Slide 107: 2018 Capital Markets and Secondary Trading Highlights
2018 CAPITAL MARKETS AND SECONDARY TRADING HIGHLIGHTS Seasoned Secondary B- Opportunistic Secondary Piece Purchase Sales Trading Platform Highlights • Well established • Underwrote 28 deals • Lock in gains secondary player • With partners, • Diversify and reduce • Focused on invested into 7 risk rel
Slide 108: Servicing
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 SERVICING 108
Slide 109: The Power of Experience
THE POWER OF EXPERIENCE • LNR is the longest-serving investor and special servicer in CMBS since LNR STATISTICS – SEPTEMBER 30, 2018 1992 Named CMBS Portfolio • LNR has resolved 6,519 non- Number of Deals 173 performing assets with a total principal balance of approximately Current UPB $78.6B $75.2B
Slide 110: Special Servicing Revenue Streams
SPECIAL SERVICING REVENUE STREAMS Defaulted Loans Performing Loans Trust Paid Fees Borrower Paid Fees • Inventory Fee • Assumption Fee • Workout Fee • Liquidation Fee Borrower Paid Fees $ • Consent Fee • Default Interest • Modification Fee • Extension Fee • Late Fee STARWOOD PROPERTY TRUST, INC | IN
Slide 111: Diverse Servicing Portfolio
DIVERSE SERVICING PORTFOLIO • As the 1.0 servicing book winds down, LNR has rebuilt the servicing portfolio with assignments on $71.6B of 2.0 deals including 15 deals in 2018 for $9.3B balance • LNR’s 173 servicing assignments are across 39 unique controlling holder parties in both 1.0 & 2.0 deals •
Slide 112: Real Estate Investing
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 REAL ESTATE INVESTING 112
Slide 113: Real Estate Equity Opportunities
REAL ESTATE EQUITY OPPORTUNITIES Fair Value Purchase Option Program Summary Aggregate Purchase Volume $450M Number of Acquisitions 34 Number of States 16 Number of Property Types 6 Average Purchase Price $13.2M Target IRR 14%+ Target Hold Period 2-5 years Historical Net Equity Exposures By Geographi
Slide 114: Par Purchase Example
CASE STUDY PAR PURCHASE EXAMPLE Transaction Highlights • Villas at Lanier – 150 garden-style apartments in Gainesville, GA. • Acquired from CMBS Trust off market in 2015 for $7.4M Par Purchase execution • Implemented a value-add program to address deferred maintenance and complete cosmetic upgrades
Slide 115: Last Look Example
CASE STUDY LAST LOOK EXAMPLE Transaction Highlights • Centre at Culpeper – 72,000 sq. ft. Aldi-anchored shopping center in Culpeper, VA • Acquired from CMBS Trust in 2016 for $12.5M after public market process • Financed with assumable SMC conduit loan • Executed a value-add program to expand Aldi a
Slide 116: Closing Remarks / Q&A
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 CLOSING REMARKS / Q&A Jeffrey DiModica, CFA, President
Slide 117: Investor Day 2018
INVESTOR DAY 2018 • December 14, 2018
Slide 118: Speaker Biographies
STARWOOD PROPERTY TRUST, INC | INVESTOR DAY 2018 SPEAKER BIOGRAPHIES
Slide 119: Speaker Biographies: Barry S. Sternlicht
SPEAKER BIOGRAPHIES Barry S. Sternlicht In 2008, Mr. Sternlicht founded SH Group, his new hotel management company. SH Group is the owner and manager of Baccarat Hotels & Resorts and 1 Hotels brands. Chairman & CEO Starwood Capital Group In 2016, Mr. Sternlicht was the recipient of PERE’s inaugural
Slide 120: Jeffrey F. DiModica and Rina Paniry
Jeffrey F. DiModica, CFA Rina Paniry President & Managing Director Chief Financial Officer Starwood Property Trust Starwood Property Trust Jeffrey F. DiModica, CFA, has been the Company’s President since September Rina Paniry is Chief Financial Officer of Starwood Property Trust. In this role, she 2
Slide 121: Andrew J. Sossen and Dennis Schuh
Andrew J. Sossen Dennis Schuh Chief Operating Officer & General Counsel Chief Originations Officer Starwood Property Trust Starwood Property Trust Andrew Sossen is Chief Operating Officer and General Counsel of Starwood Dennis Schuh is Chief Originations Officer of Starwood Property Trust. In this P
Slide 122: Mark Cagley and Cary Carpenter
Mark Cagley Cary Carpenter Chief Credit Officer Managing Director Starwood Property Trust Starwood Property Trust Mark Cagley is the Chief Credit Officer of Starwood Property Trust. In this role, Cary Carpenter is a Managing Director of commercial real estate, capital Mr. Cagley oversees deal screen
Slide 123: Lorcain Egan, Andres Panza, Christopher D. Graham
Lorcain Egan Andres Panza Head of Lending, Europe, Capital Markets Vice President Starwood Capital Group Starwood Capital Group Lorcain Egan is Head of Lending, Europe for Starwood. Mr. Egan is responsible Andres Panza is a Vice President at Starwood Capital Group. Mr. Panza is for debt origination
Slide 124: Himanshu Saxena and Denise Persau Tait
Himanshu Saxena Denise Persau Tait Chief Executive Officer President Starwood Energy Group Starwood Infrastructure Finance Himanshu Saxena is Chief Executive Officer of Starwood Energy and is Denise Persau Tait is the President of Starwood Infrastructure Finance responsible for supervision of the Fi
Slide 125: Brendan Brogan, Adam Behlman, Steven Ujvary
Brendan Brogan Adam Behlman Managing Director, Acquisitions President, Real Estate Investing & Servicing Starwood Capital Group Starwood Property Trust Brendan Brogan is a Managing Director at Starwood Capital Group, where Adam Behlman is President of Starwood Property Trust’s Real Estate Investing
Slide 126: Jason Nick and Rich Highfield
Rich Highfield Jason Nick Chief Investment Officer Private Securities Chief Credit Officer Real Estate Investing & Servicing Division of Starwood Property Trust, Inc. Starwood Mortgage Capital Jason Nick is the Chief Investment Officer, Private Securities for REISD. In this Mr. Highfield is SMC’s Ch
Slide 127: Natan Bresler and Job Warshaw
Natan Bresler Job Warshaw Managing Director, Head of Capital Markets and Chief Investment Officer Managing Director & Head of Special Servicing Public Securities & Trading Real Estate Investing & Servicing Division of LNR Partners, LLC Starwood Property Trust, Inc Job Warshaw is the Managing Directo
Slide 128: Seth Fisher and Zachary Tanenbaum
Seth Fisher Zachary Tanenbaum CIO of Real Estate Equity Investments, Real Estate Investing & Servicing Division Head of Investor Strategy of Starwood Property Trust, Inc Starwood Property Trust Seth Fisher is the CIO of Real Estate Equity Investments for REISD. In this Zachary Tanenbaum is Head of I
Slide 129: James Grant
Guest Speaker James Grant Grant’s Interest Rate Observer Financial journalist and historian, is the founder and editor of Grant’s Interest Rate Observer, a twice-monthly journal of the investment markets. His book, The Forgotten Depression, 1921: the Crash that Cured Itself, a history of America’s l
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