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

Thank you, Melody. Good morning, everyone, and welcome to Starwood Property Trust's earnings call. Earlier this morning, we released our financial results for the quarter and year end December 31, 2012, and filed our Form 10-K with the Securities and Exchange Commission. These documents as well as our quarterly supplement are available in 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 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 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, the Chief Financial Officer of Starwood Property Trust. This morning, I'll be reviewing Starwood Property Trust's fourth quarter and annual financial results for 2012, and we'll highlight several noteworthy items pertinent to the fourth quarter of 2012, the first quarter of 2013 and our overall business. Following my comments, Barry will discuss current market conditions, the state of our business, our impending acquisition of LNR and the opportunities we see as we look forward. For the fourth quarter of 2012, we recorded -- we reported $64.5 million of core earnings, 10% above core earnings of $58.8 million recorded the prior quarter. On a per-share basis, we earned $0.48 per diluted share. Core Earnings for the year totaled $228.3 million or $1.99 per diluted share, an increase of more than 50% on a dollar basis and a 17% increase on a per diluted share basis over the 2011 levels of $146.6 million and a $1.70 per share respectively. GAAP net income for the fourth quarter was $56.3 million, a 12% increase over the prior quarter's level of $50.2 million. This represents 42% -- $0.42 per diluted share, roughly in line with the $0.43 per share of GAAP net income reported for the prior quarter. As of December 31, 2012, the fair value of our net assets was $20.57 per diluted share. As of the same date, GAAP book value per diluted share was $19.90. Both of these figures are above the September 30 levels of $20.13 and $19.56, respectively, and represent the highest quarter end values for both measures since the inception of the REIT. These increases are primarily the result of the increase in asset values associated with the continued tightening of credit spreads that began in earnest more than…

Thank you, Stew. Thank you, Andrew, and good morning, everyone. I think we've completed an extraordinary year in 2013. And I want to thank -- 2012, I want to thank our shareholders for supporting us and also all the employees that made the performance of the company possible. It was an extraordinary quarter for us as we count January in the LNR transaction, a transformative one. Originating and purchasing over $1 billion of debt in a quarter is exciting and even more exciting as it continues into the first quarter of this year. I think you'll see a similar volume, it was mentioned in the financial press release this quarter, and we'll talk a little bit more about the market in a second. We also did a raise and one of our keys in creating earnings for our company is how we raise money and when we raise money. And I'd say we're in this sort of funny transition period right now when we won't be back in the capital market until we close the LNR transaction and provide further information on the pro forma earnings and pro forma balance sheet of the combined entities. And so, recently, we raised the $600 million in the convert, which was upsized from $450 million and met with demand more than 2x the offering, 3x on the original balance of the offering. And we voted to increase the raise, probably taking more money than we needed, because between now and closing of the LNR transaction, we cannot easily access the capital markets again. And will depend on -- the use of our capacity will depend on ultimately the closing of our pipeline. And then we'll see what additional capacity we might need to close LNR. The October -- or equity raise we did…

[Operator Instructions] And we'll go to Ken Bruce with Bank of America Merrill Lynch.

It's interesting looking back prior to the IPO. I remember talking about what your 5-year plan was and looking at the last -- kind of looking back at that point, I think you've achieved most of those goals in about half the time. So I'm wondering, as you look forward, what do you see as maybe the next 5 years. How do you see this playing out?

So the business plan is to build a multi-cylinder company. You have 12 cylinders. 6 of them are going to be firing at any one time and 6 might be dormant. Turn them on and off. One example of that would be the conduit business, which we got into, we got out off. But the time we did it, Stew and the team created these very powerful hedges, but it actually went awry on us because there really wasn't depth in the market, there wasn't liquidity, there wasn't a provider that really the market's kind of went off track. And it didn't quite -- we wound up losing nothing on overall. But for a moment in time there, it got a little nerve-racking. But that's a business that I -- we never, I never did thought we'd exit permanently. I think it keeps our team busy, and I think it's good to be a full stop, a one-stop shop that can do everything across the whole spectrum. But it's better for our people because they can earn a living, they can use conduit loans. So while they make them work, our balance sheet loans that we're going to retain. So I think with LNR, we've added 4 or 5 new cylinders to our engine. And I think you'll see us when we talk about the triple-net lease business over and over again, we saw one of our competitors recently buy a mobile home or manufactured home business. We've looked at a lot of these transactions and we trip over the fact that we, when we read this philosophy of Kit, keep it simple, stupid. And the reason is that we can produce earnings in a triple net lease business. It's quite accretive. But for the most part, every time we…

