Good day, and welcome to the Starwood Property Trust's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Andrew Sossen, Chief Operating Officer and General Counsel. Please go ahead, sir.

Thank you, operator. Good morning, everyone. I'd like to welcome you to Starwood Property Trust Earnings Call for the second quarter of 2012. With me this morning are Barry Sternlicht, the company's Chairman and Chief Executive Officer; Boyd Fellows, the company's President; and Stew Ward, the company's Chief Financial Officer. This morning, the company released its financial results for the quarter ended June 30, 2012, and filed its Form 10-Q with the Securities and Exchange Commission. In addition, the company has once again posted supplemental financial information to its website. These documents are available in the Investor Relations section of the company's website at www.starwoodpropertytrust.com. Before the call begins, I'd 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 these 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 in the course of this call. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered an 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 prepared in accordance with GAAP can be accessed through the company's filings with the SEC at www.sec.gov. With that, I'm now going to turn the call over to Stew.

Thank you, Andrew, and good morning. This is Stew Ward, the Chief Financial Officer of Starwood Property Trust. This morning, I will be reviewing Starwood Property Trust's financial results for the second quarter of 2012. I'll also highlight several items pertinent to both the second and third quarters as well as our overall business. Following my comments, Barry will discuss current market conditions, the state of our business and the opportunities we see as we look forward. For the second quarter of 2012, we reported core earnings of $50 million or $0.45 per diluted share. On a per share basis, this is in line with the $0.58 per diluted share we reported for the first quarter when adjusted for the $0.13 per share onetime gain realized in the first quarter due to the early repayment of a large U.K.-based mezzanine loan. 2012 year-to-date, core earnings totaled $105 million or $1.02 per share. On a per share basis, this represents a 19% increase over the $0.86 per share recorded for the same period over the prior year. GAAP net income for the 3 months ending June 30 was $44.5 million or $0.40 per diluted share, slightly above the $0.39 per share recorded during the same period for the prior year. As of June 30, 2012, the fair value of our net assets was $19.65 per diluted share. For the same date, GAAP book value per diluted share was $19.13. Both of these figures are above the March 31 levels of $19.52 and $18.96, respectively. In fact, the fair value level of $19.52 per share is the highest since the IPO. The primary drivers in both cases were improvement in asset valuations associated with the continued improvement in credit markets and spreads and the positive impact of the accretive $457 million equity…

Thank you, Andrew. Thank you, Stew. Good morning, everyone. I have to say this is about a 3-year anniversary of our existence in the firm. And it's almost to the day actually. And I think it's really quite remarkable that we started with a $900 million pool of cash and we've originated or acquired over $5 billion of assets, some of which have been recycled over the last 3 years. And I think it's really the core strength of the company that with now a nearly 40-person dedicated team and augmented by the 160 people in Starwood Capital Group, we've been able to source, find, structure, sell down and create this extraordinary pool of loans in a market where there's no yield. And I said in the last call, when you look at a 65% LTV book has stabilized fully levered will yield over 12%, you know there are a few things. First, if you take the loans that are 0% to 50% LTV, those are AAA, and they should be yielding LIBOR plus 50 in this market today, so the excess yield that created also by the team is extraordinary. And really my congratulations to the entire team for this execution in this marketplace. And then this most noteworthy thing for the company or a major milestone was this first on secured credit facility for the company. It shows a shift of both the power of the scale of the enterprise, but also a shift in our lending relationships looking at our scale of saying, it really says no issues. Then we have never had an issue for the first 3 years of our existence on any of the loans we've originated. None of them have ever go into the monetary default. So I think our underwriting has proven…

[Operator Instructions] We'll go first to Joshua Barber with Stifel, Nicolaus. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Would you be able to talk a little bit more about your RMBS investment strategy? It looks like you're buying private label RMBS at pretty decent face discounts, but you're still counting them as available liquidity. So is it that the investments are attractive today but you'd sell out for the right price? Or is this actually part of the longer-term strategy here?

Yes and yes. And we've been doing that for 3 years. We're very comfortable with our sub manager on that. And yes, if we have to liquefy if, we could. It is a very good cash management strategy and we've -- for us. And it is -- the guys doing it are experts in the field and we've monitor what they do all the time. Stew can talk more about that, but we're very comfortable and obviously, I think our book value is higher than the fair market, but I don't think we've been aggressive in stating our fair market value. Obviously, rates have fallen and LTVs are probably lower than we've said they are. We only review that really once a year. So And I think in the RMBS book, I mean, we know that what's going on in residential real estate equity company owned nearly 20,000 lots, and we have a homebuilder in our portfolio. So when we saw that RMBS was underpriced and we were happy to continue to invest aggressively in this space, especially in this, you're right, the private label, non-agency paper, where we thought residual values were too low, that people were really taking a draconian case and pricing was bizarrely cheap. So while it is only $173 million or about, what, 8% of our equity, 7% of our equity, it's not that big. We have used it historically. We've been able to lever it or unlever it very easily. We can get very high leverage against the portfolio if we want.

