Zach Tanenbaum - Director, IR Rina Paniry - CFO and CAO Jeff DiModica - President Barry Sternlicht - CEO Andrew Sossen - EVP and COO.

Dan Altscher - FBR Douglas Harter - Credit Suisse Eric Beardsley - Goldman Sachs Jade Rahmani - KBW Charles Nabhan - Wells Fargo.

Please standby, we're about to begin. Good day ladies and gentlemen. Welcome to the Starwood Property Trust First Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to 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 March 31, 2015, 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 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 the 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 CEO; Rina Paniry, the Company's CFO; Jeff DiModica, the Company's President; and Andrew Sossen, the Company's COO. With that, I'm going to turn the call over to Rina..

Thank you Zach and good morning everyone. I will begin this morning by reviewing the Company's first quarter results, both on a consolidated basis and for each of our segments. I will also provide some information regarding our recent equity offering and the pending acquisition of a portfolio of commercial real estate assets in Europe.

We began 2015 with a very strong start, reporting core earnings of $123.7 million or $0.55 per diluted share in the first quarter. This is up 10% from the $112.1 million of core earnings or $0.50 per diluted share we reported just last quarter.

During the quarter we deployed $1.2 billion of capital across a variety of asset classes, including $721 million from our lending segment and $487 million from our investing and servicing segment. I will discuss the composition of this capital deployment in greater detail when I walk through the results of each segment.

As of March 31, book value per diluted share stood at $16.67 reflecting a 1% decline from the $16.84 that we reported at the end of last quarter. This decline is principally due to the impact of the end of money portion of our convert, which is included in our diluted share count under GAAP.

After adjusting for our share issuance in April, our pro forma book value per share would have been $17.06, which would have been an increase of 1% over the last quarter. Before I turn to our segment results you may have noticed that we incorporated a slightly different segment presentation this quarter.

We established a separate column for corporate overheads in an effort to identify those items that are not directly allocable to our business segments. Previously these costs have been included in either the lending or investing and servicing segment.

The corporate column includes interest and other cost associated with our corporate level debt consisting of our convertible notes and term line, management fees and miscellaneous corporate level G&A. We have retrospectively reclassified our prior period to conform to this presentation.

So my discussion of segment results will be comparative on this new basis. I'll begin with the results of our lending segment. During the quarter, this segment contributed core earnings of a $109.9 million or $0.49 per diluted share, reflecting a 3% increase over the last quarter.

During the quarter we funded a total of $659 million in new investments and a $130 million under pre-existing loan commitments for total funding of $789 million. Despite repayments of $278 million in the quarter, our lending segment's target portfolio grew by 6% from a balance of $6.4 billion at December 31 to $6.8 billion at March 31.

Our activity for the second quarter is off to a strong start as well, with nearly $1 billion in loans that have either closed or undersigned term sheets. The organic growth in this portfolio reflects our continued focus on assets, credits and earnings quality.

We continue to be very selective in our choice of property type, market location and [indiscernible] as evidenced by our average LCV, which remains at a conservative 62% and our track record of zero realized credit losses across our nearly $15 billion of historical loan originations and acquisitions.

The returns on our lending segment's target investment portfolio remains strong at nearly 8% on an unlevered basis, with optimal asset level returns at 10.6%. In computing these returns, we do not include the impact of our corporate level debt. If we were to allocate such debt to the asset level, our returns would be much higher.

As we've discussed in the past our book remains uniquely positioned to benefit from a rising rate environment. 80% of the lending segment's loan portfolio and all of its current pipeline is indexed to LIBOR. For the 20% of our portfolio that is fixed, the weighted average interest rate is 8.1%.

We estimate that a 100 basis point increase in LIBOR would result in an increased annual income of $19.7 million or $0.09 per fully diluted share. This does not include any benefit that our special servicer would realize in a rising rate environment. I will now turn to a discussion of our investing and servicing segment.

During the quarter this segment again demonstrated the power of its multi cylinder platform, recording core earnings of $60.9 million or $0.27 per diluted share, an increase of 28% over last quarter. On the servicing side revenues, remain strong and we continued to be ranked first in special servicer market share in the CMBS conduit universe.

