Starwood Property Trust Inc. · NYSE:STWD
Starwood Property Trust — Investor Day (April 2015)
70 slides from Starwood Property Trust's investor day presentation, Apr 2, 2015
Slide 1: Analyst & Investor Day — 2015
ANALYST & INVESTOR DAY — 2015
Slide 2: Forward Looking Statements
Forward Looking Statements 1 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 Privat
Slide 3: Agenda – April 2, 2015
Agenda – April 2, 2015 3 TIME TOPIC PRESENTER 9:00AM Introduction & Agenda Zachary Tanenbaum – Director, Investor Relations 9:05AM Opening Remarks Jeff DiModica – President 9:25AM Lending Segment Discussion Andrew Sossen – Chief Operating Officer Jeff DiModica – President Christian Dalzell – Chief O
Slide 4: Opening Remarks
4 Opening Remarks Jeff DiModica President
Slide 5: Starwood: A Global Organization
Starwood: A Global Organization 5 EUROPE Sao Paulo S. AMERICA EUROPE London Paris Luxembourg Frankfurt UNITED STATES Greenwich New York City Chicago San Francisco Los Angeles Washington, D.C. Atlanta Charlotte Miami
Slide 6: Starwood Capital Overview
Starwood Capital Overview 6 A 24 year old diversified investment company with 1,449 employees across 12 offices globally STARWOOD GLOBAL EMPLOYEES SH Group Hotel management team brings operational expertise in areas of revenue management, marketing, food + beverage, systems and cost management Curre
Slide 7: STWD Earnings Components
STWD Earnings Components 7 STWD revenues are diversified across its Lending and Investing & Servicing segments STARWOOD PROPERTY TRUST EARNINGS CONTRIBUTION 1 Investing & Servicing Segment Note: Figures as of December 31, 2014, unless otherwise noted 1) Earnings contribution based on core gross inco
Slide 8: Loan Origination and Structuring Process
4. Retain Junior Tranche of Loan Loan Origination and Structuring Process 8 1. Originate Whole Loan Originate a 75% LTV first mortgage at a rate of L + 4.75% $100M Building $25M Equity $75M First Mtg. (1) Asset yield equates to $3.56M of interest income, cost of financing equates to $1.0M of expense
Slide 9: Lending Segment Highlights
Lending Segment Highlights 9 Leading provider of first mortgage and mezzanine loans; over $12.9B of capital deployed since inception $6.8B portfolio carrying value: 56% first mortgages 29% subordinate mortgages and mezzanine loans 5% preferred equity 10% other 77% of lending portfolio is indexed to
Slide 10: Lending Segment Highlights, Continued
Lending Segment Highlights, Continued 10 In millions, includes lending segment assets as of 12/31/14 As of 12/31/2014. Underlying property values are determined by STWD’s management based on its ongoing asset assessments, and loan balances that are the face value of a loan regardless of whether STWD
Slide 11: Lending Segment Credit Performance
Lending Segment Credit Performance STWD has funded $12.9B since inception and has $0 of realized loan losses to date US$ (M) $0 REALIZED LOAN LOSSES TO DATE CUMULATIVE LENDING SEGMENT LOAN FUNDINGS Note: Figures as of December 31, 2014, unless otherwise noted 11 $0 $2,000 $4,000 $6,000 $8,000 $10,00
Slide 12: Investing & Servicing Highlights
Investing & Servicing Highlights 12 Note: Figures as of December 31, 2014, unless otherwise noted Servicing Named special servicer on $135B of CMBS, nearly $13.7B of actively special serviced loans and REO Anticipated fees are positively correlated to upcoming legacy CMBS industry maturities: CMBS $
