Starwood Property Trust Inc (STWD) 2014 Q3 法說會逐字稿

Good day, everyone and welcome to the Starwood Property Trust third-quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Zach Tanenbaum, Director of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning the Company released its financial results for the quarter ended September 30, 2014, filed its form 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website. These documents are available on the Investor Relations section of the Company's website, at www.starwoodpropertytrust.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information, and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs, and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the Company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The Company undertakes no duty to update any forward-looking statements that may be made during the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on the conference call. Our presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures with here in accordance with GAAP, can be accessed through our filings with the SEC at www.sec.gov.

Joining me on the call are; Barry Sternlicht, the Company's CEO, Rina Paniry, the Company's CFO, Jeff DiModica, the Company's President, Andrew Sossen, the Company's COO, and Cory Olson, the President of LNR. With that, I'm now going to turn the call over to Rina.

Thank you, Zach, and good morning. I will begin this morning by reviewing the Company's third quarter results. It was on a consolidated basis and for each of our two business segments. Following my comments, I will turn the call over to Barry who will discuss current market conditions, the state of our business and the opportunities we see looking forward.

Starwood Property Trust continued to deliver strong results for its shareholders this quarter. Deploying over $2.3 billion of capital and declaring another $0.48 per share dividend. During the third quarter, we recorded core earnings of $124.8 million, or $0.55 per diluted share, which is up 8% over the $115.2 million of core earnings and $0.51 per diluted share that we reported just last quarter.

The primary drivers behind our earnings growth with continued strong performance from both our Lending business and our Securities portfolio. The rally in the CMBS markets drove our GAAP earnings with $52 million of realized and unrealized gains.

Our loan book continues to grow as evidenced by our significant capital deployment during the quarter. Net of repayments, our loan book grew by $300 million this quarter. Overall, the unlevered return on our target investment portfolio remained constant at 8.2%, with our levered returns remaining at just over 10%.

As our business has evolved, we continue to deploy capital in net of assets which will generate the most attractive risk adjusted returns for our shareholders, while still maintaining our disciplined approach to investing. As we stated in our recent public filings, at this point in the cycle, we believe it is prudent to take advantage of some of the opportunities we are seeing in the real estate equity market. Specifically, core plus equity investments. We consider these investments to be high quality, stable real estate assets, which contain a value added element that would allow us to generate a levered yield of 10% to 14%.

In October, we committed $150 million to our first core plus equity investment, a 33% participation in a high quality, regional mall portfolio that is managed by an affiliate of Starwood Capital Group. Our relationship with Starwood Capital along with the team of real estate professionals employed by our special servicer, provides us with access to unparalleled expertise across the global real estate markets and uniquely positions us to take advantage of these types of equity investment opportunities going forward.

As of September 30, book value per share was $17.06, a $0.47 or 3% increase over the book value per share we recorded at the end of last quarter. Fair value per share, which we compute as the fair value of our assets, that is a par value of our debt, stood at $17.65, also an increase of 3% over prior quarter. This increase was realized despite the fact that we did not issue any new debt or equity during the quarter. Just over half of the book value increase resulted from strong earnings, while the remainder resulted from lower share dilution from our convertible note.

As we've previously disclosed, the in-the-money portion of our converts is included in the determination of our diluted share count under GAAP. The mathematical calculation of the in-the-money portion is largely a function of our stock price at the end of the quarter. Our lower stock price at September 30 versus June 30 resulted in three million fewer shares being included in our diluted share count this quarter.

Now, turning to the results of our segments, starting with the Lending segment. During the quarter, this segment contributed GAAP and core earnings of $69.2 million and $71 million. GAAP earnings are flat to last quarter, while core earnings are down $6.2 million, due to the non-recurring RMBS gains of $10.1 million that we took advantage of in the second quarter. For our interest income from our loan portfolio increased 5% from last quarter, consistent with the net growth in the loan box.

The Lending segment closed approximately $1.7 billion of new investments during the quarter, consisting principally of floating rate loan origination. These new loan commitments included diverse mix of property types and primary market locations, all with first rate institutional sponsors.

During the quarter, we also took advantage of international opportunities, announcing two co-originations with the European affiliate of Starwood Capital. These loan commitments totaled just over $200 million.

Looking forward, we have a strong pipeline of high quality transactions that continue to meet our risk adjusted return criteria. The credit quality of our existing portfolio continues to be our utmost priority as evidenced by an average LTB of just under 65%, and our track record of zero credit losses.

I would like to spend just a few minutes on the topic of interest rates, and their impact to our financial results. We have constructed our loan portfolio so that it would actually benefit from a rising rate environment. The majority of our existing loan book and nearly all of the lending segments pipeline consists of floating rate loans so as LIBOR rises our interest income increases as well.

We continue to finance our floating rate investments with floating rate debt and our fixed rate investments with either fixed rate debt or floating rate debt hedged by interest rate swaps. So, while we would pay more in interest expense on our floating rate debt if interest rates were to rise, this increase would be offset by a corresponding increase in interest income from our floating rate loan.

For the first time this quarter we included in our press release a table which demonstrates how we expect variability in LIBOR to impact our financial results. As you will see in this table, a 100 basis point increase in LIBOR, would result in an increase to income of $17.5 million, or $0.08 per fully diluted share, while a 300 basis point increase in LIBOR would result in an increased income of almost $60 million or $0.27 per share.

This does not include any benefit that our special servicer would realize in a rising rate environment. If rates rise, the expected number of loans that would enter special servicing increases and accordingly, special servicing fees would increase as well.

Speaking of servicing fees, I'd now like to turn to a discussion of the LNR segments operating results for the quarter. This business delivered its sixth consecutive quarter of strong earnings since this acquisition in April of 2013. During the quarter, the LNR segment contributed GAAP and core earnings of $95.8 million and $53.9 million and comprised $0.24 of our $0.55 core earnings per share.

Driving the current quarter growth in both GAAP and core was a continued rally in the CMBS markets which lead to higher realized and unrealized gains as well as higher interest income. Also contributing to the segments strong results were unexpectedly high servicing revenue, due in part to the timing of one large liquidation, which was originally anticipated to close in the forth quarter.

Included in LNR's results for the quarter is a reduction to the domestic servicing intangible of $18.3 million leaving the intangible with a remaining book and fair value of approximately $188 million at the end of the quarter. The increase in the amortization of this asset from last quarter is principally due to changes in debt yield. As credit spreads continue to tighten, we are seeing securitized loans being originated at lower debt yield.

For purposes of value in the intangible, the debt yield at which loans are expected to default is a key variable in determining the number of loans expected to enter special servicing. As debt yields decline, fewer loans are expected to default. Despite its continuing amortization, the servicing asset continues to deliver stronger than expected performance and consistently positive returns on our invested capital.