The domestic servicing intangible was reduced by $4.9 million this quarter, leaving it with a balance of just $173 million, less than 2% of our gross assets.

As of March 31, we were named special servicer on a 156 trusts with a collateral balance in excess of a $130 billion and we were actively servicing $13.7 billion of loans and real estate owned which is flat to where we were last quarter. Turning to the CMBS space, we continue to exploit high yield opportunities in this market.

During the quarter we invested $48 million in three new issue B-pieces, all of which we partnered with other investors and ultimately it was just 44% of the BPs on a weighted average basis. In each of these deals, we remain special servicer for the related CMBS trust.

So as we've discussed before the value of these servicing contracts is currently a very small part of the intangible balance. We also sold certain of our CMBS on an opportunistic basis, realizing core gains of $11.2 million in the quarter.

On a related topic of risk retention, we continue to engage in discussions with various market participants and industry organizations regarding the implementation of the new rule. While we continue to believe that we will benefit from these rules, it is still too early to determine the exact impact that they will ultimately have.

We will keep you apprised of any significant developments as we proceed through the implementation period. Moving on to another cylinder for this business, our conduit operation. Solid mortgage capital reported yet another strong quarter results, continuing its remarkable average turnover rate of one securitization per month.

During the quarter our conduit participated in three securitizations and sold $465 million of loans for net securitization profits of $11.1 million on a core basis.

And finally, another contributor to this segment's strong results for the quarter is a relatively new cylinder, the acquisition of commercial real estate property from the CMBS trust for which we serve as special servicer. This cylinder ties into our overall business strategy of expanding into the acquisition of commercial real estate equity.

During the quarter we sold an operating property that we had previously acquired from a CMBS trust. This transaction resulted in a $10.2 million core gain net of tax. We expect to see more of these acquisitions going forward.

Tying in with our gradual diversification into real estate equity investing, we will be introducing a new segment to you in the second quarter, which will include these types of asset purchases, the mall portfolio we acquired last quarter as well as our recently announced acquisition of a 13 asset portfolio in Dublin, Ireland.

On a pro forma basis, these assets would collectively comprise 7% of our gross assets and 8% of our gross equity at March 31st. During the quarter we made a €17 million deposit on a portfolio of 12 office and one multi-family portfolio property in Dublin.

The assets were sourced and will be managed by our manager, Starwood Capital Group, whose equity investment expertise and presence in the European market allowed us to take advantage of this unique opportunity.

The total purchase price is €452 million, approximately 70% of which is expected to be paid this month as we close on 10 of the assets in the portfolio, while the remaining three assets are expected to close late in the second quarter.

The assets are located in Dublin's central business district, span 630,000 square feet, are 99.9% leased to quality tenants, including multinational and government tenants and carry a weighted average lease term of 6.2 years, adding significant duration in current portfolio.

The acquisition will be levered conservatively at a 65% LTV and a 200 basis spread. The portfolio is being acquired at a 5.5% cap rate with an average cash on cash yield of approximately 10% and a levered IRR of 12.5%.

As we have done with all of our foreign currency based transactions, we intend to fully hedge our equity and cash flow exposure to foreign exchange risk resulting from this transaction. Now turning a newest column in our segment presentation, our corporate column.

During the quarter unallocated corporate overhead totaled $47.2 million or $0.21 per diluted share, compared to $41.8 million or $0.18 per diluted share last quarter. The increase is primarily due to a $5.3 million loss on extinguishment of debt that resulted from the repurchase of $104.1 million par value of our 2019 convertible notes.

The notes were repurchased at a premium to par for total cash consideration of $119.9 million. GAAP requires us to allocate the repurchase rate between its liability and equity components based on fair value.

The extinguishment loss is the difference between the book value of the liability component and a related allocable liability component of the repurchase price.

Our book value was up in fair value, principally because we had not yet fully amortized our debt discount, and that difference is what resulted in the $5.3 million loss we reported this quarter. We believe that we repurchased these notes at an amount that would be less dilutive than if we had converted them in the ordinary course.

