Starwood Property Trust, Inc. (STWD) Q3 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Starwood Property Trust Third 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 very much, and good morning, everybody. Welcome to Starwood Property Trust Third Quarter 2012 Conference Call. This morning, we released our financial results for the quarter ended September 30, 2012, and filed our Form 10-Q with the Securities and Exchange Commission. These documents are available in the Investor Relations section of our 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 this 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 prepared in accordance with GAAP can be accessed through our company's filings with the SEC at www.sec.gov. Joining me on the call today are Barry Sternlicht, the company's Chief Executive Officer; Stew Ward, the company's Chief Financial Officer; Boyd Fellows, the company's President; and Mike Berry, the company's Chief Accounting Officer. With that, I'm now going to turn the call over to Stew.

Thank you, Andrew, and good morning. This is Stew Ward, Chief Financial Officer of Starwood Property Trust. This morning, I'll be reviewing Starwood Property Trust's financial results for the third quarter 2012. I'll also highlight several items pertinent to both the third and fourth 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 third quarter of 2012, we reported Core Earnings of $58.7 million, 16% above the $50.4 million posted for the second quarter of 2012. On a per share basis, this translates to $0.50 per diluted share, again, significantly above the $0.45 per share reported for the fourth quarter of 2012. This quarter-to-quarter increase is a result of a combination of both improvements in net interest margin, as well as gains associated with the sale of securities. Importantly, net interest margin, excluding onetime items, increased 7% to $60.5 million from $56.6 million for the prior quarter. This improvement reflects the effect of the very robust third quarter investment activity I'll discuss shortly. As of September 30, 2012, the fair value of our net assets was $20.13 per diluted share. For the same date, GAAP book value per diluted share was $19.56. On a pro forma basis, adjusting for the effect of the $418 million capital raise we completed last month, these figures increased to $20.48 per share and $19.98 per share, respectively. Both of these figures represent our highest level since the inception of the REIT. The primary drivers for these increases are the improvements in asset valuation associated with the continued improvement in the credit market, as well as the accretive impact of our most recent equity raise. Now let me outline some of the significant activities for both the third quarter, as well as the fourth quarter to date. During the third quarter, we closed $599 million of new investments with an additional $515 million in new investments closed since quarter end. This brings our new business totals to over $1.1 billion in the last 120 days. We think these are impressive totals and demonstrate the continued maturation of our origination and financing capacity, as well as the power of the overall Starwood capital presence in the real estate capital markets. I think it's important to discuss a few of the most relevant transactions from the last 120 days to illustrate these points. First, this past month, we closed the largest single loan transaction in the REIT history. In this transaction, we co-originated a $475 million first mortgage and mezzanine financing on an acquisition and redevelopment project in the Times Square area of Manhattan. The REIT will retain a majority interest in both the first mortgage and the mezzanine loans. We anticipate the REIT will earn on leverage equity returns in excess of 11% with the potential for additional upside through both various features in the loan and the potential for increased return significantly when and if we saw an A-note. Few lenders have the scale, access to capital and expertise to comfortably originate a loan of this size and complexity. Additionally, at various points in the quarter and in early October, we originated 3 separate loan transactions totaling $237.5 million in funding commitments that we either financed or are in the process of financing via a sale of a senior component of the loan or A-note. We've made mention of leveraging our whole loan position through A-note sales in the past, and this strategy is playing an increasingly important role in our overall financing mix. In recent months, the sale of A-notes has been a particularly attractive form of financing for certain large transactions with pricing and leverage level superior to those available in the warehouse financing market. Additionally, they typically result in perfectly matched term financing under all repayment scenarios. However, the efficient execution of an A-note sale and syndication effort requires a sizable investment in senior capital markets staff and system. With an equity base of $2.7 billion and transaction flow well in excess of $500 million per quarter, we have the size, scale and transaction flow necessary to dedicate the appropriate resources to this end, something that most of our competitors aren't able to do. With the addition of these and other investments in the third quarter and fourth quarter to date, our total target portfolio as of today stands at about $3.6 billion, with a current return on assets of 9%, return on equity using our current financing balances of 11.3% and a pro forma fully leverage return on equity of 12.2%. We think the portfolio represents compelling risk-adjusted returns for investors in light of today's low-yield environment and the portfolio average last dollar loan-to-value ratio of approximately 63%. The last items from the third quarter I'll mention involve 2 new additions to our financing capacity. First, in early July, we closed a $78 million repurchase facility with a new lender. The closing of this facility allows us to transfer assets previously financed on our primary Wells Fargo and Citibank revolving facility, freeing up additional $80 million of revolving capacity and diversifying our sources of financing liquidity. Of more significance, in early August, we closed a $250 million corporate style revolver. This facility is unique in a number of ways for us, but importantly gives us the ability to finance our originations of first mortgages on the day they close, avoiding the liquidity and earnings drag associated with the 45- to 90-day lag we normally experience while we either seek financing approval from our conventional secured financing providers or we negotiate with potential purchasers of A-notes. This facility helps us operate the platform more efficiently from a liquidity perspective, which is something we spend a great deal of time and effort on. Now let me bring you up to date on our current investment capacity. As of November 5, we have $186 million of available cash, $228 million of approved but undrawn financing capacity and $142 million of net equity invested in RMBS securities. With this and access to our corporate style revolver, we have the capacity to acquire or originate an additional $450 million to $600 million of new investments. This capacity is expected to be augmented over the remainder of 2012 or during the first quarter 2013 with the aggregate cash proceeds from loan and security repayment, net of any required debt repayments of approximately $75 million and proceeds from A-note sales of approximately $125 million. As announced in our press release, our board has declared a $0.44 dividend for the fourth quarter of 2012, which will be paid on January 15, 2013, to shareholders of record on December 31, 2012. This equals the dividend paid for the past 6 quarters and represents a 7.6% annualized dividend yield on yesterday's closing share price of $23.12. I like to now turn the call over to Barry for his comments.