That's very helpful and I guess, you managed to touch on every single follow-up question that I have, but I do want to see these few things out. I guess if we look back to part of the triple net lease strategy really was related to the ability to shield earnings, as you point out. And I assume that the exercising the TRS effectively is going to be a similar strategy that's going to allow you to grow your book value, create a better optimal financial strategy over time, is that a right interpretation?

Yes. I think that's right. I think we have to be careful with obviously the tariffs are taxable. So we've enjoyed this tax-free nature of the REIT. So but there are businesses that can't go in the REIT. So they are service providers to the REIT, and we're going to continue to look at what exactly fits where if we get to the closing of the one R because it's not -- there are many, there's lots of -- it's not obvious always how things, how this all should be played out.

Okay. And Europe has been an interesting market to watch, and maybe things are beginning to happen there. But it's always seemingly longer and drawn out, and more drawn out than anticipated. So maybe you can just give us a sense as to how you think that the timing of that opportunity will evolve?

Yes, Europe's funny. We -- the Capital Group's announced the closing of a hotel transaction today in Europe. And you can borrow for -- within a country, you can borrow in the country from the banks in the country. And as it's fully percent LTV kind of like the states, the banks are lending. And it's not so bad, probably 100 basis points wider to similar credit in the United States. Where the opportunity is, is in the mezzanine. And then right now, there are not that many transactions taking place. And the nature of some of them taking place, the borrowers are -- with the buyers are -- the transaction going down to a sovereign wealth fund right now. And we quoted this opportunity fund buyer at 12% mezzanine. That was over $200 million, but they lost to the sovereign wealth fund who's going to leverage like 30% and doesn't want to borrow at 12%. So it's really is a nature of whose buying what. A lot of these loan pools that are being done are small. They have a fast paid debt, the debt that's available maybe 600-over, but you can pay it off immediately. And that makes it unattractive for us to be that player because we will be paid down so fast. It's no point making a loan. It's too much work. We don't make any money. So we'll wait to see as pools of capital circle, and there's a lot of people looking at providing, filling the great banking system hole in Europe, but you still haven't seen the level of the volume of transaction as anywhere approaching 2010, '11 in United States, and we're still in 2009 in Europe where banks just sticky. They don't want to realize the losses. And they still, the…

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

I think you're hitting a lot of questions regarding Europe with your last comment. Could you maybe take a second and talk about the financing line you're currently negotiating on a single-family opportunity, maybe what you see a rough range of where expenses to that may be? And what type of leverage do you think you can get on that portfolio of asset?

Yes. I mean, listen, we don't want to -- Stephen, it's Andrew. I mean, we obviously don't want to go into great detail on that because we're talking to a couple of different financing sources. They don't want to show our hand too early, but these affiliates are getting somewhere between, let's call it, mid-60s leverage, L plus 300 or so is the terms they're getting, their facilities are getting done. That's the ballpark of where we're talking about. There's obviously different types of facilities. There's the talk of a securitization market coming back for long-term financing that market, but it's a little early to know whether that's actually going to play out or not.

And what's the long-term focus with this? Is it something you see as a core business line for the company? Is it something like maybe some other similar entities you see it as eventually being its own independent company that you guys may or may not manage. How do you guys see kind of the longer-term opportunity in this fair amount of this business?