Although the notes are currently trading at a premium, that premium is less than the premium which has accumulated on our stocks since the notes were issued, allowing us to repurchase the notes below parity and thus less expensively.

The repurchase also enabled us to de-lever, allowing us to retire more expensive corporate level debt and optimize less expensive asset specific debt while continuing to maintain our conservative leverage levels.

Subsequent to quarter end, we issued 13.8 million shares of common stock for gross proceeds of $326 million, our first equity issuance in 12 months. The proceeds from this offering will be used to fund our investment pipeline, including the aforementioned Dublin portfolio and further down corporate purposes.

Pro forma for the share issuance, our overall debt-to-equity ratio was 1.2 times at the end of the quarter, consistent with where we were last quarter.

We continue to take advantage of opportunities that will make the right side of our balance sheet more efficient, obtaining less expensive asset level debt, while retiring a portion of our corporate level debt in our form of our convert repurchase.

As of March 31st, our total borrowing capacity was $5.8 billion under 14 financing facilities across 11 leading financial institutions and three convertible senior notes.

As we move forward, we will continue to stay within appropriate leverage levels in the context of our overall balance sheet, levels which are conservative compared to our peers and levels which should allow us to attain our ultimate goal of achieving investment grade.

I'd now like to turn to a discussion of our current investment capacity, the second quarter dividend and our 2015 earnings guidance update.

As of April 30th, the Company had $370 million on available cash and equivalents, $79 million of net equity investment in RMBS, $133 million of approved but undrawn capacity under our financing facilities, and $304 million of unallocated warehouse capacity.

Together with expected maturities, prepayments, sales and participations over the next 90 days and net of working capital needs, we have the capacity to acquire or originate up to an additional $1.5 billion of new investments.

As we look to deploy this capital across our various business clients, we will continue to be selective and diversified to ensure that we do not over stay our welcome in any single asset class. Turning to our dividends, we have declared a $0.48 dividend for the second quarter. The dividend will be paid on July 15 to shareholders of record on June 30.

The $0.48 dividend represents a 7.9% annualized dividend yield on yesterday's closing share price of $24.30. As we look to the remainder of the year our business continues to perform in line with our expectations.

Income resulting from our acquisitions and sales of commercial real estate assets was incorporated into the guidance numbers we've previously provided you. We therefore reaffirm our 2015 core EPS guidance range of $2.05 to $2.25. As a reminder, this range excludes any loss that we may realize from the repurchase of our convertible notes.

With that, I would now like to turn the call over to Jeff for his comments. .

Thanks Rina. Last month Barry and 16 members of our management team hosted our first Investor Day in New York, which I believe highlighted the great depth of our management team. I'd like share some of the main takeaways with you.

We walked through the depth of our global organization with over 1,400 people in the Starwood franchise and nearly 500 of them in Starwood alone. We have added our Credit First philosophy and our goal to lend on and buy great properties and great locations globally with great sponsors.

Credit is always more important to us than yield and our scale allows us to sift through hundreds of loans and properties to allocate capital to investments with the best risk adjusted return.

We looked at nearly a 100 billion in loans in 2014, we chose only 5% of those to lend on, asking on hundreds of deals and closing of approximately one deal a week with an average size of $95 million, and a levered yield as Rina said of 10.6%. And that trend has continued to in the first quarter this year.

We utilized our manager and all of its subsidiaries to sift through these opportunities, and as Rina mentioned are very proud to have taken -- never taken $1 of realized loss in over five years. At 62 LTV, our book is setup to continue that trend.

And importantly our scale allows us to analyze, underwrite and service all of our loans in house and we meet consistently and constantly to discuss every loan in our book.

We talked in depth about our credit process, which is led today by 30 year veteran Carl Tash, who worked with Barry at J&B in the 80s and though we have a committee approach to investing, it's important to note that Barry looks at every potential new loan before we issue a term sheet.