LNR has maintained its foothold as one of the world's premiere special servicers, retaining its one-third overall market share. Further evidencing its leadership in this space, LNR was ranked first in new servicer assignments for the nine month ended September 30. At the end of the quarter, LNR was activity servicing $15 billion of loans and real estate owned for 146 trusts with a collateral balance in excess of $130 billion. This balance is fairly consistent with where we were at the end of last quarter.

In addition to the strong performance of the servicer, LNR has continued to exploit high yield opportunities in its core competency of investing in subordinate securities. As a preeminent player in the CMBS BP space, LNR continues to invest capital in both new and legacy subordinate CMBS while being named special servicer for the related CMBS trust. Because the performance of these securities is naturally hedged by the earnings potential of our roll as special servicer in the same transactions, the earnings resulting from servicing and investment income combined are expected to be relatively stable.

While we're on the topic of B-pieces, I would like to take a moment to talk about the risk retention rules that were recently issued. These rules require sponsors of securitization transactions to retain a certain level of risk in those transactions and that risk must be retained for a period of five years. The five year hold restriction would limit the BPs playing field to only those investors with permanent capital.

However, many current market participants did not have access to permanent capital, and those who do tend to have a much higher cost of capital than ours. In addition, risk retention will be based upon the fair market value rather than the par value of the securities issued in the transaction. This will trance -- I actually said that backwards. They'll be based on the par value rather than the fair value. This will translate into larger B-pieces that could reach higher into the structure, possibly into the triple B minus trough. This is the added benefit of forcing more subordination to cover potential losses for BP fire at a potentially wider spread.

While we are still evaluating the impact these will ultimately have on us, we believe they could provide us with significant competitive advantage, particularly when considering our scale and our ability to hold risk capital long term. As one of the pioneers in the BP space, we are uniquely positioned to capitalize on these structural changes either by sponsoring our own transactions or partnering with financial institutions. We will continue to evaluate the impact of these rules and will update you as we work through the two year implementation period.

Continuing with our discussion of the LNR segments results for the quarter, we have so far discussed servicing income and income from securities. The third key contributor to the segment's results is our conduit operation, Starwood Mortgage Capital. This business continues to deliver strong performance generating net securitization profits during the quarter of $17 million and $16.3 million on a GAAP and core basis.

For the quarter, our conduit originated $586 million of loans and completed three securitizations for a total of eight securitizations during the nine month year-to-date period. That is a remarkable turnover rate of almost one securitization per month, allowing this business to generate extremely attractive returns on our invested capital.

While there are certainly volatility in the various line items of the LNR segments income statement, it has consistently delivered core earnings in excess of our underwriting, business acquisition in April of 2013. We have talked previously about expected downward trends in the servicers revenues until 2016 and 2017, when ten year CMBS maturities will more than double.

While this decline will certainly be a factor in the LNR's segment results in the coming 12 to 18 months, we expect strong performance in other areas of the segment to help offset the decline, including, performance of the expanding security portfolio, which stands at almost $700 million at the end of the quarter, our conduit business, which continues to deliver superior results and the mining of new investment opportunities including the real estate investment opportunities we discussed earlier.

As demonstrated by past six quarters of operating performance, the LNR segment itself is a multi-cylinder investment platform that does not solely rely on one income stream to deliver strong results. While we may experience some volatility on a quarter-to-quarter basis, cumulatively, we expect a relatively strong contribution from this segment.

Now turning to capital markets. During the final week of the quarter, we established a share repurchase program which provides us with a flexible mechanism to purchase up to $250 million of common stock. During the quarter, we repurchased 588,000 shares pursuant to this program at a weighted average dollar price of $22.10 for a total purchase price of $13 million.

On the financing front, we continued our efforts to make the right side of our balance sheet as efficient as possible. During the quarter, we entered into a new three year, $250 million warehouse facility and increased the borrowing capacity on an existing facility by $100 million. After the quarter, we issued $431 million of 3.75 convertible notes which mature in 2017, and increased available borrowings under our largest prefill facility from $1 billion to $1.25 billion.

This brings our total borrowing capacity to approximately $5.4 billion under 12 financing facilities across eight leading financial institutions, and three convertible (technical difficulty) As we evaluate our sources of capital, we continue to take a very conservative approach to our overall leverage. Inclusive of corporate level debt, such as our convertible notes and term loans, our debt to equity ratio continues to be just under one time.

As we look ahead, I'd like to turn to our discussion of our current investment capacity, the fourth quarter dividend, and our 2014 earnings guidance. As of Friday, October 31, we had $281 million of available cash, $749 million of unallocated warehouse capacity, $84 million of approved but undrawn financing capacity and $88 million of net equity invested in liquid RMBS.

In addition to this, we expect to receive approximately $417 million during the fourth quarter, in new financing, loan maturity, prepayments sales and participation. With these various funding sources, we have the capacity to originate or acquire up to $1.4 billion in additional new investments. Our continued level of capital deployment and ability to generate consistent returns has allowed us to maintain our existing dividend to our shareholders.

To that end, and consistent with prior quarters, our Board has declared a $0.48 dividend for the fourth quarter. The dividend will be paid on January 15 to shareholders of record on December 31. The $0.48 dividend represents a 8.5% annualized dividend yield on yesterday's closing share price of $22.58. We believe these returns are extremely compelling, given our high quality loan portfolio, with LTBs of less than 65%, no history of credit losses, a CMBS investment servicing and conduit platform that continues to deliver consistent performance, and a modest overall debt to equity ratio of less than one time.

As the year comes to a close, we continue to be pleased with our financial results. Through September 30, we have paid dividends totaling $1.44 per share, compared to core earnings of $1.67 per share. Based on our current expectations for the fourth quarter, we are narrowing our core EPS guidance to a range of $2.12 to $2.16 for the year. With that, I'd now like to turn the call over to Barry for his comments.

Thank you, Rina, that was quite comprehensive and more thorough than we've probably done in the past. I'll just make some comments, and good morning, everyone. When we started this Company more than four years ago, we were asked a question about the fate of mortgage REITs, and that they hadn't performed well and they always overstay their welcome in a cycle. We promised you we wouldn't do that.

By turning to a, fairly significant although not in the scale our company equity investment this quarter, we are demonstrating our ability to pivot as we see credit conditions get too tight, and find new ways to deploy our capital with longer duration than our typical loan portfolio. What was unique about this regional mall portfolio was the high cash on cash yield [derailment] and deliver well in excess of 8%, and the overall stability of excellence of the portfolio.

We participated along with three Southern Wealth funds that co-invested in this with mortgage trust, and we'll look to do similar investments that support our high cash on cash yield with reasonable and appropriate leverage globally going forward if those opportunities, and as they arrive. So we said we wouldn't overstay our welcome, and I think that reflects some of what we saw going on in the credit markets, being in the business for now four years as Starwood Property Trust, and watching these credit cycles.