Well, we're sort of an R&D shop. We're -- we -- it could stay inside. We could bulk sell the portfolio. We could spin it out and trade a new company around it. We're considering all options. The pace of our investing has increased. I won't really talk about what we're doing exactly because the world is competitive. But I would suggest that we didn't do this in the opportunity funds by the way. The opportunity funds are not -- we're not sharing these investments with the opportunity funds. This is just being done in the REIT. And the reason is I felt that the market would get so competitive on the acquisition side that the yield would be brought -- would be driven down. And as you know, this is a new business. And I would suggest that there isn't anybody on the planet earth that really understands the capital costs and maybe it'll create earnings, but the capital cost of the turnover of the house, we're spending $11,000, $12,000 a house to fix them up. But it's the turnover. It's when the tenant leaves that sort of the unknown, the business on scale doesn't really exist. You've heard the pitches I'm sure the companies that are in the states, so that I think 2 or them are public now or 1.5. And we'll see if this does become this new asset class akin to the multi-family business. But I think that a lot of the purchases -- well, beauty's in the eye of the underwriter. If you're not getting enough current yields, your IRR is going to be driven by the appreciation. At the moment, I suggest that appreciation is being driven more by investors, clamoring to buy inventory than by underlying fundamentals of some of these markets. So we are doing this micro-ly [ph] carefully and with an emphasis on the age of what we're buying, as well as the geographic locations of what we're buying. and I kind of look at it as fishing with a net as they are -- you're out in the ocean. You're trolling for your tuna and you put the net -- you stick that net out there and you catch a lot of fish, and you keep the tuna and throw everything back in the ocean, and -- of which you have to do here. You buy portfolios and you cherry pick the ones you want to keep and rent or resell. And I think we sold like $38 million at home or something like that. So far as we just toss the stuff back we don't want -- so it's an interesting little business. We'll see if it becomes a big business for us. We are curious to that. It certainly is -- it has a lot of interesting characteristics and we all know how difficult this business is to manage.

And then, Stephen, I wanted to point out making in our release, we talked about the unlevered return from the portfolio being kind of between 6.5% to 7.5%. That's actually a yield and not an IRR number. Right.. So as Barry talked about people banking on HPA or home price appreciation to hit their return. Our number that we quoted is true. It's a true weighted average, kind of net yield off the portfolio.

And that's net yield, not a gross yield. You're hearing people saying they're getting 11s and 12s. No way, that is not accurate. [indiscernible] 12%.

I appreciate the color there. Maybe switching to the servicing in TRS. I mean, you guys chewed on a couple of it. But any guidance you can give us on expected pace of UPB paydown? At what point that may kind of plateau and even grow at some point in the future? And then maybe kind of extending on that is any kind of margin rate a target as far as pushing expenses into the TRS to minimize the income level exposed to taxes?

Well, why don't we wait on that for the next quarter and give you more guidance as we finish our structuring? I think I can tell you that LNR is having -- the company's run for our benefit. It's a close book for the moment. And so that we won't close, we will -- we are in taking in their earnings. No, there's no money leaving the company at the moment. So -- and they're having a good quarter so far. So ahead of their plans and I would suggest ahead of our underwriting at the moment. So it's a little bit of a -- it's a very difficult company to look at from that perspective because there's sometimes on the servicing side they're getting a payment that's a timing variation. You have to be careful about, they renegotiate something this quarter. They expect you to renegotiate next quarter and then they get paid for it. But for the most part, actually from what I can tell, they're simply just ahead of our underwriting at the moment. And some of their businesses like the conduit business is better than we thought. And they participated its public information in the securitization that just took place with Goldman Sachs and it was a very successful securitization. They did quite well. So we're so far pleased as can be.

Great. And then one final question, as far as the income there and I think you hit on it earlier with Ken's questions, but it looks like you primarily will look to repaying those earnings for the TRS to grow book. But can you maybe talk about any, I believe the convert that was just done has an adjustment policy for any dividends paid in excess of the $0.44 quarterly level. Can you talk about how that may sway you, one way or the other, on distributions versus retaining cash that you can? Or is that something you're not going to really look that closely as far as your distribution policy?