Slide 13: Investing & Servicing Highlights
Investing & Servicing Highlights 13 Starwood Mortgage Capital Securitized $1.6B of loans in 2014 Completed 11 securitizations in 2014 Hatfield Philips/LNR Europe Hatfield Philips is the active primary servicer on $12B and special servicer on $8B of primarily CMBS LNR Europe continues to build a worl
Slide 14: STWD's Evolving Strategy
STWD’s Evolving Strategy 14 2009 IPO in August 2009 raised approximately $1.0B 2014 Spun off Starwood Waypoint Residential Trust (NYSE:SWAY), which has become one of the largest owners of single family rental homes in the U.S. Deployed a record $5.5B during the year, including $1.8B in 4Q14 Commence
Slide 15: Proven Track Record
Proven Track Record 15 TOTAL RETURNS AND ANNUALIZED TOTAL RETURNS Source: Bloomberg. Includes impact of dividend reinvestment. Market data as of 3.30.15 CRE mREIT 2.0 includes: ACRE, ARI, BXMT, CLNY and LADR. CRE mREIT 1.0 include: ABR, NCT, RAS and RSO
Slide 16: Lending Segment Discussion
16 Lending Segment Discussion Andrew Sossen (Moderator) Chief Operating Officer Jeff DiModica President Jeff Dishner Senior Managing Director Christian Dalzell Chief Originations Officer Carl Tash Chief Credit Officer
Slide 17: Broad Institutional Borrower Base
Broad Institutional Borrower Base 18 STWD benefits from its deep institutional borrower relationships and due to its superior process and execution the Company has been able to turn most customers into repeat borrowers
Slide 18: Origination Pipeline Statistics
Origination Pipeline Statistics 19 Deals: 1,050 $105B Actionable Inquiries Quoted Deals: 223 $23B Term Sheets Signed Deals: 53 $6B Closed Deals: 45 $5B STWD Equity: $3B Note: For the year ended December 31, 2014 STWD closed 6.3% and 7.3% of actionable inquiries by number of deals and total notional
Slide 19: Portfolio Highlights
Portfolio Highlights 20 LENDING SEGMENT PORTFOLIO SUMMARY $6.8B diverse lending segment portfolio WEIGHTED AVERAGE LOAN TO VALUE Current portfolio LTV of 61.9% Note: Figures as of December 31, 2014, unless otherwise noted
Slide 20: Portfolio Highlights, Continued
Portfolio Highlights, Continued 21 LOAN BALANCE BY REGION LOAN BALANCE BY PROPERTY TYPE Note: Figures as of December 31, 2014, unless otherwise noted
Slide 21: Case Study: Chicago Board of Trade Building
Case Study: Chicago Board of Trade Building 22 OVERVIEW 1.3M square foot class B+/A- office complex located in the Central Loop of Chicago, IL Historic, landmark property, which was built in 1930, is comprised of two towers rising 23 and 49 stories Original location of the Chicago Board of Trade, th
Slide 22: Chicago Board of Trade Building, Continued
Chicago Board of Trade Building, Continued 23
Slide 23: Case Study: Aldgate Tower
Case Study: Aldgate Tower 24 OVERVIEW 317,000 square foot Class A office tower located in Aldgate section of the Central London office market The building is 17 floors tall, with 20,000 square foot column free floor plates and panoramic views over the City of London SPONSOR Aldgate Developments, a p
Slide 24: Lending Environment Overview
Lending Environment Overview 25 Source: Mortgage Bankers Association, Bloomberg CRE LOAN ORIGINATION VOLUME VS. 10 YR UST AND 1 MONTH LIBOR US$ (B)