I think this is the fourth time spreads really tightened and we found underwriting standards loosened to the point where we were getting nervous. But then, we have this little shockwave go through the markets, the credit markets, and a more financing opportunities once again opened up, so by no means are we exiting the lending segment. In fact, our pipeline, now with our new team in place, is bigger than its ever been, and just yesterday, we got a commitment for an enormous transaction in Europe at a very attractive double-digit cash on cash yield to us going forward.

And sometimes, we may do a transaction that's a 12 or 13 on our retaining piece and blend that with a 8.5, so the overall return is in the 10s range for the portfolio, and we do look at that. We are actively continually working on improving and increasing the credit quality of our portfolio. In the lending segment, in particular, we're looking at concentration risk, which is a little subtlety by geography, because we are nervous, even though we love the major markets like New York City and perhaps, San Francisco, we don't want our entire book to be in New York City.

That would imprudent as a global player in the credit markets to have that kind of exposure even though it is the number one city in the country generating the lowest cap rates in the United States. But, we will not have the book entirely in New York City. That would be imprudent. Because from the start, we talked about delivering a safe consistent and predictable return to the shareholders and we've done that for four years and we intend to do that going forward.

We'll also point out that we entered in a big way the RMBS market in the cycle. That book grew to maybe $500 million at one point and today stands at $88 million so we dialed it down as returns have dissipated. We also entered the single family home market, if you recall, and successfully spun out Starwood Waypoint to the shareholders, which continues to be the best performing stock or operating performance in its sector. Those earnings will be released on Friday.

And so, also, beyond what we're doing directly in equity and potentially using Starwood capital's global acquisition platform to source opportunities in what we're calling the core plus space, expected LNR's slightly less than 14%, and high current cash dividends. We're also mining the equity book, or the book of LNR more actively and taking advantage of transactions where we see we can buy an asset off of the LNR platform and potentially hold it for a short period of time, and then sell it hopefully at a profit.

So we're continuing to be creative and to deploy capitol on many cylinders. It's not new to you that we talk about diversification. We've been talking about the triple net lease business, but we were worried about (inaudible) a bond with enormous convex index as rates go up, you get smooshed.

One of the other very important differentiating features of our Company when I see what else is going on in sector today or related companies, is that we've always earned our dividend. We've never, ever used unrealised gains in securities books to pay a dividend, because that could reverse and all of a sudden, you've got leverage and no income to support it. So, when we make a loan, we almost never do an accrual loan that doesn't have a high cash pay, and we never pay you a dividend out of paper, it's always cash we have in the bank to pay you dividends, and that is probably not differentiated between companies, enough by shareholders and by analysts.

So we're pretty excited about that our ability to continue to do that. As Rina mentioned actually, the best for LNR is ahead of it because of the 2016 and 2017 maturities which are the 10 year -- maturity of the deal was 2006 and 2007. CNBS certificates and that will bleed into 2018 and 2019 and we're not exactly sure what that's going to look like. But in the margin, the book, as Rina mentioned our performance in the better than underwriting, notably, we expected the special servicing book in its entirety that were main servicer now on the $130 billion and 15th in the charts. We thought that would be billions less.

So this business has held up very well. But I'll also point out that we're carrying the servicer now. The intangible of $188 million is virtually irrelevant in the scheme of our Company at the moment. And the conduit business and the CMBS book and CB trading book and the information we have off that desk, has really lead us to have consistent or repeatable earnings.

Much like our business, that big part of our business represents like a ladder, it looks a lot like a ladder company with trades, obviously, the big premiums what we trade at. So it isn't lost on us that we have ladder inside of us, and that's something we'll be looking at down the road, how to best monetize the value of that company. Because we're not getting -- it's not being reflected in the stock price. And obviously, we are able to continue to support a very attractive dividend, higher than our comp stats, which is too bad. We'd like it to be lower, frankly, because it would be better for us.

I want to add now, and Jeff DiModica will speak in a couple seconds, about the team. We've seamlessly transitioned to Jeff and Christian on the amortization side. Andrew Sossen's sitting beside me so nothing's changed for him. It's really been a very good transition.

We've not lost a single body, actually other than the ones we told you about, and I'm actually encouraged that the origination, actually they're so active we're actually killing more deals probably than ever before. But they're higher quality deals, and it really is a question of where we want to set our mezzanine, our retaining piece.

Don't forget, there's traditionally the business has been, we make a loan at 65% to 75%, we keep 15% to 20% of the stack, a very wide mezzanine, or I call it the 8-2 note because it's a first cut math. A mezzanine used to be, in the old days, 72% to 78%, 75% to 80% and those were in 2014. We're earning 11% or so on a much wider piece of the capital sec.

We can always slide our wide mezzanines into a senior mezz and a junior mezz and get a 14%. We choose not to do that. We choose to basically put out more of your capital at 800 basis points over the ten year, or close to 900 basis points over the five year because we think that's amazing attractively risk reward for the shareholder base and for our capital. We're big shareholders along side of you.

So, we can always narrow the mezz if we want to. We've chosen not to, so, the question is, where do we write that overall mezzanine? In we were to write mezzanine's now at unlevered, let's say, inside of that, we could put out $10 billion in a quarter. We have the capacity to do that. We're seeing that many transactions. We're just not going to do that right now.

We continue to look at our access to capital to do so and obviously, balancing our desire to grow and improve our book and ultimately, one day reach investment grade against our -- we want to protect our shareholders and not issue willy-nilly equity and dilute our book.

And we have some, as you noticed, our net increase in our loan book was $300 million. We have maturities coming the pike and we continue to examine them all the time and make sure that we can actively redeploy capital so we don't have a drain on our earnings and we continue to earn good returns on shareholder capital.

Our ROE is actually best in class and we're monitoring that too. Hopefully that should drive shareholder performance. But it continues to be true, as we've said the last couple of years, bigger is better. It drives down our cost of capital. It creates more diversity, any one loan paying off those impact our earnings for the quarter, and so bigger is better, and I'm really looking forward so that the outcome of this retention rules.

Because that could be a, just a major opportunity for us and we will take our place alongside many of the financial institutions, probably, as the guy to originate loans and then use them to sell them off. But they won't retain the piece -- we are the natural owner of that risk period, or risk piece. We do it today in B-pieces on securitizations that are done by other people. In this case, we would be the originator and we use the street distribution system so it fell down as securities from there.

So where that legislation, it's a two year implementation, but as we look at how we deploy capital going forward, we're very much aware that could be a fantastic opportunity for us and quite different than taking equity risk in which traditionally has been a debt book. We'll be agile and flexible and creative. I think that's what you're counting on us to do, we have probably over $100 million of ownership of a REIT vehicle directly, more than any of our peers by far in any of their businesses, and we'll continue to look at ways to increase shareholder value over the long term. With that, I'm going to pass it to our President, Jeff DiModica.