There are still great world loans that write in properties to buy, including our pipeline under contract. Our origination team will put out over $4 billion in loans and equities in the last eight months alone. We walked through the depth of our funding options and relationships, which Rina jut mentioned.

Instead we plan to add our first managed CLO to that mix this year. Our teams are best in class at optimizing both sides of our balance sheet and we’re focused on liquidity and the right side of our balance sheet as we are the left.

As our sources of capital become more diverse, our borrowing rates have continued to fall, allowing us to maintain a very constant leverage yield on our lending portfolio and to generate cash and cash yields on our equity portfolio in excess of our dividend pay rates.

We talked about the complexity of our business and that we are meticulous with details and spent countless hours calculating the timing of maturities and inflows versus expected outflows to manage our liquidity. We talked about the many engines of our business.

We are diverse in geography, loan type, property type and earnings drivers and continue to look at new cylinders to add to our business.

Less than two-thirds of our revenue today comes from our lending segment and the remainder comes from almost equal parts from the service and mortgage conduit and CMBS businesses in our real estate investing and servicing segment, which highlights the diversity how the business is built.

We renamed special servicer on more deals than anyone in a last year, which will add revenue 10 years into the future that you won’t see in earnings announced today, as well as being special servicer on over one-third of the coming CMBS maturities, which along with pending regulatory changes should create great opportunity for us, and provide us the hedge for interest rate and credit if cycle change.

Finally, we want to thank those of you who have been with us for last five plus years. You've now earned over 130% on your investment to date and you've earned it consistently with very little volatility. I am equally excited about the next five years, and want to hand it over to Barry to talk about the markets..

Good morning everyone, thanks Jeff, thanks Rina. Rina's comments get longer and then we added Jeff to talk so my comments and get shorter. I am just going to talk about the overall market for a second. It is a competitive world as you can imagine with rates around the world hovering around zero.

When the German [ph] tenured at 7 basis points and then has a complete meltdown to yield 34 basis points, it's really irrelevant. It's still a super competitive world.

I think our team is doing a great job, looking under lots of rocks to find the jewels that fit our risk profile and everything in this market today, both on the equity side on the debt side is about risk and reward, and there we are not a bank. We can go up and down, sideways, around, we'll structure ourselves, work quickly.

I think our greatest strength has always been, and continues to be our speed and knowledge and experience. We've seen a lot of these rodeos. And for that reason, as you've seen we're diversifying into the equity space. Rina mentioned an IRR which I'd say is a guess.

I can tell you the cash on cash yield in excess of 10% is not a guess, but the duration of 6.2 years on leases and 99% leased portfolio, we can that kind of return, which is accredited to our dividend yield and our reserve overheard as a firm, our management fees.

Then we will probably do those investments if we think it’s consistent with the key core theme of our Company, which was producing attractive dividend yield, to be predictable, transparent and search to the globe for great opportunities that afford themselves on a risk reward basis. So these are great office buildings.

It's a market we actually bought the first deal from Noma in Ireland. We partnered with RGC there. And we hope the IRRs are in excess of what we gave you, and obviously the IRR will depend on the hold, and I don’t even actually know. My guess is that was a seven to 10 year hold that we quoted you an IRR from in general.

I wouldn't pay attention to that as much as I would to the cash on cash yield, which were consistent with the mall portfolio we did by the way.

And if you can buy battleship malls and earn a better than 10% cash yield in a world with no yield, you ought to do it and that's how we're deploying your capital as it squares off -- only to this -- is our only -- we have a, well over a $100 million invested alongside of you in the Company.

And as Jeff mentioned, this has led to a compound CAGR of like over 15% annually for those who've owned our stock since the beginning at 15.3%.

And if you might deploy modest leverage margin on our stock, you are earning probably 20% to 20% on your capital working with us, and I think that's completely beyond compelling, given a 61% LPV against the portfolio. So someday we'll drive the stock and the dividend down but for now you can enjoy it.

And one of the things that Rina also mentioned in her comments is duration. By doing equity deals we are actually stretching the duration of the portfolio, which I think is important because of what I see and I'll talk about it now.