I think we should wait on that. And we -- to get the $455 million coupon, we provided that dividend protection to the convert. We could have done that transaction tighter and buy -- if we stayed to the original size, it was going to be done below $450 million. We gave up 10 basis points or so by increasing the size of the offering from $450 million to $600 million. And as you could tell, the stock was sort of screwed around with on the last hour of trading, but that's not either here nor there. I think we're going to do the right thing, that we're all big shareholders here. And we'll do the right thing by the dividend, by the company going forward. We obviously were aware of the fact we would like to increase the dividend over time. Offsetting that is the fact that the market's pretty damn competitive out there and we're trying to maintain our double-digit mezzanine yields in a world where that's not easy. And getting increasingly difficult. So we'd be delighted if base rates rose. But I think, as I mentioned, we are going to go for safety rather than 13 mezzanine layers for crap. Stew mentioned the loan loss reserves we set up, and we have to with the fact we don't have any losses in the portfolio. We'd like to keep it that way for the foreseeable future. So, so far, so good.

We'll hear next from Gabe Poggi with FBR and company. Gabriel J. Poggi - FBR Capital Markets & Co., Research Division: You've answered the majority of my questions. I just want to ask a quick question about Europe. Can you just talk about if there are any conflicts with what SCG is doing in their kind of European finance business? It's just a question I get often and want you guys to clarify that.

Gabe, so we did raise the small $350 million to all our -- GBP 200 million something debt fund in Europe and it is sharing those deals with the REIT. I think it was 60/40 to the REIT on the mezzanine we did in Europe recently.

Well, yes, Gabe, just to add a little bit color to what Barry said. So as we disclosed I think in note 9 or 10 of the 10-K, STWD made an investment in that fund, a small investment in that fund, and in exchange for making that investment is going to effectively get, as Barry said, depending on the kind of lever on the return of the underlying asset. We'll get anywhere between call it 50% to 60% of the investment. So we see it as obviously, as a bigger opportunity. Our -- we've been very selective in Europe, doing less than half a dozen in transactions. And the fact that we're able to raise dedicated money in Europe as a firm allowed us to grow the bodies we have on the ground in Europe and build up a bigger infrastructure which should only help STWD going forward.

And the European vehicle will do seniors. It's a blend of mezzanines and seniors, and that's not what we do. I mean, their seniors are seniors. There is like a 4% paper that doesn't fit for us. And we'll see how we -- what it looks like going forward. It's competitive. There's another reason to do a European vehicle in pounds and denominated in pounds, which is a hedging cost or nearly 100 basis points off the coupons and sort of be competitive. If their local guys are offering a 7, then we have to finance it at 8 and swap it back to make a 7. We actually don't win. So we needed a vehicle that doesn't -- and the U.S. vehicle here we hedge the currency risk, both coupons. In fact, you can see the fluctuations in our income statements on changes in the currency. So it creates a wobbly earnings year even though they're sort of fictitious, but -- and it would drive you and me a little nuts with wild currency swings in our earnings in the United States, which are obviously, just mark-to-markets on the hedges, and have no -- ultimately the loan pays off, the whole thing collapses and you haven't realized any loss or gain for that matter. So having the local currency vehicle is helpful that this remain competitive in situations. And I think we're in a [indiscernible], see if we kind of get it, I don't want to say cherry pick but it's a cherry pick, and what we want to do in the vehicle.

We'll go next to Joel Houck with Wells Fargo.

Just a question, if you look at the growth in 2012, over 40% in the investment portfolio, the mezz portion grew even faster closer to 70%. And I guess that makes sense given just based on your disclosure at the highest levered return, yet the attachment point of 65% in any LTV isn't really all that much higher than first mortgages. So that's, I guess, that's good asset allocation. What's your outlook kind of going forward in terms of mix in mezz kind of give you. It sounds like you're a little more cautious that it's becoming more difficult to get those types of returns. But if we were to look out over the course of 2013 and you guys have already made some comments about robust origination in Q1, what are your thoughts on mix?

You should expect the LTV's decline, close to the 70%, I would expect, and I think that the lenders are at 75%. There are certain asset categories we just can't touch. With our Star Capital just closed yesterday alone on Maltese, it's 79.5% at $277 million. I mean, where are we going to play in that stack, right? But if we provide anything on top of that, it will be at 90% LTV. And frankly, the asset can't even support our mezzanine. So there are certain asset class. Asset is one very encouraging thing as we're doing more office deals. And the portfolio is moving less in the hotel space. And if you look at our hotel concentration, there's really one big investment there that is AAA paper. It's really not even a hotel. That's the senior in a very public buyout of a very large hotel company. So it's distorted. Our actual exposure to the hotel market is not, I would not say, as high as it might look at when you look at the pie charts in our disclosure statements. So Boyd, you want to add anything on that?