Thanks, Barry and thanks for the opportunity. It's been an exciting first six weeks. Being on the Board of Directors since the Company's inception, I knew this was a complex business, but I didn't appreciate how much hard work and coordination goes into managing both the left and the right side of the balance sheet to achieve above market returns with below market risks.

I knew that this company's ability to source loans given its scale and breadth was tremendous, but I've come to realize that our ability to optimize financing through multiple channels and to pick the right loans is just as important.

We execute ten or so deals in a given quarter, but that's after sifting through hundreds. Working with our partners at Starwood Capital, I feel that the thing that differentiates any REIT is not in the deals that you do but in the ones that you don't. Most loans look worse the more time you have knowledgeable eyes spend on them but some actually look better. This platform finds those and helps explain why we haven't had a loss in the portfolio since inception, as Rina mentioned.

We are already benefiting from our ability to work more closely with our managers, Starwood Capital Group. Our COO, Andrew Sossen, Chief Originations Officer, Christian Dalzell, Chief Credit Officer, Carl Tash and I all have offices adjacent to Barry and the communication from the top down is not only seamless, but instantaneous.

In the last 7 weeks, our team has put under contract a full quarter's worth of loans, by count and by volume, in both the US and in Europe, and at IRRs above our average for this year. This will not always be the case, and as Barry mentioned, markets been getting harder and harder, but there are still good risk adjusted returns in the market for organizations capable of underwriting large, very complex deals, and we are finding them.

We have already added to our originations team and will continue to grow the organization as the opportunity persists and continue to invest in our LNR franchise as well. The scale and information flow that business brings us is difficult to duplicate, and continuing to harness it will be the key in continuing to grow this business.

Thank you, Jeff. I should also mention that we're going out on the road, I'll be joining Andrew and Jeff, and I don't if Rina will be coming, or Cory. But we'll be going to New York, and also to Boston in the coming weeks and we look forward to -- I look forward to telling our story in more depth at the shareholder base. It's been a while since I've been out, and the more you look at us, led by our best in class disclosure, we're grateful that maybe they gave us a gold award for disclosure. Recognizing, I think we're the only mortgage trust that got that award.

I think as a shareholder, and the same way I run the company, it's no surprises, right? We tell you what we're doing, and you can follow along, and hopefully, we can continue to grow the vehicle in a very profitable manner for everyone. With that, we're going to take questions. For myself, Jeff, Andrew, Rina, Cory both and the President of LNR also on the phone.

(Operator Instructions)

We'll take your first question from Jade Rahmani from Keefe, Bruyette & Woods Investments.

Can you discuss investment trends across the product types you're targeting? I think it'd be helpful if you could provide some comments on where you are finding the most attractive risk adjusted returns? Whether its by loan type or investment size, geography? And then, also on the equity investments that you're looking to make?

On the debt side, I think the larger loans continue to be the best place for us to shop. And assets that may have a transition in place, clearly, there's a tenants turnover issue, and we can lend some of the TI, which is only drawn when the tenant moves in, obviously.

But a bank won't get to the proceeds at levels they want and it's not ready for securitization. Don't forget, just like in bonds and currency, the banks aren't holding inventory, so they want to hold a real estate loan for a short period of time and then flip it out.

If there's any instance of transitioning and emptiness, associated with any kind of income asset, whether its a distribution center, or an office building or even a retail part, those are prime candidates for us to make a large loan because they can't -- the bar typically can't get the proceeds he wants.

And we were very competitive, and we can take our, because of the cost of our lines now and we continue to look at the drive. It's almost a joke over here, because every time I see anyone else's credit business I say, are we as good as that?

So we go back and adjust our lending partnerships to make sure we have the tightest spreads available in the marketplace. So we can make loans that three 10 over and still generate 8.5, 9 as a main yields. As I mentioned, we'll find the outliers to blend our book higher. You see 8.25 roughly on leveraged yields, levered out, however you want, but you can see of course, the double digits, or above double digit yields. Especially when you apply 3-7-5 convert coupons to that.

Interestingly, we issued a shorter term convert because we were spreading out the maturities of our existing converts, there are three. And this spreads them out, so that was tactical that we want, we didn't want to glomp them all on top of each other. So that was strategic in deployment.

On the equity side, I'd say it's quintessentially opportunist. We think of it as real estate we want to own for 20 years. Stuff we think is great and will be great for long term. So, it's higher quality assets, it's not quite core, although I think you could think they're somewhat core, but we're going to run them with what I call appropriate leverage, and we'll do it across the asset classes.

There's no one specific asset class we're thinking of, focused on. Probably you'll see the three major food groups being retail office, and probably maybe industrial, and you're not going to see, -- or multi, sorry. You're not going to see us do hotels most likely. I would think that would be hard on the equity side. I don't think that would be appropriate in this vehicle. This higher [vault] here. And that doesn't work with our team or for the Company. So that's what you'll see us do.

We already do this, so what's interesting is, we have an opportunity funds that focus on 15 to 20 plus IRRs, and we have, we're exclusive to those funds for those IRRs and we have a 14 or low, we can do whatever we want. And we intend to-- we expect we will pursue some of those opportunities here. But our core business is still lending, and that's globally.

We've talked about expanding our geographies, we're in Europe. We're looking at other geographies that makes sense. One of the key job tasks for Jeff DiModica is actually to look at whether we can set up lending operations in other places. Again, we're going to have to be able to hedge the currencies if we go off into other places that may not have access to capital the way the US and European property markets do today.

I'd say the markets are pretty competitive, very competitive, and in a global search for yield, there's some crazy things being done. Our job is to take advantage them and not be kept -- to not fall into that same trap. We are erring on quality, we are not going to 90% LTV. I was with a lender the other day, and they mentioned they were very excited about lending 100% of construction costs, taking half the asset.

While that's not something we've chosen to do, and that tells you you're getting toppy in the market, frankly. So that was why, at Star Capital Group, we started energy business when the real start markets got to crazy in 2007. Late 2006, 2007, early 2008 and I couldn't see anything to do in real estate.

We're not there yet in property. Property's actually in a sweet spot, because if the economy stays weak or slow growth, which is our baseline scenario. Interest rates don't go anywhere, property produces exceptional yields, cap rates probably continue to slide down, not up, and it doesn't induce new supply across most of the asset classes because there's only slow growth and modest employment growth. And so that's basically nirvana for a lender. It's also nirvana for an equity player.

SaaS growth, which you might want 4% GDP growth, is actually not great. It will induce higher interest rates, and probably induce new supply, because builders and construction loans will become more prevalent, and people will say, alright I've got to have new everything.