What I see is a growing lack of discipline in the marketplace, as people are, conduits are being formed, people are entering the market, you are beginning to see some serious concerns I think in both the lending and the equity pricing.

It is -- real estate is definitely entering the danger zone for me where silly trades are being used as comps [indiscernible] market whether it's the Waldorf Astoria at 33 times cash flow or the Crown Building at 1.9% dividend yield for yields. That's not even a free cash flow yield. That's an NOI yield.

But after management fees I think the Waldorf has no free cash flow.

This is a distorted market that's being driven by investors who are using this asset class as an alternative and a proxy for the bonds and I think that creates very strange behavior and will create traps for unwary investors, because these guys are here because of interest rates, not because they love real estate as much.

So I think it's really incumbent upon underwriting teams and Carl Tash and myself to use our 30 plus years, 60 years between us, and the other team members to make sure that we don’t enter into transactions we can't get out of. And we're not thinking about today. We're thinking about five years from now.

And nothing is going to happen to these investments over the next two years, but we have to be cognizant. Somebody said it's all about looking into the future. I think that was Stanley Druckenmiller, the speech he just made, where everything is going to be three years from now and position yourselves for that.

So I think the warning signs also are about in essence, there's replacement costs and replacement costs, people who are buying these assets well above replacement costs are driving new development, and you're seeing over development now in the United States, in certain asset classes and in certain markets, not in general but in specific cases.

So for example high end condos in New York City we think are in a crisis stage or will be in three years out. They are just too many of them. Too many projects being built at too high price per foot, but I don’t think the market can absorb, especially with strength of the dollar and the conversion weakening of foreign currencies.

Having said that, we're not black lining construction. We're looking at opportunities in other markets, or maybe other asset classes in places like Manhattan where we know investor demand is deep but I'm worried about the condo market, the high end of New York City.

So it is about risk and reward, it's about every individual investment, who the borrower is, or what the track record is, how we protect ourselves, do they have gross maximum price contracts in place from creditworthy contractors.

We haven’t actually done any construction loans over the past year, a year and a half, and one of the reasons we have shied away from that is frankly, it is a different risk profile, but by definition you're in a below replacement cost which is nice. We just don't really want to get it back.

One of the other things that we started this Company with, we said we're not a loan to own firm, and those of you who were with us on the road show five years ago, we're doing that, because -- not because it wasn't a good business but it's because it's hard to predict.

And when an asset goes into bankruptcy and cash flows can be interrupted, we could spend millions of dollars hitting earnings on a quarterly basis to litigate our way out of the, into a foreclosure maybe to buy the asset. We haven't changed our stripes. We're still not a loan to own firm.

I think some of our peers are beginning to make loans where they're saying hey if we fail we'll get the asset back. We could change our strategy, but you'll hear about it on the next -- another earnings call. We're not planning on talking about that on the next earnings call.

But there is going to be a point here where you're going to make a loan and say well, if you sale, I'd love to own the asset and if we actually go in that direction, we'll let you know. It is similar that, a cause of that is making a 90% or 95% loan and taking half the equity.

I think that's also a tool I would have expected us to be using at this point in the cycle.

But we're not and we haven't really tried to go there, which we're about margin of safety and predictability and just decided taking equity risk in the debt envelope, just by the equity and finance and lock it away and get consistently high returns for our shareholders that are predictable.

And another thing I'd like to say again which I said on the -- I was reading my comments from the Investor Meeting, which were shockingly long. At the scarcity of our raises, we haven't really done a risen in a year. We did a small raise for primarily -- we needed the money for the equity transaction.

We've been really good at managing our cash balances, really at returning -- selling lower yielding assets so that we can get out of the premium and willing the cash order and we're continuing to do so by trying to the raise ROE of the Company and not go back to the market unless there is something dramatic that we're trying to do that we need capital for.

But we continue to looked at large opportunities in the market place. We continue to look at ways to diversify our Company with the core strategy theme, that the bigger we are, the more diverse the cash flow stream is, the stable the dividend is and so a repayment of any loan cannot interrupt our dividend.