When you talk about the mix -- Stew, I think, elaborated on it really well. Our big advantage right now is this being a one-stop shop, where we do the whole loans and then sell off the A-notes. I think that more than likely will represent the majority of what we do. So we'll -- how you describe that, they are big structure deals. And when we take down the whole stack, simplify it for the borrower, but then once we sell it all off, we wind up with mezz. So it's really -- you do a whole loan, and then you wind up with mezz eventually.

And it's really no different than when we -- the risk position is very similar. If we use unbalanced sheet leverage, as well, right. We, for a variety of risk reasons, it makes the most sense to sell A-Notes or do securitizations or something because they really represent match term nonrecourse financing. So we have warehouse facilities and manufacturer effectively the same position. One shows up as a whole loan, one shows up as a mezzanine loan or a sub-debt, but they're for all intents and purposes the same thing.

The numbers may be a little bit misleading to you. I mean, if we choose to do unbalanced sheet leverage, then it looks like we don't own mezz, but we really functionally do.

We'll go next to Jade Rahmani with KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: A quick one on the loan-loss provision. Is this the recurring expense you expect to run through in earnings? And is there a target reserve ratio or some way that you're thinking about it?

Sure. Jade, it's Stew. The loan loss or the loan allowance methodology that we have historically done, because we have very good clarity into our assets, we have a total number of assets in the a little over 100. We're able to surveil on a very detailed basis on an ongoing basis, every asset and so the allowance methodology we use is not a pooled concept, it's a loan-specific concept. And at this point in time, as I mentioned in my part today, we still have no expectations of any losses associated with any of the individual loan investments that we have. That said, we have now gotten large enough that it's prudent for us to take, to recognize that there are certain categories of assets that would have a higher likelihood of loss than others. We've included in the, as outlined in the K's and Qs, has been since I think the inception of the REIT, we have a loan-scoring system, in which we, across a variety of measures, we score loans from 1 to 5, 1 being the best and 5 to be the worst. What we decided to do, and it's outlined in Note 4 in this month, the methodology, is to take -- create a loan loss allowance equal to 1.5% of all the loans that we independently deemed to be rated for. And the greater 5% or any expected value deficiency on loan on 5. We don't have any loans that are value-deficient at this point in time. We have 1 loan that for $11 million, that we have as a Category 5 because it has a reserve-deficiency issue, that's in the process of being resolved. But it's a formulaic methodology. It will be applied every quarter to the expense of which loans migrate out of the 4 category and up to a 3, the loan loss provision will be reduced and it will show up as income. To the extent of which new loans go in as 4s or 5s, it'll add -- it'll be a charge-off or an expense for that period, and that's a way to work, unless we decide to change the way that it works in the future. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that's -- that color's very helpful. Regarding the LNR transaction, I wanted to see if you'd be willing to comment on whether you anticipate acquiring additional special servicing assets, perhaps, from banks or other players put onto the LNR platform. As we've seen a lot of consolidation in the residential distress servicing space because I wondered if you could anticipate a similar trend emerging in the commercial market?

Let's just not comment. I mean, obviously, there's scale advantages in servicing businesses.

And ladies and gentlemen, that does conclude today's question-and-answer session. We'll turn the call back over to Mr. Sternlicht for any additional or closing remarks.

It is year end and I just want to thank the shareholders for supporting us all year long and sticking with us. Many of our shareholders have been with us since the IPO. And I also have to thank the team of professionals that make this all happen, and I get to coach. So it's really been a great joint venture between dedicated professionals led by Boyd, Stew, Warren De Haan and Chris Tokarski at their REIT, and then the guys at Starwood Capital Group who have worked really hard. And both on the LNR transaction, which was really run at a Greenwich-Starwood Capital, and then all these loans which are really I think are great. So thank you all and have a great day.

Ladies and gentlemen, that does conclude today's conference. Thank you all for joining.