This is the actually the best period for real estate relative to the other asset classes and so I'd argue in the lending segment. Which I think people are -- but we're seeing deals where the loans again, are higher than the equity bids, by us, and that worries me. And there's a lot of nutty -- as I said before, not to be critical, the guys who drove us off the cliff, the rating agencies are still there.

They didn't change the drivers of the bus, they just yelled at them, and they're still there. These guys will rate it, and the street can sell it, you've seen this movie before. So we're not going to participate in that movie.

I just wanted to ask, the loan improve -- the land improvement loan originated in the quarter? Could you comment on the end use for that, the development type line, type of sponsorship? And then secondly, also the loan loss provision that you took in the quarter?

The land is a fantastic piece of property, based in California, and I would say A plus dirt. When it comes to residential, we have an unbelievable seat at the table. We obviously, sponsored a home builder that operates in Orange County and this is near Orange County in Tri-Point. We have sway book, which we can see how this rents for and we have perfect knowledge.

We're very excited, and we also have Starwood Land Ventures, which is a proprietary group of former home builder executives who work for Starwood Capital Group and are active in California. We think it's a great loan, it's home building, land improvement and home building. It's at a very modest LTV, I think it's 50% or 55%, something like that. In the 50s and it is Cadillac dirt and we bid on it.

We knew exactly what it was worth. We lost the bid to two very well funded, I would guess you would call them equity real estate managers, and we turned around, obviously easy for us to finance a deal like that, and when it came available, I said go get it, we would buy it, 100 times at our loan balance. It was roughly 2 ex our loan. Our bid was almost 2 ex what we lent. A very good deal and a very attractive return on our capital. And they're really happy, too.

Thanks, and also just lastly, the loan loss provision?

Our loan loss reserve is, as we've disclosed in our Q and our K, is based on how we rank our, each of our loans based on certain criteria. None of our loans are impaired as we disclosed, but we do provide a provision based on how we rate the loans.

Any loans that are rated a 4 that have certain interment indicators, we apply a 1.5% reserve to. And any loans that are rated a 5, we apply 5% reserve to. So, it's simply a function of certain loans having more or less impairment indicators in a given period, but again, there's no impairment. It's just a general provision that we take on our loan box.

Okay.

It's automatic based on the rating and the rating is done by our asset management team. As a group, they get together and review every loan in the book quarterly, and -- but it is somewhat subjective. What we think is a 4 or 5, to somebody else might be a 2 or 1. We were actually talking about it earlier when we were reviewing our quarter. Probably never got to use it. It's a general flush fund I guess you'd call it.

Great. Thanks for taking the questions.

We'll hear next from Dan Altscher from FBR

I appreciate you taking my call. I was wondering if you could talk a little bit about the share buy back authorization. I think it's admirable to have it out there. I think it display that you all think that the stock is relatively under value or it's an attractively valued instrument right now.

But, how do weigh -- I think you had the stock buy back versus some of the other things that you've been talking about, whether it's the lending side or equity investments or redeploying in some LNR businesses?

It's a long road, right? And its partners with our shareholders to support our stock because sometimes, it looked like our stock weakened in the transition, and 8.5 dividend yield if pretty attractive to us. It always has to be a use of funds in buying back your stock if that's the best investment you can make.

And we just issued the convert and we had some excess cash laying around, it's really, as you know, we're telling people our stock we think is undervalued. And we do think it's undervalued. We weigh that against everything else we're doing at the time and I think that's it. It's very attractive buying in a dividend yield of whatever, I think that level is like 8.7 or something.

So we're looking at our own cash flow projections, not just this quarter but next year, and determining what we think is the right use of incremental cash. It's not what we want to do, we'd rather have a stock at 28 and not buy stock but you know, we have to prove -- I don't know what we have to prove. We've been at it four years. We should have a track record by now.

Anyway, that's why we continue, its not the first time we stepped in and bought stock in our life cycle. I think obviously, it reduces the management fee, but that's fine. We're fine with that. It's a long game, and we're there to support our shareholders and support our stock.

Thanks, that's helpful. On the equity investments, the big announce sounds very interesting. Buena Vista maybe the first transaction you looked at or has it been one of many, and this is the first one that really met the threshold of yield and attracting a somewhat fits within the REIT versus an opportunity button?

We looked at many. As you mentioned, it could have met lease business, there was a company called CapLease which I can talk about now, which was high quality, triple net lease building, but fully amortizing debt. We would have taxable income but we'd have no cash to pay the dividend because all the cash would be going to amortize the debt. And then in ten years, you'd have these asset flow less on lever and you couldn't defuse the debt.

There's an example of why we have the company, actually own stock in the company, we were going to make a tender offer, but when we examined the -- I just don't do that. I don't believe in drinking your own blood and hoping that down the road, you can pay a dividend. You'll delever in an uncertain environment ten years from now. So we didn't do that transaction, we looked at probably every triple net lease deal that's been out there, including some that are opting to go public instead of accepting our bids.

We've looked at other equity investments, but this is really, I think, the first time that we stepped up in this scale, and frankly, it was because of the cash on cash yield's here were so good out of the box. And it was such a stable asset class and the kind of assets that you want to own long term. I'm happy and we look at ourselves, Jeff Dishner and Carter and London and the other members of the investment committee and said, we should own this. This is great stuff to own. Wouldn't you like to own this at this level at this yield in this IRR? And we said, for sure. So, we'll do that.

We're opening the deck and we're going to continue to look with our equity guys at opportunities that might fit the REIT, and recognizing we don't have instant capital to deploy. But also recognizing that there are loans coming back to us and cash coming back with those loans, and it's easier to quickly buy an asset than make a loan, which you don't control the borrower. He gets to choose when he borrows your money.

As you know, historically, we've had some trouble. We think a loan's going to close this quarter, and it drifts into next quarter, we wind up having too much cash on our balance sheets because we've made the commitment but it hasn't closed. So the nice thing about equity is it's usually faster.

I'd also point out that we are much more active now mining LNR's book. Those opportunities tend to be smaller, significantly smaller, but the nature of the $15 billion of assets in their books are $30 million office buildings, $12 million multi-family assets, but I do have a thousand of them.

You can deploy some capital buying that and that's an advantage to the way to deploy capital of high rates of return. That's also something that we are doing, in greater volume, and we'll talk more about it if we actually get anything done in scale.

I was wondering if you could guide a little bit into the new risk retention and maybe you could remark to the question or to Cory, but as we think about the need for permanent capital and you all referenced -- I think that's a paramount aspect of owning BPs going forward, do you think there's going to be actually like BP's dedicated private funds that are created just to exploit that market?

And also, going into the rest of retention, I know it's still a couple years away, do you think there might be a rush of (inaudible) issuance ahead of that risk and not be subject to, there's potentially to get grandfathered in?