Thanks, Stew. I guess I would say good morning, everyone. I guess it's the day after, and those of you who were looking for change, my condolences. I guess I think -- I'm thinking about the implications on the credit market of the election and the rally in the treasury this morning and implications for growth for the country because it is going to affect credit spreads and interest rate over the near term and maybe over the whole term of the next 4 years. So in the aftermath of the day after, I would say that the company had a pretty good quarter, I mean, very solid quarter. We've started out in the business saying we'd predicable, consistent and transparent, and we remain predicable, consistent and transparent. We try not to surprise our shareholder base and quote me on how things are going. I mean, you saw huge rally in the credit market from the heels of Bernanke's re-election campaign for Obama, which was QE3 and the rise in the equity markets and then a rally across the whole credit complex and RMBS and CMBS. And obviously, our book should have increased in value consistent with that. We don't really market like that. So where we market our fair market value is really the public bonds we own, which are actively traded and hit near par executions or hit par this quarter after the credit rally. I think on a standalone basis, as STWD is now the largest real estate lenders in the nation. I look at the loan originations of banks and companies like CapSource that are out there and some investments we have in the banking sector. And originating $500 million or $600 million a quarter makes you a pretty material lender in today's real estate market. And I think what we've been able to do consistently is utilize all the skills of our team, and that's the team that's dedicated to the REIT, as well as the 40-odd acquisition executive at Starwood Capital Group. In fact, the Times Square loan was originated by a Starwood Capital executive who is digging through the market of New York and uncovered that opportunity for us. The markets are extremely competitive. They've been -- we've been doing this over 3 years now. And they go in cycles of being very tight and people back up, get nervous, bank management will call back. But this rally, which has been sustained, is really required to sharpen our pencils on how tight the seniors are going to get priced. Today, with CMBS more or less collapsing, they still remain where they were pre-crisis and significantly wide at the similar rated corporate credit. So my gut is that real estate credit, given there's no yield in the world, will continue to be priced, contract. Spreads will continue to narrow, and pricing will remain competitive, which is fine as long as we can originate the whole loan, as Stew has talked about, because buying mezzanines prepackaged from the street is fine, but they're not going to achieve the double-digit yield we've grown accustomed to, especially as less sophisticated investors wander into these offerings on the street and buy very thin B-notes or 2-notes, meaning that they go from 72% to 78% of the capital at 10%. Whereas if you look at the note we'll cut out of the Times Square deal, it will be from 40% to 70-something percent plus of the capital stack. Again, from the investments we made in the quarter on 2 office buildings, both done with Blackstone, actually, will be fairly wide B-note and have a totally different risk profile than buying a very thin B-note at a thin, meaning 72% to 73%, 78% to 79% of the capital stack at a lower yield. So the benefit and the most important thing for us is to be big in terms of -- to be able to write big notes. And I would say at the moment, that's probably the biggest hole in the market, is the size of the loans. There are just not that many lenders willing to do single originations on large, large deals. They want to spread the risk. I'm going to come to why that is structurally in 1 second. I will comment quickly on Europe opening up. Europe is beginning to loosen. The banks are beginning to try to move around their balance sheets. You see it more and more. What we're finding is our equity desk is bidding on deals and losing and turning around and offering finance sellers or the buyers, and that opportunity is so big that we're thinking of raising Europe-only funds because and -- co-invest with the REIT for a number of reasons. One is the scale of what has to happen in Europe. But more importantly, the hedging issue. We historically hedged all currency and coupon principal maturity exposures through and swapped it back into dollars. We don't want to take currency risk in the REIT accrued enormous volatility and confuse us and you. But that puts us at a competitive disadvantage to local lenders and people lending in the local currency. And it could be as much as 150 basis points off on IRR, depending upon the duration of the hedge. But both for the pound and the euro, it isn't a terrible thing to have a local currency product. Having said that, we're going to continue in the meantime, which isn't available at the moment, to