And also ultimate goal of reaching potentially investment grade in the company which will lower our financing cost and make us a virtual cycle for ourselves. The other thing we're focused on as what the bank can't do and where we can partner with them and take and splitting opportunities to grow our booked as they are originated going forward.

So we're pretty excited about the current and very excited about our future, as we continue to manage our way through this real estate cycle on and I wouldn’t just say real estate, other asset classes that we comment on that are readable. So with that I think I'll take any questions and comments..

(Operator Instructions) And we'll take our first question from Dan Altscher from FBR.

Thanks.

I was wondering on the doubling portfolio, if you could just dive in a little bit deeper on that, I think it probably follows in the core plus strategy, kind of exploring -- can you kind of just give us a little sense of why -- what makes it maybe a core plus with the underlying credits states, whether it's the restoration or the occupancy? On the whole it looked pretty good.

.

So Dublin is an office market that's almost fully recovered, enjoys a single-digit vacancy rate and rents are rising, which is good but not that relevant to get released. But when we roll we expect events will rise. We've already undergone an asset by asset review to see everyone to -- individual assets earlier.

The IRR that Rina decided didn’t have that. I actually got a memo yesterday about one building that the guys might want to sell. The credit quality is extraordinary, but I'm going to ask Andrew to give you stats, or Rina after the call on individual basis, because we haven’t gone into that level of detail, but there are very good quality tenants.

I just don’t have that at my fingertips..

Okay. That's not a problem. I'm wondering.

I'd say its core plus. It isn’t an asset management intensive portfolio, and we actually bid on this portfolio. So I should also say that our opportunities on bid and lost this deal. So we knew these assets really well..

I just wondering if we could talk a little bit may be though, the capital return -- one of your peer recently participated in a very large transaction.

I'm just wondering, you guys took a look at that deal, whether it's on the FGC front or the REIT front or have any thoughts about it or there is maybe just in general some more big portfolios to be coming from them or maybe someone else in that world that might that have some regulatory release issues or regulatory needs to shrink..

We didn't see the deal. It was a -- I have subsequent energy trends and executives at EG [ph] that I know including very senior executives. It was a book purchase. They played book. And book was [indiscernible] free prices.

So it was a solid price, meaning it was I'd say fair, whole and fair, and leveraging their 9 to 1 in the mortgage with some very aggressive debt by wells, 186 over I think was the spread if I recall correctly. And then a warehouse line on top of that. So we've never done that. We've never used leverage like that.

$9 billion of the $24.5 billion went through equity wells. And then there was an equity purchase where they put out another roughly $1 billion. There is several hundred billion dollars of assets left at GE, and you can be assured that they know we're going to look. There will be a business that will be sold. The bid will come in Thursday.

We're not participating in that particular business that's being sold, but they have -- of their several hundred billion in assets, about 40% of it’s in the U.S., and about 30% is in Europe and then rest is scattered. So we would have an interest in the U.S. and European stuff, including entire businesses that might fit somewhere in our portfolio.

You do know we have a $5.5 billion -- $5.6 billion opportunity fund. So as we've done before on occasion, the two entities could partner up and [indiscernible] split portfolios where the loans stay with us and Tier and other crap, that doesn't sit in RIET might go in the opportunity fund and/or InterCore vehicle is one of our capital partners.

I think we represent more than a dozen sovereign wealth funds ourselves, some of which we don't share with Blackstone. So you can be assured that we certainly will look..

And then one other final one. Recently in the residential space there seems to be a lot more of the mortgage REITs that have I guess gained access to the FHLB, despite the moratorium being in place. I suspect you guys may have been in the early stages or early processes of that also before the moratorium came in.

Can you give any thoughts on that, as if it's an option at this point or something that you are still exploring?.

Little bit more trend it was lifted and it's something we’re looking at. So we will let you know if we do something..

Our next question comes from Douglas Harter from Credit Suisse. .

Can you just talk about the -- on the specialty servicing side, the balances were flat but can you talk about the pace of inflows and outflows that you saw in the first quarter and kind of expectations for the rest of the year. .