Cory, you want to try that?

Sure, as it relates to people rushing to the marketplace, there is a significant amount of maturities the next couple of years. So regardless of risk retention, we see considerable flow coming into the conduit markets and we intend to take advantage of that both at our Starwood Mortgage Capital conduit origination business as well as B-pieces.

As it relates to how capital forms around the opportunities that are created around risk retention, hard to say at the end of the day. It's a two year implementation period. I think it's just safe to say that our historical approach to the marketplace, which is a very long range approach, we look at these investments over a decade.

We intend generally speaking to hold those assets and to retain them on our balance sheets so what has come down is very consistent with the long-term approach of Starwood Property Trusts and LNR. We think we will be in an advantaged position as those new rules do get rolled out.

Thanks so much, guys. Really appreciate it.

We'll hear next from Eric Beardsley from Goldman Sachs.

As we think about the moving parts in LNR, just curious as to what percentage of core earnings that might be in between now and the period that you transition to an increase in the special servicing?

Lets break up LNR. LNR has a conduit, I was going to mention this in my comments, it's taxed. It all goes into the QRS. Their impact is smaller than you might think because they're taxed. CMBS, which is now up significantly from where we acquired the company both because we bought and deployed capital behind the data base that they have and the knowledge of the trust. And also, because the book is appreciated in value with rates coming in.

That portion of the business we've talked about it. In fact, that could move over theoretically into the core book of Starwood because it's a long term holding paper, but it's still, from an accounting standpoint, has to stay in this quote-unquote LNR segment. Those are readable securities, and they're in the REIT. Those are not taxed, the income on that goes flows directly to us, the income.

And then, Hatfield Philips is a small servicing business or its small as its contribution to the Company. It's not that small, its based in Europe, is a hidden asset of the company. It's done much better than we thought, and we're working on how to deploy capital behind that platform.

Then also, we didn't talk about it, you do know we own an asset called auction.com, an interest in the past there and Google has taken an interest in the company which is trying to transform the auction marketplace for residential houses. It's a free option, and obviously, a value in our stock that probably nobody attributes to the stock.

So someday we'll monetize that stake, I hope for a lot of money and make our shareholders super happy. But we don't -- actually taken write downs against it instead of write ups even though some of the chatter about subsequent rounds of these massive gains are occurring in holding price for the position.

The core servicing book, in its totality, LNR is contributing roughly a third of our earnings. That's tax, I believe, right, Rina?

Most of it. The servicing was at (multiple speakers)

As we reported it's roughly a third.

Yes.

[That's tax on tax. So its obviously a subsequent tax]. But that is roughly a third. We don't really look at it like that, but you can. That's the way it's reported in our financials.

How does that progress with the amortization? Do you have offsets in those other areas to make up for that, or looking at the core lending segment offsetting any decline in the earnings that you would have from LNR over the next 12 to 18 months?

Let's talk about just the servicing portion, which has that $188 million book value today. 2015 is going to be an invest year in servicing and 2016 and 2017 will be considerably the biggest year LNR likely to have ever had. A lot will depend on where our interest rates are. And offsetting that will be the CMBS securities.

So, just to go over this because it's a little less obvious than you think. If rates come down or our spreads stay in, and things don't default, some of the things we wrote off in the CMBS book, even though the way the world's going, may have huge value. You can see massive gains in the CMBS book.

If rates go up, and there's more default, the CMBS is going to be worth less, right? Because we're not going to get any excess cash on payments in the CMBS tranches. And instead, we're going to get servicing fees and extension fees and refinancing fees, and all the fees that the servicer normally gets.

So we have this interesting natural hedge in place, and it's -- and for us, I don't know which one we'd rather have. I like chaos. I like higher rates, I would help our core earnings of the lending book as Rina pointed out 300 basis points would be a bonanza for us. We'd make a ton of money.

By the way, rates going down doesn't impact us because most of our loans are at LIBOR four or are already set at LIBOR four 25 basis points. So how much lower can they go? So it's a free option, right? The shareholders are getting a free option on higher rates.

In the natural hedge business, chaos would also allow Starwood, the loans company, the loan business, to help refinance all these loans. So that's great for us. It falls into servicing and we approach every borrower and say, hey, we're your one stop solution. We know the asset because we've been servicing it and we can commit to make you a loan in 10 seconds because we have all the data.

I guess if I had to choose, I'd probably take higher rates. I guess, my guess is we're in for what we got for a while, low rates for longer. And Jeff DiModica is the first to call that and into the desk at RBS.

Lower, longer, and it's probably the world. Because our view of the world is Europe and Brazil and China are not strong enough to pull the global economy higher right now, and the US is a bright spot, but we have issues. Maybe the Republican victory last night might help. I couldn't help myself, I had to say that. I was told to stay away from politics. I'm smiling for a second, now we're moving on. Sorry. (laughter)

Great, thank you.

We'll hear next from Don Fandetti from Citi.

Barry, I think you may have made some comments about monetizing the conduit business. I was wondering if you could talk a little bit about the gain on sale margin trends that you've seen over the last few quarters and where you think that might go as you look out over the next year and then, the competitive landscape in that business?

So an interesting business, because of the velocity of the terms that the group does, I think we'll probably, Cory, do ten securitizations this year or 11?

We're going to do 11, not quite one a month.

And I'll point out, the way that business works in our firm is we've negative controls. Meaning, and Larry and his team have never had a loan rejected out of securitizations. They're really good at what they do.

And we actually don't want to disclose the margins, but I would tell you that they've come in, but the ROE is fantastic. We allocate a small portion of our balance sheet for warehousing loans, and you saw at the end of the quarter, I think we had $254 million of loans on the books or something like that.

And they just did a securitization of $181 million of them, but he's already filled up the bucket with a whole group of loans. It just turns really fast, and the team is quite efficient at it.

Also, management is sharing in the success of the business, so the net profitability of that business to us is not what you might think. It's less than you think, even though it's a very valuable business for us. I mean, management has a very incentive, on both up and down, and aligned interest with them because, actually, that's the way we've chosen to structure the business.

And in terms of your outlook on where you think margins could go, is it pretty constructive of outlook, or just depends?

I mean, I would guess, and Cory could comment on this I think, that we're among the more profitable operations out there. I think it goes to reputation of the team and the comfort of the agencies with the quality of their underwriting. They're able to get lower subordination levels than the other guys and the velocity that they have, I think, it's really -- actually they have an office in Manhattan and I drift into that office occasionally and there's 50 people sitting at their desks, okay, maybe it's 25, all the time, and just minding their business and doing their business. It's a very impressive business.

And by the way, we will look at stuff like Northstar, okay? They're split, or, and we -- it's not lost on us that we have this servicing business and it's not just the conduit, it's other parts of the operation. Is there a way to increase shareholder value? It's our job to study all these things all the time, and look at the market. We'd say hey, that's a service business that's recorded a much higher multiple than our mortgage book might be.