look at these investments as we did in the quarter making a mezzanine loan in the Starman portfolio. We'll continue to look at them. But we are concerned also that the scale of those investments and how it changes the risk profile of what really traditionally has been the mostly domestic REIT. I also think we have, in the last quarter and this quarter and this quarter to date, the battle between the quality assets we're lending on in the spread. And at the moment, what I've told Boyd and the team is that we prefer quality to spread. So we don't want toxic assets at 14s. We like good assets at 10s or 11s if we can get them, and we'll sacrifice that for quality and spread. That goes to our goal of being predictable, consistent, offering compelling risk-adjusted yields and compelling dividend value to our shareholder base, which is extraordinary, actually, and I'll get to the dividend shortly, too. You actually have seen, I'd say, a capitulation of buyers. Buyers are buying. There is no yield anywhere. This is the last complex where yield exists, whether it's consumer loans or corporate credit, even sovereign debt, which I'd argue was the worst credit. You've seen yields collapse. And buyers capitulate and buy down, whether it's high yield or any security to levels we've never seen before to get a piece of -- there's an article in a journal this morning about corporate credit versus sovereign for Exxon and the U.S. government. And I also think we've honed our one skill, which is we can do big. We can do it fast, and we can do it unconventional structure, all of which is sustainable competitive advantage for us if we have the balance sheet. So I will make a comment on our equity raise. I think we raised a little bit more money than we probably needed at the moment, and with our facility with the unsecured line, about $150 million. It does give us flexibility, but we're circling several $400 million-plus first mortgage loan. And there's no way to do these big deals and run an excess return if we don't have the capacity. One of the reasons we get these investments is, particularly now, is the uncertainty. And I got an inbound call yesterday from a large household name real estate firm that wants to throw out a banking portion [ph] of 4 lenders for a $400 million deal -- actually, a $500 million deal, and would like to widen the spread considerably if they can deal with one lender, which is us, and we can accommodate their needs and our needs and use balance sheet guarantees and other things and achieve the returns we want. So that's kind of advantage to us. I'm going to spend another minute on this Time Square investment since it was so large and talk about -- again, it was originated and split between Starwood REIT and Starwood Opportunity Funds. That's only the third deal, I believe, since we were born that we have the split between the Opportunity Funds and the REIT. The metric for splitting a transaction is that the IRR, expected IRR, was greater than 14%. And in this case, I can say it was materially greater than 14%. There is a substantial equity kicker concluded in the first mortgage, which we haven't valued. But I'd certainly buy it for a considerable amount of money as the equity players in the transaction did. And one of the people we competed against in the origination and for the deal was for Vornado. And having been long lifelong friends now with Mike Fascitelli and Steve Roth, we did sell down 25% of the condition both the senior and the mezz to Vornado post-closing because they have, obviously, enormous knowledge of the New York City market and sort of insurance policy. And it made us feel good, even though it's obviously dilutive because we have cash in our balance sheet that could have earned the 11%-plus coupon on the first mortgage. So structurally, the markets have changed in the United States. I was preparing some comments for the conference the other day, and it struck me that 73% of all the banking assets in the United States are now in 6 banks. So too big to fail. We have them. We've created the entire banking system stuck in 6 banks. 73% of all banking assets are 6 banks. And that goes to pricing and collusion among the banks. We have 4 banks that basically dominate the market. And actually, the lowest common denominator sets pricing on the syndicate. And to the extent the banks actually don't want to take all the risk themselves and don't compete with each other, we can step in later in probably a wider coupon with a better execution for a borrower. And like I said yesterday, I got my first call to that effect. You also don't see a lot of foreign banks. What's happening in the banking market is that the banks are pulling back to their sovereign borders. And you don't see the French banks here anymore. You occasionally see the Canadian banks, even though I think they will come back. I'm not aware of why they wouldn't be here. One -- I can name one German bank in the market. But then you will see a Chinese bank occasionally, but they will do only super safe, low leverage deals. So the banking system