Slide 25: Lending Environment Overview
Lending Environment Overview 26 US REAL ESTATE INVESTMENT ACTIVITY PROPERTY SALES US$ (B) Source: Mortgage Bankers Association, Bloomberg
Slide 26: Investing & Servicing Segment Discussion
27 Investing & Servicing Segment Discussion Luke Dann (Moderator) Managing Director Adam Behlman Chief Risk Officer Larry Brown President, Starwood Mortgage Capital Blair Lewis Chief Executive Officer, Europe Isaac Pesin Managing Director Job Warshaw Managing Director
Slide 27: Segment Overview
Segment Overview 28 Largest named and one of the largest active commercial mortgage special servicers in the U.S. Named special servicer on 152 trusts with a collateral balance in excess of $134B, with $13.7B of loans and real estate owned in special servicing US Special Servicer Legacy whole loan,
Slide 28: Multi-Cylinder Investment Process
Multi-Cylinder Investment Process 29 $ A B C D E F Process Income Acquisition of B-piece/ CMBS Interest income Asset Enters Special Servicing Servicing fees Asset Acquired from Special Servicing Net rental income Asset Sold Gain on sale Asset Financed by Conduit Securitization profit Sale of B-piece
Slide 29: Investing Across Market Cycles
Investing Across Market Cycles 30 The businesses in the Investing & Servicing Segment act as a natural hedge against one another across varying market conditions U.S. CMBS ISSUANCE VS. CMBS DELINQUENCIES
Slide 30: Starwood Mortgage Capital
Starwood Mortgage Capital
Slide 31: Starwood Mortgage Capital
Sell the loan to a CMBS securitization trust for profit on the principal loan amount, typically 30-40 days after origination Starwood Mortgage Capital 32 Number of Securitizations 6 10 11 27 Originate mortgage loans secured by commercial real estate property 75% financing on one of three credit line
Slide 32: CMBS
CMBS
Slide 33: CMBS Life Cycle
CMBS Life Cycle 34 Borrowers Trustee / Fiscal Agent Primary or Sub Servicer Master Servicer 2 months (Loan Funding) + 2 months (Bond Issuance) Creation of Trust Mortgage Bankers Depositor (SPE) Issuer/ Investment Banker Loan Originator/ Loan Seller Special Servicer Denotes STWD Business Segment Rati
Slide 34: What is CMBS? B-Piece Yield
What is CMBS? 35 B-Piece Yield
Slide 35: CMBS Portfolio
CMBS Portfolio 36 ($ M) CMBS 1.0 CMBS 2.0 CMBS 3.0 $754M of CMBS which is mixed between 1.0, 2.0 and 3.0 vintages OWNED CMBS 1.0 / 2.0 / 3.0 OWNED CMBS BY VINTAGE Note: Figures as of December 31, 2014, unless otherwise noted; CMBS represents carrying value CMBS 1.0 deals were originated in prior to
Slide 36: B-Piece Activity
49 new issue CMBS deals closed in the U.S. during 2014. LNR reviewed 30 of these deals, which included over $35.1B of collateral, secured by over 2,150 loans Bonds were purchased in 14 deals with partners where LNR’s weighted average investment was approximately 37% per deal LNR was appointed specia
Slide 37: Special Servicing Market Share
Special Servicing Market Share 38 LNR is the largest named Special Servicer (SS) with over $37B more UPB than its next biggest competitor Between 2013 – 2014, LNR was named SS on $29B of UPB on new issuance CMBS backed by 1,831 new loans in 28 conduit deals Note: Figures as of December 31, 2014, unl
Slide 38: Servicing — U.S.
Servicing — U.S.