We play a very important role in securitizations, because we originate small deals. These guys, typically, do loans less than $25 million. Occasionally, they break out and do a $45 million loan. And there, actually, Star Property Trust core lending business helps them, sometimes. Like in one case, we wrote the mezz and they securitized on a $50 million plus loan.

I think we kept the $12 million mezz, and they've securitized the rest of it. That actually got us to win that deal. Because we were happy with a multi-family asset, I think. I was very happy with the way the teams worked together to execute to be a win-win across the platform is fantastic. Makes me smile when a team works well like that.

We'll hear next from Charles Nabhan from Wells Fargo.

I wanted to get your comments, Barry, on some of the volatility and spread widening we saw subsequent to the quarter. Specifically, if the impact that may have had on demand, and if you were able to capitalize on some of the spread widening within your CMBS book?

It's Jeff, how are you? The volatility and spread widening was relatively short lived which created an opportunity during it. I think during that volatility as things flew out, Cory and his team were able to get more actives on the CMBS side. We became a more active bidder and I think we did a decent job of taking advantage of that volatility.

Our convert came out at the same time, while the market was very volatile, and I think the market showed that being willing to have over $500 million in orders on a convert on one of the worst days in the middle of that volatility was a testament to what we were doing, but at the same time, we were investing on the other side of that and taking pretty decent advantage of it.

I think that those are the opportunities that we look for, certainly on the conduit side, we were forced to probably widen things out a little bit, but as we were making our loans, they were wider also, and I think we took pretty good advantage of that volatility.

It's hard. It makes the day-to-day here hard on both sides. I don't think any of us think that we want that kind of volatility all year long, but it is an opportunity, and we look at it as that.

And to be specific, if you were shopping for a loan during that crazy period, and even today, I don't think we've gone full circle on some of these spreads. All the lenders are gapping up. They're saying, okay I need a ten basis points and then we'll close, and there's nowhere for them to go. But there are, at last count, I heard 38 conduits operating in the US, now. It's not like --

Over 40.

Over 40? You have a better count. So look, they have a big team, they're good at what they do. It's not a major contributor of earnings to the firm on a net basis after tax, but it's good and its another cylinder. It's just another way to grow.

We've talked about, once upon time, we were doing larger loans for this business. We got out of that business because of our inability to hedge ourselves on larger loans that were going to aim towards securitization.

We've talked about whether we should go back into that business. That's Jeff's expertise. I don't know anything about hedging, star exposures and that stuff, but he's a master at that. I know that we got hit on the hedges we put in place on the large loan securitization business.

We can do it. It's not a cylinder today but something we should certainly consider. We have all the athletes to do it. And then you're neck and neck with the street.

We, I think we've been in the business long enough now that we only, not only do we get every call in every broker transaction of every large loan in the country but, we also work now hard and harder probably, than we have in the past on minding the relationships that start with that because of the equity side. So we have partners in the hotel space that we've done, let's say, 14 individual transactions with.

Our debt guys should be calling on that guide. It's not only finance. The finance is everything he does. Now he's the guy of choice, and we have enough room in our quotes that we can win stuff if we want to win it. And we measure that against the ability of our capital. The $1.4 billion of capacity, we know that. But we want to grow and we want to deploy capital and we're excited about what we're seeing.

I'm actually very pleased. I got a little more nervous about 8 weeks ago -- 12 weeks ago and right now, with energy as a new team, and their aggressiveness, we're killing more deals than I thought -- that are actually okay. But just a little too tight. They're of high quality.

That's a conversation we're going to have with the Board and with the shareholder base over time. How long can you earn tens in a word of five year, 160. I don't even know. I know the 10 year's 232 or something. 165, so don't forget, we're earning 11s but the ten year was 3.25. It's 100 basis points inside of that.

So now we're earning 10s. Tell me where you can get this return in the capital markets today? Tell me about high yield that are 4.75, with no covenant protection, you're floating out in space. They can say its trucks in front of you, and we have first mortgages on end caps with cash flows. There's no relevance in the capital markets the way these companies are trading. I understand the markets but I don't under the dividend yield. I don't understand why the cured mortgages that if we floated in the CMBS markets we traded -- 100 portions of our loans were traded at about 120 over? Right?

So if you look at -- because we have a lot of first mortgages. You look at our book, I mean it's kind of whacko. It's an arbitrage also for our lenders. They're getting better returns here than they get if they bought the same tranche off the CMBS desk. So, kind of nuts, but it'll evolve, it just takes time. The markets are evolving.

Great, and keeping with the topic of selectivity, are you seeing any themes in terms of the deals you're turning down in terms of property type, geography, loan size?

We just lost a big industrial quote, really good stuff, there's huge demand for it. If it's really tight, if it's fully leased. So, we've never in four years been able to compete there. The life companies used to take those loans. I think -- and we don't want to do a ton of construction loans. We've done some. Some have already been harvested. I consider the construction loan on Hudson Yards one of our best loans. I think we're in that brand new building at like $500 a foot. It's super complicated.

That's how we got it. In fact, I think the borrower called us and said, can you help us because the five banks were tripping over each other. We'll do some but we're trying to move ourselves away from that.

Also, AAA Internet company that wanted to build headquarters. But the construction -- they're doing it in a series of buildings that we'd have to commit today to fund some construction that would be out many years. Like three years out. We just don't want to do -- we could do it. But, why do it? Why take that risk when we have other opportunities to deploy capital?

I can't point to any trends right now. Other than the same trends that have been in these businesses the day we started really. Which is -- I would say one thing that's good. I think more people are willing to lever a little higher. Before, everybody was nuts, scared and conservative. You'd see a guy buy a property, and he might borrow 40% of the property. So there was no play for us because that went to a life co.

I think the same guys are the kinds of guys buying stuff today. And I'll say it's from the equity side with our own clients. We see it the same way. We bring home a deal and say we're going to put 45% leverage in. Put 65%, 70% leverage on it. Because they want to keep their ROE that everyone's chasing yield and they're pretty comfortable with the cash flow extremes and the stability of the extremes so they want to lever it out.

I think that's changing, that's creating on the margin more opportunities for guys like us, where the life company may not want to go up that extra 5. They're more formulaic where we're more entrepreneurial, I'd say in our lending.

The other sustainable competitive edge for us is that the guys know we'll close, right? And they're used to saying no, we're flexible. They know if they get into trouble, they can come talk to us. That is our biggest calling card. Oh, they want to add two floors to the building or add 50 rooms to the hotel or -- so we have the capability in flexing what we do for them. Which a traditional lender such as securitization does not let them do.