has become, for large loans, very concentrated. And you can name the 6 guys in the -- and one of them is truly not very active in real estate at the moment, to speak of. So you have 5 players, really, and I'd say 4 players because one of -- there are 2 investment banks included in that. They are #5 and 6, Morgan Stanley, Goldman Sachs, in reverse order, by the way, and one is more active than the other making balance sheet in the market today. The life companies are also here, and you see some new players like AIG entering the market. What's driving that credit complex in pricing and CMBS is the CMBS market because it has opened up. There isn't as much product in the market, but buyers are ravaged for yield. And the other, probably interesting thing about the banking system today is their lack of desire to hold inventory. And so they continue to try to price and pace their acquisitions or lending on deals that have not a large gap between the securitization of the loan and the origination of loan and securitization, and that also creates opportunities for us because we actually don't mind holding on to the loan. And right now, we're holding on, for example, that first mortgage on Times Square, which we will sell down at some point. But right, now the coupon is fine and it's better that we can earn on cash. So we're going to hold on to that. So we're not quite as efficient as I'd like to be as a box producing maximum earnings, but we have a very efficient player in the capital markets overall. I'll also point out and just comment about LTVs, loan to value of the portfolio, which are heading lower. 63% is the current LTV of the portfolio, blended average, and that's going to go even lower, if I'm right. And right now, as an equity player, we see the gap between cap rates and the cost of financing is stupid wide, probably wide enough that you can earn high single-digit, low double-digit yields on cash deployed in the equity side of the transaction. That probably is going to come in, too. I don't see the credit complex. I don't see rates backing up. I think we're in for a very slow growth over the next year. I think it will be lower this year. I think rates probably will stay down. And as they stay down, I just see more of the same. I see cap rates drifting down. And also credit -- the real estate markets are probably on margin, okay. They're not -- rents aren't racing away. They're not -- markets aren't emptying out. There's no demand disruption. And tenants are jockeying for space, and corporates are refinancing their balance sheet. So in general, I think the credit quality for tenants is improving, and net demand for space is pretty consistent, not great but not bad. And I do think given there is no yield in the world, you might see continued compression in cap rates across many income asset groups going forward. So that will help our LTV going forward and make our book even better, which goes to book value. It's the first time since the IPO, I believe, that our book value is now higher than our original IPO price, which is $20 a share or like $20.31 or something like that after the offering. And that's great because we can always liquidate the book. And if I go over or under on our book, I'll tell you it's over. I don't think we've been aggressive on our marks at all. I'm always surprised now when I may see what people are lending at and where people are buying notes. Two other things that give us some confidence in the coming year. One is our rollover schedule, the schedule of debt maturities and what management expects to be repaid over the next, let's say -- 14 months is quite reasonable, probably less than we faced in the last 12 months, and that's good. There's a couple of situations in there that could be open to prepay, and we don't think they will be prepaid, so we think that's good. That allows us to deploy what capital we have into additional transactions, not just rolling over capital that's coming due. So I'm going to touch on the dividend, and then I'll wrap it up. We mentioned in the earnings release that dividend was accretive at $0.44. But we also mentioned in the next sentence that we are going to pay a special dividend. We said earnings will be between $1.85 and $1.95. And I expect that we would announce this dividend in December so that it would make -- you have it before the record date and certainly before the pay date of January 15. So we are discussing with the board. We want to see a few things, how they work out going forward. But we believe we should reward our shareholders for the scale of the company and for your support. So we're going to pay an additional dividend. And as we mentioned, that is consistent with what we told you, I think, 2 quarters ago when we said we would look at the dividend now on an annual basis and chew it up at end of the year. So with that, I think I've said my notes. And we're going to take questions from you. Boyd or Stew or Mr. Berry or even Andrew Sossen, who is actually remote today for us. So I hope he's smiling when I say that. So go ahead. We'll take questions.