Slide 39: The Power of Experience
The Power of Experience 40 LNR is the longest-serving investor in subordinate CMBS and one of the only participants to have persevered through every real estate cycle since 1991 LNR has resolved over 5,360 non-performing assets with a total principal balance of approximately $58B since inception Sen
Slide 40: Special Servicing Revenue Streams
Special Servicing Revenue Streams 41 TRUST PAID FEES Inventory Fee Workout Fee Liquidation Fee BORROWER PAID FEES Default Interest Modification Fee Extension Fee Late Fee Assumption Fee Consent Fee
Slide 41: The Proof is in the Performance
The Proof is in the Performance 42 LNR has maintained an overall resolution rate of 83% on over 5,360 loans Rating agencies have consistently rated LNR in the top-tier of CMBS servicers, LNR is rated the highest rating of “Strong” with S&P and CSS1- with Fitch RECOVERY RATES ON LIQUIDATED LOANS 30%
Slide 42: Debt Advisory & Servicing — Europe
Debt Advisory & Servicing — Europe
Slide 43: LNR/HPI Europe Update
LNR/HPI Europe Update 44 OVERVIEW The firm consists of 120+ employees throughout its offices in London and Frankfurt and presences in both Spain and Italy SERVICING OVERVIEW The team currently has £12.6B of loans under management in primary and special servicing Since 1997, the company has primary s
Slide 44: HPI Primary and Special Loan Servicing
HPI Primary and Special Loan Servicing 45 Since its founding in 1997 as a loan servicing company, HPI has grown exponentially and is one of the UK’s highest rated independent loan servicers by both Fitch Ratings and Standard & Poor’s HPI’s servicer rating was recently upgraded to “above average” by
Slide 45: Data & Information
Data & Information
Slide 46: Leveraging Our Technology
47 Leveraging Our Technology LNR developed a leading proprietary data management software called LPAMS to ensure loan information is easily accessible LPAMS contains data on 41,985 commercial real estate loans, a number that grows every day Database includes information on STWD’s real estate lending
Slide 47: Financing Strategy Discussion
48 Financing Strategy Discussion Andrew Sossen (Moderator) Chief Operating Officer Jeff DiModica President Cary Carpenter Managing Director
Slide 48: Financing Strategy Overview
Financing Strategy Overview 49 Utilize senior note sales to finance first mortgage portfolio Benefits include: match term financing, no mark-to-market for credit or spread risk, non-crossed with other STWD investments and no practical capacity limitation on amount of senior debt the company can sell
Slide 49: Financing Strategy Overview, Continued
Financing Strategy Overview, Continued 50 Financing facilities allow for interim leverage against loans prior to either placement on permanent warehouse lines or closing senior debt sales Benefits include: less need for capital and reduced cash drag resulting in a positive impact on earnings Liquidi
Slide 50: Case Study: Hotel Commonwealth
Case Study: Hotel Commonwealth 51 COLLATERAL DESCRIPTION STWD originated a $103.3M first mortgage and mezzanine loan on a mixed-use property that includes 28,225 square feet of retail and a 149-key full-service hotel in the Kenmore Square area of Boston, MA Sponsor plans to implement a $50M+ expansi
Slide 51: Maximum Borrowing Capacity
MAXIMUM BORROWING CAPACITY Total Debt Capacity 52 Maximum on-balance sheet borrowing capacity of $5.8B and A-note sales can provide an incremental and highly scalable source of liquidity going forward US$ (M) Note: Figures as of December 31, 2014, unless otherwise noted
Slide 52: Financing Metrics Summary
Financing Metrics Summary 53 Note: since 12/31/2014, STWD has closed an additional $340M of warehouse lines 1) Based on the maximum facility amount 2) Lender can only margin call Borrower if there is a credit specific event at the asset level 3) Lender can margin call Borrower if there is a general
Slide 53: Historical Cost of Funds Management
Historical Cost of Funds Management 54 MIGRATION OF FINANCING FACILITY COSTS AND ADVANCE RATES STWD maintains a strong focus on securing the most competitive costs and structures for all financing facilities to help maintain its overall return profile 175bps of financing cost declines will offset ov
Slide 54: Risk Management