This is an amazing book. Again you know that the maturities for 2016 and 2017 and we are expecting to trod the year this year. And the business continues because of balance from the various five businesses we operate and it continues to do ok. And the due rate is slower than we expected.

Partly that’s the way we manage the book and partly that’s the way borrowers are managing their own maturities.

Do you want to add anything Rina?.

It's a steady flow, really of ins and out. We thought it would be lower but again we continue to purchase new deals and get additional info because of that. We don't specifically attribute our net transfers in to whether or not they came from purchases or books that was existing, but it's equal pace. .

The one thing that we’re doing that is, is that we are shaping the pools we buy.

So we’re buying BPs since we’re kicking out loans fairly regularly I'd say right?.

If you look back to last year I would Christmas of 13 or so you were able to kick out a number of loans out of a pool. This is a hundred loan pool. You could probably kick out eight or 10, and as the year heated up in 2014, you were unable do that with a lot of hedge funds and others paying up for BPs.

And then as the year ended last year, and into today, you are getting more opportunities once again to shape the pool and kick out loans, which is giving you a pool that you're more comfortable owning for as long as the investments and mid-teens yield..

I don't think that BP is currently [indiscernible] actually show this material on our balance sheet, because they are all future cash listings. So to your question of why the servicing balance looks so confident, the loan book looks so bad, it is because of book isn’t deteriorating at the pace we've anticipated. .

That's right. And the inflows that are coming in really aren't off of the new purchases. So you're not going to see the benefit as it is inflows until a much later date. So really just an evening on the legacy book on the 1.0. .

Stuff coming in and stuff going out..

And then just shifting to the lending segment, you have been able to keep the optimal -- the levered return fairly constant despite some asset yield compression because of improvements on the financing side.

Is there any more room for that to happen, or if we continue to see asset yield compression will levered returns decline at this point?.

Interesting question. We argue ourselves and talk to the Board, should we low our targets because it's for safety right, and we’re all about safety and yield. Like why we’re doing some of these transitional yields for higher returns, because this model worked differently and arguably just as well. We won't be able to return 10.5%.

And that number, our peer, our largest peer, fits about half our size, they actually report with the corporate leverage. So they give you higher number and Rina said it will be much higher. It's probably another couple of hundred basis points higher, 12.5% and we, do, do that.

We take our corporate debt and we assign it to our unlevered loans and we literally run a model for optimum leverage, how much capacity do we have or we have a first mortgage let's say Hudson [ph] Yards. It is an epic office building now fully leased. We have it unlevered, right. There is no debt against it.

So we can say, okay it will take $200 million of our corporate spread or conversion assigned to that asset and how much more leverage would we be comfortable with assigning to that construction loan, and that gives us an idea of the overall leverage of the whole Company that we'd be comfortable with.

So I gave you I would say a silly number to 10.6, but that’s not the way we think about the Company. I think about the Company as the right leverage on an asset base we have. And so that’s more or like 12.5% or 13%, even though what the number is, but it's much higher. We're borrowing at 4% on a converse and some are even tighter than that, so.

My mother's calling from the hospital. So I apologize. One second, my dad is in the hospital.

But I think that is the way we -- that I look at the company and Andrew and I have been looking at the Company for a long time like that, and running the model of basically of allocating the debt to assets and seeing where our leverage levels are, and in general I would say that we were keeping a very -- we're not levering the book and we keep talking about this.

If we can put out cash, let’s say we're doing a loan at whatever, right. And LIBOR plus five, and I'm making this up but we -- if we had a choice, every time we do one of these loans, how wide a strip are we going to keep. We can lever it up.

Today you can lever it up and maybe we keep $10 million of the $50 million strip in our 4-13 [ph] or should we keep $20 million of a $50 million strip and earn 11. We will choose the latter today. For many reasons but putting our money in double digit yield in a world with no yield we consider incredible opportunity for this shareholder base.