[Operator Instructions] Our first question comes from Gabe Poggi with FBR. Gabriel J. Poggi - FBR Capital Markets & Co., Research Division: Barry, you hit most of my questions. At just kind of a 20,000-foot level, you're seeing some, I'll want to say competitors, but other kind of structured finance entities do some securitization. And I know you guys have talked about it in the past. Just kind of what your thoughts there are considering we're going to be arguably in a tighter credit spread environment, which is good for the liability side of securitization, how you guys are thinking about that going forward would be helpful.

Yes, thanks, Gabe. Funny you mentioned that because I challenge the board with that comment like every 2 weeks. We should be packaging our seniors and selling them the securitization ourselves. And that was the evolution of the market pre the crisis. And obviously, the question of how we're going to get a superior execution. And we have aggregate enough facility, but it's interesting that we're working on renegotiating some of our credit facilities because the largest one we have is the original credit facility from August of '09 that had a credit spread that was written in August of '09. And obviously, there's no way on earth that's the right credit spread today for us. Now to get -- it's an unusual line. It has duration and some other nice features to it, which is very uncommon. I think is almost a 5-year facility. But we're doing that. The team is working on having discussions with the lender. I would love to see us do these securitizations of our seniors and do our own trust, if you will. We're certainly large enough. And on the other hand, if we can get better executions to selling senior off to a life company, then that's a nice, simple way to go. I mean, in a way, we do need to continue to drive down the cost of our financing of the seniors, the As [ph]. And that's obviously, now of avenue that's open to us, which was not 9 months ago. So we're watching. A lot of the deals getting done are quick-pay deals. They're MPLs with fast pay. Their defective duration of the paper is short, less than 18 months or 2 years max, something like 4% coupon. But the effective leverage of that is not what we need. We need a multiyear, 3- to 5-year, facility. And we need to stop prepay because we want to keep our dividend, have the cash at their dividend. We keep talking about other businesses like the triple net lease business. And as we've come through every portfolio, I think, for sale, including public companies, the challenge goes to our conservative nature, which is that many of these triple lease portfolios have self-amortizing debt over the life of the average life or even the sale life of the leases so that you have gap income but you have no cash or your cash is going to pay off the debt and then pay the coupon and realizing the actual amounts of the loans against those triple net lease facilities. So while you have GAAP earnings, you don't have cash to pay the dividend. And we just don't want to do that. Even though there's a series of the buildings that will be worth X when it matures, the lease rolls over in 7, 10, 15 years. Why bother? Why set ourselves up to pay out cash today and then pray that we have the cash tomorrow. So we are -- one of the other things we're -- as we grow, we're going to work on real hard is smoothing out our rollover schedule and state of maturity of our debt. And we're looking at longer dated things today including ground leases and other situations where we can raise leverage, raise the leverage levels, but own them for long periods of time and have a very attractive, we think, risk-adjusted yield on our capital. So that was a little more than you asked for but...