Very low cost.

Very low cost. I mean, it's the lowest costs debt we can get. And how high can the leverage go?

The way that current facility works as much as 75% of the value of the collateral. We're well inside of that. We have -- we're in the $288 million to $290 million. I think we have $125 million drawn, but we've revolved the balance. We probably revolve the balance 5x or 6x a month depending upon what type to manage our cash.

As we get cash, one of the things we start out with was really focus on short paper with no -- what we decided there was no principal [ph]. We said keep it at 1-year, 2-year paper. And we've done that so -- and we've extended the maturity slightly. But again, we can use it as we can lever it up, as you heard, we have over $100 million of additional borrowing capacity against the RMBS book we have as stated and that creates a lot of liquidity for us. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But it's still fair that you're seeing it as a cash management tool and not -- I mean, you're buying RMBS with a $60 million fixed discount. And I don't know if you get all that back, but if you think you can get some of that back in the next year, would you rather...

We like what we're doing. We like what we're doing. We consider and I'm not going to talk about how we're doing this, but we're very comfortable here. So yes, you're right, this is a cash management tool. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Can you also remind us what your total built in exposure today and what the total, I guess, face value discount is after the second quarter acquisition?

We have $170 million of equity.

Okay. We have a total equity -- the equity is $170 million. Total asset investment basis of about $565 million, $566 million, with about $400 million of financing against it, so $170 million net. And I think the face on that is -- our average face is about $91 million. So call it up $650 million or some number about like that, $660 million in face.

And it's trading today around $97 million.

And if you look in our supplement, it's among the lowest last dollar LTVs of any asset we own.

But it's 6 points on $500 million, so it's $3 million again embedded that hasn't been realized, something like that. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Right. Okay. And some of that might run through the third quarter? Unrealized mark-to-market?

Yes. I suppose that's true. Do we do that?

Well, we accrete, we do it on a level yield basis.

We're not straight lining with market prices. We're basically accreting the discount over.... Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. You don't have to mark that to market even though it's a CMBS. Got it.

Well, it's marked on top of that, but what goes through, what we've described as core earnings is just the accrual.

[Operator Instructions] We'll go next to Stephen Laws with Deutsche Bank.

Can you talk a little bit about the financing market? Seems like you guys have done a good job getting new lines put in place, it's going to allow you to continue to grow the portfolio grow or the cash flow drag you mentioned on the A-note originations. Can you talk about what you're seeing out there? Is that something you guys have put in place with your scale and platform that you're benefiting more or lenders getting more open with financing lines, are counter-parties open with credit facilities?

Well, the one thing I'd say that's hidden and an issue for us is the original lines that we build the company originally. They're actually way over market today. The spreads will probably come in 100 basis points from what we originally did but we're stocked. And that's good news because eventually, if they roll off, which -- I mean, the good news was they got a 5-year facility when nobody could and that's funded all of our paper. But the bad news was had we taken a risky route and then a 1-year facility and rolling 1-year, we would've within the LIBOR curve down and spread market down because I think spread is tight. What do you guys want to say about the question about financing facilities, Stew?

And I think your comment's a good one. We could probably replicate, if we were able -- if we wanted to -- if it were financially reasonable to do, the secured facilities. I don't know if they're 100 tighter but they're tighter a bit. This corporate facility, the corporate-style facility, for a lack of a better description, I think is pretty unique to us. I'd be surprised if anybody else in our space could get something like this done. It's largely predicated on the transparency of the assets booked that were able to put so it is their look through to what effectively is there collateral and the diversity of our book and our sheer scale. And from a pricing perspective, it's a little expensive but again, we're only talking about utilizing it for 45- to 60-day period. So in the scheme in a 5-year investment, 4-year investment, it's insanely efficient relative to going on leverage for that 90-day period. Again, I'd be surprised if somebody else could get one.

I think one of the things we learned, which we didn't understand as well as we probably might have when we went public was this cash drag on our earnings. And having, because of the lumpiness of the origination market, having $100 million sitting around earning 10 basis points versus whatever it earned, was really a problem and shave cents off of earnings and so this is this a milestone. Hopefully, we can replicate it with another line as we grow and we won't have that cash drag. We've also decided to run the company with about what, $75 million...

$75 million to $100 million.

Of cash just for a rainy day and that also is something that's okay. Again, as we get bigger that number doesn't really have to change that's what we do to cover, we dividends and...

Margin exposures and stuff like that.

And hedges on the foreign currency we have and stuff. So those 2 things and things we didn't appreciate as much. Those former is going to be handled through tremendous extent by this corporate facility, which is really a -- we said we would put it in place last quarter and we intimated that we were close so we're happy to get it done.

It's exactly great to see those increased capacity there. And can you talk a little bit -- you commented on growth there. How do you look at growth with regards to raising more capital and things like you got some capacity left to originate new investments when you kind of look at how big you can get it. Is there a point where it's just hard to continue sourcing enough investment to match the payoff paydown rate of the portfolio or how do you look at those 2 metrics against each other?