There will always be a place for us and the question is, how big are the returns here? That's kind of where we are. We looked at the -- there were so many construction loans in New York City now on residential, where we're nervous, very nervous about the high rise high end residential business in New York City. So you won't see us doing anything there, unless our attachment point is like $1200 a foot, which is a third of what people expect to get on every property in New York City.

We've lost construction loans in New York to both some life companies and to offshore hedge funds. Giant ones. Don't forget the hedge funds are making mezzanines now at 7 and they're incentive, they get a 20% of 7, 80-20, right? They get their 20% percent of 7 with no floor. Our incentive fee is over 8. So we just really can't even compete with them.

When they come in and do 7s -- and they're doing these loans, the hedge funds, by the way because it's been a tough year in the equity book. In the 7 -- 20% of 7 it's almost for sure you'll get your point, 1.4% participation in that. They're real, they're real players in the marketplace. The hedge funds, especially on these -- and they're usually inside of us. Not all of them, but a significant number that we feel their presence in the market. And that probably would go away if they started doing better on their equity books.

Appreciate the color. Thank you.

Your last question today will come from Ken Bruce from BofA.

Thanks, good morning. Almost afternoon, its been a long call. I'll try to be short. First, thank you for the updated guidance. I guess looking at that, what does that say about the fourth quarter? It seems that would be quite a feat for you to come in at something like $0.47 in the fourth quarter?

We gave guidance that we thought we could achieve. (laughter)

You've probably already achieved it.

I can't say that. That would be a forward-looking statement, and I'd get hit by the Chief Counsel and someone else, Zach would put a tourniquet on me. We gave you a narrower range. A little narrower than we had before with pretty good visibility, I think, into the book and to our perspective needs are not for additional capital. I think your conclusion is correct.

Okay. And just as we think about the move into the equity space, is that, you think just a natural extension of the diversification that you've been thinking about over time, or is it more a reflection of the tight markets that you find from time to time? I'm trying to maybe catch a little bit of a nuance between what is driving you into the equity side at this point?

Worry about the credit markets getting way too tight, and losing the discipline completely. When the lending side starts making quotes higher than the equity bids, it's time to exit lending, and we're not going to do that. That's not what we were created for, we are a broad mandate in our origination agreement. We're going to try to find the best risk adjusted returns across the spectrum for shareholders.

And that business is a really good business, if you play it correctly. 28 years of experience in the equity markets, and 500 people at Starwood Capital Group today. We can do this business easily.

We're not going to force feed, as we mentioned right off the bat, we're not going to force feed and overstay ourselves in the cycle. Every mortgage REIT in history had gotten into trouble getting further and further out in the risk spectrum and making sloppier and sloppier loans. We don't intend to be one of those guys.

There's two ways to go. We can say we're going to did it for mezzanines at 7. Obviously, that would impact the dividend over time. Are we better off doing that? Or, are we better off buying equity deals and getting better than 8 cash on cash yield with no refinancing risk or anything for the shareholders?

We'll tell you when we've made that call. We're not making that call. Our current pipeline is really good, and I look at the average of the return on equity -- the stabilized return on equity, and it's consistent with prior experiences, not slightly better.

We'll see how this goes. We'll tell you as it progresses. But we have a global acquisition team. We have 50 people in London. We have people in San Paulo, we've people across the United States in, I think, 12 offices which will see equity opportunities that historically we've not played in. But are really good real estate, the kind of real estate our shareholders should want to own. So we can do better.

IRRs are best guesses. Also REIT's don't really sell assets. So, when we're looking for assets that we say in ten years we know will be worth more than we paid for them today. Significantly more and we'll do that whether it's an office building in London or a multi in the bay area.

We're going to probably look, and we're actively considering transactions because we see a lot of them, and we look at the multi-deal that we just were just looking at. That was really beautiful stuff. Part of the discussion here also, how levered will we take those equities back.

Right. You mentioned that you'd look at all the different opportunities to enhance shareholder value. At least there's one example of a mortgage rate that has considering an internalization and essentially wrapping up it's private equity real estate business within the public REIT.

Is that something that -- and the market seems to receive it fairly well. Is that something that you all would contemplate or is there any natural differences between what you're doing at Starwood Capital and what you view as the real mandated Starwood Property Trust that would prevent that from ever being a reality?

It hasn't been lost on us. There's a small buyout from in KKR that went public merging with its vehicle. Which was a European liquid company. I can't understate the liquidity in our book. We have, every loan we own we probably sell and probably above Rina's fair market value mark. So we could create $3 billion in cash tomorrow if we wanted to. Fundamentally, something we'd have to consider over time.

It's not something that's on the drawing board right now. We'd bust the REIT status because we'd have bad income, a lot of it. But it is something we've talked about and have considered and of course, some of the Wall Street firms have come to us to suggest we do. We'll see how this all works and if it really, what the market thinks of these things, and decide if it's something to do or not do.

You would -- it's complicated, right? Because you have a lot of funds that have interest in real estate because the real estates go in, go out. Have the investors really just been going in, the investors have to approve it from in the different funds as well as to valuations between funds. If the real estate stays out, its just a secor that going to bust REIT status. It's complicated.

Right.

We'll see. I'm watching what the market thinks of one of the companies that's been out there last night.

Right. Last question, I'll cut it off after this, but you mentioned that you -- you're a little perplexed about the valuation on the stock, I think many of us might agree with that. You've done what you said you were going to do from the outset of Starwood Property Trust. The returns are quite attractive, all the things you laid out. What is it that you think that the market is either discounting or is, you know, what -- maybe said differently. What do you think the market needs to focus on to begin to give Starwood Property Trust the proper valuation?

I think that's what our job will be on this road show coming up. I think the market's confused by LNR. It has to be that, right? So you broke our business into two pieces and did the DCF on the LNR cash flow streams and then you take our -- the market multiple on the books. We think you get to a significantly higher stock price in excess of $25. We're going to try to outline that. And for the shareholder base and some people will say we get it and some people will disagree.

We're charged our teams with finding ways to deploy capital at attractive rates of return and it's the same old basis forever, right? For the foreseeable future. We have a long view of the window in 2018 when some of the servicing fees roll off, they're not that huge in the scheme of things. It's not like we can't replace them.

Cory keeps telling me we're always doing things. We're always finding ways to deploy capital and they've proven that. We didn't underwrite -- Cory, how much capital have you put out since we acquired you? What would you guess?

Over $0.25 billion.

And that doesn't include conduit originations.

No. That capital, as we've talked about, is cycling every 34 days.

Right. We'll look, and we have technology, we have all kinds of stuff that we can monetize by looking at doing, and that's what we're focused on. Thanks, everyone, it's been a long call, we appreciate your time and have a great day and may all your stock markets just go up.

Thank you. Appreciate your confidence.

That does conclude our question and answer session. Everyone, have a great day.