Risk Management 55 CURRENCY RISK Hedge 100% of expected principal and interest foreign currency risk INTEREST RATE RISK 77% of portfolio is indexed to LIBOR 87% of the floating rate loan portfolio benefits from having a LIBOR floor at an average of 0.35% Where fixed rate loan portfolio is financed u
Slide 55: Interest Rate Sensitivity
Interest Rate Sensitivity 56 VARIABLE RATE INVESTMENTS & LIABILITIES EARNINGS SENSITIVITY TO CHANGES IN LIBOR The lending portfolio should benefit from a rising rate environment given its high volume of LIBOR-based floating rate loans US$ (M) US$ (M) +$0.08/share +$0.18/share +$0.27/share Note: Figu
Slide 56: Issuing Equity at a Premium to Book Value
Issuing Equity at a Premium to Book Value 57 STWD has executed all of its follow-on equity offerings at a premium to book value and has opportunistically repurchased stock to further align with shareholders STARWOOD HISTORICAL EQUITY ISSUANCES 20% Weighted Average Premium to Book Value * Decline in
Slide 57: Opportunities for Growth
Opportunities for Growth 58 Expansion of permanent financing facilities Developing additional syndication relationships Sourcing new secured financing facilities Issuance in senior unsecured bond market Structuring CLO/CDO financings
Slide 58: Financials & Guidance Discussion
59 Financials & Guidance Discussion Rina Paniry Chief Financial Officer
Slide 59: Consolidating Balance Sheet
Consolidating Balance Sheet 60 ($ thousands) As of December 31, 2014 Lending Investing & Servicing Pre-VIE Balance VIEs GAAP Balance Assets: Cash 204,090 $ 99,015 $ 303,105 $ 786 $ 303,891 $ Loans held-for-investment, net 5,746,289 32,949 5,779,238 - 5,779,238 Loans held-for-sale - 391,620 391,620 -
Slide 60: Consolidating Income Statement
Consolidating Income Statement 61 ($ thousands) For the year ended December 31, 2014 Lending Investing & Servicing SWAY Pre-VIE Total VIEs GAAP Total Revenues: Interest income from loans 420,683 $ 13,979 $ - $ 434,662 $ - $ 434,662 $ Interest income from securities 68,348 109,819 - 178,167 (66,151)
Slide 61: VIEs
VIEs 62 WHAT ARE VIEs? As they relate to STWD, variable interest entities (VIEs) are collateralized financing entities (CFEs), such as CMBS trusts and CDOs These structures carry little to no GAAP equity WHEN DO WE CONSOLIDATE VIEs? When we are (i) the controlling class holder of a CFE, and (ii) ser
Slide 62: Core Earnings
Core Earnings 63 LENDING $299M 63% INVESTING & SERVICING $177M 37% Core Earnings - Net Note: For the year ended December 31, 2014 Core Earnings - Gross US$ (M) Servicing CMBS Conduit Other First Mortgages Mezzanine Loans Subordinated Mortgages / Preferred RMBS Other
Slide 63: 2015 Earnings Guidance
2015 Earnings Guidance 64 CORE EPS GUIDANCE RANGE: $2.05 - $2.25 Relative segment contributions in 2014 of 63% from Lending and 37% from Investing & Servicing expected to remain constant in 2015 Does not reflect any impact which may result from repurchases of equity or convertible debt securities pu
Slide 64: 2015 Earnings Guidance, Continued
2015 Earnings Guidance, Continued 65 INVESTING & SERVICING SEGMENT Servicing Fees expected to trend downward in 2015 as the nearly $14B of assets currently in servicing continue to resolve Potential for fees to ramp up in 2016 and 2017 as the 10-year loans from the 2006 and 2007 vintages reach matur
Slide 65: Why We Trade at a Premium to Book Value
Conduit Operations Servicing Fees Not in Intangible Calculation Future Servicing Fees on New Issue B-Pieces Equity Interests in Unconsolidated Entities** Par and Fair Value Purchase Options The “Platform” Enterprise Value for Multi-cylinder Operating Business Why We Trade at a Premium to Book Value
Slide 66: Conclusion
67 Conclusion Barry Sternlicht Chairman & Chief Executive Officer
Slide 67: Core Plus Investing Opportunity
Core Plus Investing Opportunity 68 HISTORICAL CAP RATES AND 10-YEAR TREASURY YIELDS The current wide spread between cap rates and treasuries enables buyers to generate attractive cash-on-cash returns in defensive, strong performing core plus real estate properties Real estate also offers 1) historic
Slide 68: STWD: A Premier Multi-Cylinder Platform
STWD: A Premier Multi-Cylinder Platform 69 Scaling Existing Businesses Developing New Businesses Internally Exploring New Asset Classes Geographic Expansion Strategic Acquisitions & Alliances Building the premier multi-cylinder finance company primarily focused on the real estate industry Future gro
Slide 69: Questions & Answers
Questions & Answers
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