[Operator Instructions] Our next question comes from Joshua Barber with Stifel, Nicolaus. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered. Just one quick one, Barry. You made the comments about REIT continuing to stay low and what that eventually does to cap rates and debt costs. Can you talk about how your underwriting exit cap rates, especially as it comes to longer-term loans -- you talked about getting some extra security. But where do you -- how much above market are you guys putting exit cap rates for your longer-duration assets today?

It's going to be asset by asset. And it depends on the duration of the transaction. I think we're not assuming cap rates compressed in our underwriting. In many cases, we're probably widening them out 50 basis points. It's really -- one of the things we do is -- and it's interesting. I do think that was helping us, is our equity background net lending with Boyd's team debt background in structuring and credit analysis because we're in these markets all the time. We've equity shopped and invested $2.5 billion this year, total cost, so we -- in 18 transactions. So we kind of know what's going on in these markets all the time. And an office building in New York will take the Times Square transaction retail, which is what that property will be and the billboard, which will drive significant income. And there's a hotel pack, but we'll leave that out. The retail component, if we trade probably sub 5 caps today, probably around 4, you won't actually know where the cap rate be until you see the nature of the leases and how the duration steps, other situations, other nuances in the lease terms. But you've seen comparable trade for sub 4. You're seeing so much money from offshore investors that look at a 10-year treasury that was 1.7 yesterday but probably 1.55 today or something like that. And they're looking at an equity, 3.5, 4 yield as compelling because they own a lot of treasury. In that case, our residual cap rate, and I'm going to make this up, in a 5 cap, create $1 billion valuation. Our loan is 4.75. So we're guessing what the income would be. It's an educated guess, but 3 to 5 cap, not a 4 cap. The borrower thinks he's going to sell it a 4, 4.25. Apartments in New York are trading at 4, 4.25. I think we're all sort of not used to the cap rates. And they were here before by the way. They were here in '07 when interest rates were significantly higher, driven by the financing market's ability to lend against no cash flow. Now they're driven by the fact that actually at 4.5, they can achieve positive leverage, which is shocking. And that supports these cap rates at these levels if they want to borrow. Most of these guys don't really want to borrow. If they borrow, they borrow 30%. And they borrow 200 over with no floor, and they borrow interest only for 5 years. So we're financing a portfolio of office buildings we're buying. And I think this syndicate is a bank to a CMBS. And I think it's 3.76 for 5 years interest only -- oh, 10 years. 10-year loan, 5 years interest only, 5 years floating -- 5 years -- 15 or 30 on the back of 5 years, I don't remember. But the point of the coupon is 3.78. And there's nothing left to do in that transaction. That has 100% leased office building, good credit. But we've got to pick our spot. The good news is the markets are trillions, not tens of millions, billions. And in trillions, we can find things to do. So we need to be patient. And fortunately, we're able to manage our cash well. And we're fascinated by the conundrum of having cash so we can execute quickly and keeping our originators fired up so we can actually do their finance loans and telling borrowers that we can do a deal in 3 weeks if we have to versus the drag on the earnings that REIT is having with all that cash in capacity. So we did sell a few bonds this quarter. And so we are going to take advantage of rallies in the credit market to recycle cash. If the yield -- remaining yield on our equity is unattractive, meaning it's probably less than 8%, we will take it off. But we have another use for the cash. 8% is pretty good if you're sitting on 10-basis-point cash. But it's not good if you're going to get played 11%, 12%. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: I understand. The gains and sales in this quarter were due to the RMBS sales?

No, there was a sale of one of the mortgage notes on one of our hotel portfolio papers, CMBS. And there was little RMBS.

A little RMBS. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Can you guys also talk about just the transitional market broadly? Are you seeing a lot more players coming into that? Are you seeing a lot more demand for just maybe light transitional assets that you know are starting to get financed, debt that may not have been available 12, 18 months ago but [indiscernible]?

[indiscernible] There definitely are more players in that space. But there are also more guys -- there's more activity in terms of people buying assets. That market -- those kinds of transactions play sort of perfectly to our strength because those are these large complex transactions that banks shy away from, from time to time. And if you look at all of our activity over the last 6 months, and Barry and Stew both talked about this, sort of one-stop shop for large deals. When they're transitional, that really takes a lot of players off of the playing field and allows us to make outsized returns on those kinds of transactions. But yes, there's more competition all the time.

And transitional might mean looking at deals and maybe 50% lease with a 6 cap -- 6 yield, that yield. We're having done that, but in a strong market, we stabilize at the 9 yield. And the building will trade at a fixed cap [indiscernible] the right pricing we would make. And I think you're seeing that there are holes for us that are big enough to -- we have a big pipeline. I mean, we've got a lot of deals in the pipeline. And it's pretty good stuff with good credit support and very good attachment points. And we look very carefully at what we're lending per foot, what we're lending per room, what we're lending per foot at a residential project or what we're lending per foot if it's a office project or a retail project [ph]. So we're doing -- I'm pretty pleased that we reviewed our portfolio, and we have almost no issues anywhere in the portfolio. And in fact, I'd say we have no issues in the portfolio at all. And in fact, things are -- as I've mentioned in my comments, things are, on the whole, much better than we underwrote across the board, which isn't surprising, really. I mean, the interest rate environment has continued to melt down. So it's good. We're pleased, and we're feeling good about things.

Josh, other than the election, we recently did a press release on the transaction just like that. Blackstone, the largest real big player in the world or in the United States acquired 100 Montgomery in San Francisco. We were able to make a 65 LTV loan.

And they accepted our pricing.

And it works for them because it was a speedy deal, and it works for us because we obviously like the sponsor and we understood the real estate. So I do want to say one thing. I forgot what it was, though. What was the other question, if there is one?