Actually, the one really good thing we have is a fairly light repayment schedule now in front of us, which is really one of the lowest for the next 12 months. I think it's the lowest we've had since we went public. If you recall, the first major deal we did was a teacher transaction. It had a lot short-term loans in that portfolio. And they all have come and gone and reinvested. So yes, we don't -- we like the stock going up. We want to let the stock run as far as it can and we think -- we still think we should be in retail hands and they should buy this down to a lower dividend to reflect the risk profile of the coupon. So we're happy to use the ATM which is a dribble strategy. We're happy to use of secured facility. We're happy to step out of the market. If we go to market, it's because they have accretive stuff to do with the capital, and that could hopefully drive the earnings growth. And we don't want to step into the stock every time we trade the premium to book. That is not what we're trying to do. Where we are trying to grow our business and we recognize it so it's a risk reward, it's a balance between our desire to grow and get scale and get efficient and get more credit facilities and the shareholders needing a break from us continually to raise stock and disrupt the stock price. So we're, as you know, we are a material shareholder here so we are in the same -- and every single person at Starwood, including the secretaries, drivers, the assistance, the janitors they own stock in the REIT. So we are trying to drive this enterprise forward and I think it's nice when the stock responds positively to what we're doing.

[Operator Instructions] We'll go next to Jade Rahmani with KBW. Ryan O'Steen - Keefe, Bruyette, & Woods, Inc., Research Division: This is actually Ryan O'Steen on for Jade. Just to go back kind of into the pipeline, any changes or how would you characterize this kind of a pace over the loss of activity going forward in the back half of the year increasing, decreasing? And just secondly on the mix, I mean you talked a little bit about Europe. Any other changes in regards to asset class or size, geography, et cetera?

None on geography. I mean, it's still all over the place and not on size. I mean, things show up there's $100 million deal shows up we can close and shows up on a Monday and we close it and we can wrestle it to the ground. It would be fair to say that we are talking about, I mean, I think this is the third cycle since we've gone public where spread has been spread compression. And where are we on origination? Should we settle for a 10.5% instead of 11.8% to 12% in the junior note? Obviously, we can create that note but we want the width of the note. We can create the 12, but you might be writing the smaller chunk of the capital stack. So we have -- I think for security and safety so we would rather do the 10.5% wide than a 12% if you understand what I'm saying. And yet we've not done that today really. We've been able to hold our target. It does depend on what asset class we are underwriting so would we do a 10.5% or a 10% on an apartment deal. Absolutely, we could do that, that would be heroic because you just can't find the part that has any -- to really to speak of because debt yields are so tight and assets are trading at sub 5 caps. So why would anyone borrow at 10%? But there are exceptions to that transition, multis and stuff where but then they'll come back. Now it's also a question we have and we keep asking ourselves is the duration of what we do. We've been trying to get paper that has some now term to it. And it's is not easy to make a loan and have it…

[Operator Instructions] We'll go to our last question from Joel Houck with Wells Fargo.

My question has to do with kind of your outlook. Given we're in a low-rate environment, it's probably going to stay there for some time. Your end markets seem to be very strong. What's your view in terms of adding duration in the portfolio? It will obviously require you to move down a bit and capital structure but as you pointed out we're on a yield starved world. Seems like the risk reward profile, particularly for companies like Starwood that have proprietary origination are very favorable right now, just curious as to your viewpoint going forward.

We're probably reverse course on this. The thing that we've danced surround, which is when we started, we actually thought rates were going to go up. So we kept our duration shorter on purpose because we thought we could invested some capital of higher LIBOR and higher -- were the curves were back then. Now you're right. I mean if the Fed -- if the world's interest rates go up, countries go broke. And so I think we're kind of turning the Western world into Japan. And because of that, I think we would extend duration and lower coupons to do it and the curve is pretty flat. So you're right, I mean, again, we, Boyd and Stew and Chris Tokarski and Warren de Haan who formed the core of the origination group with Gerry Carpenter [ph]. And they haven't really said let's do something sub double digits. But you can see that at some point that is probably something we're going to have to look at. We're going to have to look at that. We don't feel like we have to go there today, but I think the shareholder money like it's our own. I think we all do. So we'd say with the 10 fantastic in a world where 10-year is 1.6%, a 10 on a 5-year piece of paper, the 5-year, I think, is 88 basis points or something. So by the way, the markets are telling us that. I know what's happening is the seniors, as you know, because you know for Wells, the seniors are getting tighter and tighter and tighter, and you're the largest real estate lender in the nation. So you can talk to your own desk and we can lower our spreads, we were commenting today we can do a loan of…

Good. Appreciate the color. And lastly, do you guys have a weighted average diluted share count for the quarter?

Sure.

Weighted average that's like 112 -- the average is 112 million -- I know I got it right here. Here it is 112.184 million.

Bye-bye, everyone. Have a great summer. Speak to you soon.

That concludes our question-and-answer session. That concludes today's conference. Thank you.