[Operator Instructions] And we'll take our final question from Jade Rahmani with KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: I was wondering if you could share your thoughts on the quarterly dividend since the midpoint of your core EPS guidance is above the $0.42 dividend. Do you think the $0.42 dividend is including any of the extraordinary dividend you still expect to pay in the fourth quarter?

Jade, I'm not sure I understand your question. We're paying the $1.76, which is $0.44, and we said we're going to pay a onetime special to true-up the dividend. Essentially, we're going to pay something above $1.76 and probably below 100% of our earnings. There is -- we have a basically kind of an NOL or sort of we have -- we don't have to pay $1.00 on the dollar because we overpaid early in our life. But we will continue with earnings continuing at this pace next year or hopefully grow. Whatever happens, we're going to continue -- we're going to have a problem. We're going to have to increase the dividend. We told you we're going to increase the dividend with that true-up right now in the fourth quarter annually. And so we haven't determined the exact number. When we do, we'll announce it to you and the rest of our shareholder base at the same time. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: I guess the core question is typically with the other mortgage REIT dividends do reprice when asset yield and investment spreads decline, as they have recently. So my core question is whether you view the dividend in that way as likely to fluctuate based on raise or if you look at it as more of a promise and signaling tool to investors, which would be more similar to equity REIT or non-REIT.

I'm not sure I totally get the question. I think we feel like our dividend is solid. I'm aware of the challenges that the residential mortgage REITs are facing as the yield curves flatten and their cost of funds may not be falling as fast as the coupons their reinvesting at. I think we're a different piece. We obviously don't have the leverage on our books that they do. I think in some cases 6, 7 to 1. And so we have pretty good visibility, as I mentioned. What disrupts our dividend, ability to pay our dividend, are fast repayments, large repayments. So I made a comment about our rollover schedule, stated rollover schedule. It would be difficult if one credit with $300 million of equities, which I don't think we have, but if we had one, refinanced unexpectedly in a quarter and we were repaid. But I don't think it's going to kill us. We just have to reinvest the capital and go through that. And it might -- we're feeling comfortable with our dividend at the moment. If we actually feel like we cannot hit the kinds of spreads overall that we have earned in the past, you'll hear us comment on it on the future earnings call. I think we are -- as I mentioned, we've been through this cycle already, I think, 3 times as the credit markets went in and out, and we got nervous. And then they loosened up. And then there was a crisis. You have a little fiscal cliff crisis, we'll put out $1 billion in a week. I mean, if there's a fiscal crisis and the bank's stack up and everyone gets nervous and spreads back up, we'll be back in business, lending a lot of money quickly to guys who got to close. I would expect the flurry of activity from sellers who want to get deals closed by the end of the year, including ourselves. I was going to mention one other thing about synergy between Starwood Capital and Starwood Property Trust. Also for this conference, we added up the amount of borrowing Starwood Capital has done away from the REIT, which is on $5 billion of investment in 3 years. And it's $10 billion, $10.2 billion of financing and refinancing. So we have really good view of what the pricing should be. And oftentimes, when Boyd and Stew and Chris Tokarski, our Chief Credit Officer, or Yolanda Hahn [ph], our Origination Officer, want to price a deal, we'll send it over the fence to our internal finance team and Starwood Capital Group and say, "What do you think? Like how does that look as pricing? Is that market?" And so that's really unusually powerful. And most of our public competitors don't do this and don't have the capacity to do that. So when we're big borrower, top 5 borrowers of many of these commercial banks now, we kind of know where the pricing is, and we get to check it all the time. So I think that's really -- as I see what's going on, I think that's exceedingly valuable. And to be in the equity market as an equity player, to be in the debt market, financing equity deals and to be in the debt markets as a lender, we have the cross-pollination in the deal flow. It is really good. So I'm pretty happy with how we're doing, and I hope you are, too. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Can I ask a final question?

You can. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: I just wanted to ask, the Starwood Capital acquisition of Eleanor property, does this present any potential sourcing or other financing opportunities for Starwood Property Trust?

With respect to the [indiscernible] right now, I mean, I think you can assume that if the transaction goes forward, the REIT would benefit in some material manner. But let's leave it at that because we'll talk about it when we can talk about it. Thank you all. Thanks, everyone. Have a great day, and good luck. Bye.

And that concludes today's teleconference. Thank you for your participation.