We're about core yield, and some growth and that's how we return 15.3%, in a 8% a current and a little appreciation you've got these -- you throw a little margin win on us and you've got a hedge fund that will be the top performing hedge fund in United States. All you have to own is our stock.

And you will be, because hedge funds were 22% this quarter. We did that on dividend yield. So, and you don't pay 80-20 on 2% management fees. So liquidity instantly. Anyway it's really -- we're working this book hard, and it's a lot more than an old package of loans at this moment..

And we'll take our next question from Eric Beardsley from Goldman Sachs..

I was wondering if you could just talk a little bit about the cash through the upcoming quarter. It looks like you have some more maturities and pre-payments expected than you had over the last few quarters, but you still did the equity raise.

I guess outside of the Dublin portfolio that you're acquiring, is there anything else that's relatively large in the pipeline right now..

We've modeled a steady deployment of equity capital throughout the year, quarter by quarter. And if we do that, we actually are pretty self-funding this year. If we were to do a large transaction, another -- anything of scale, probably we would -- we would probably have to come back to the market. So far everything we’ve done has been accretive.

So I think that's attractive that's very fair and driven..

Yes, I think our philosophy on capital raising remained consistent since we went public five and a half years ago and we raised equity capital and we have a pipeline of new investments that are equity or debt, that need to close. We don't have the kind of self-funding sources to close. And some call it a just in time capital model.

There's other ways to describe it but raising equity is just one way that we continue to grow. As we talked about Investor Day you know we're looking at the senior unsecured market as a way to grow the Company with an overall goal as Barry mentioned before, getting to investment grade.

I think Eric seeing a supplement we have -- I think we've quoted a $1.5 billion, $1.540 billion of capacity as of April 30, 2015. So that gives us some significant runway to close the investments -- the pipeline for the foreseeable future.

As Barry mentioned if anything really material comes in, that that might necessitate into some needs for capital but that doesn't necessarily need to be equity..

Got it, and if you just evaluate the opportunities, first the U.S. at this point when you're looking at the core plus equity, I guess how does it stack up with the returns and just I guess the quantity of opportunities..

So we're hamstrung so far by trying to cover our pay rate right, on equity, without over levering the assets that we're buying on the equity side. So -- and we are trying to do deals, when I say, what do you call them, the value add IRR range.

IRRs for REIT investors having run several REITs in my career are not that relevant to you, because you don't know when I'm going to sell the asset and you don't know if I'm investing for a 20 or 25 or 14. You really don’t know. I could tell you but how could you verify that. So it was one of my great frustrations running Starwood Hotels.

I was doing 30 IRRs yields but nobody cared. And if it didn't show up in current earnings and that's what we're really about here, nobody cared.

In fact one of the great frustrations at Starwood was pre-opening centers from hotels, hit earnings, were dilutive, they were great private company IRRs, but GAAP accounting was horrific, showing value creation, equity [indiscernible].

So here I would say that our discipline has been stability, quality of assets, ability to hold them for a longer period of time, maybe forever. We're using our sourcing ability and we're one of the most active equity investors in the globe. We're agnostic to the U.S. versus Europe, but I would say even Steven we'd take the U.S.

any day, because it's here, tax codes and everything else, currency issues -- by the way we hedge all of our cash flow streams on the Irish deal. All the cash flow streams..

And those were included in the….

And they were included in the cash on cash yields. But we like Europe. We -- actually I would say from an equity shop, just look at how Starwood Capital has evolved over the past five years. Our 8s funnel is 93% U.S. and 7% other. Our 9s fund which is $4.2 billion with a two-thirds one-third U.S.

Europe and our 10th funds and I am skipping a small change though is country represented, was running around half and half.

There is a lot for sale in Europe as you know and, and Europe -- there is a lot of debt in Europe and that I think is the biggest surprise as how hard it is and how competitive the lending market has become in Europe with the bank staying inter-border and lending aggressively in within their border.

So English banks' lending to England and German banks in Germany, the French banks in France, not that we'd ever borrow there. And we've done deals in the equity funds in Poland and Czech Republic, in Norway, Sweden, Ireland, UK, Spain, and is lending aggressive and at tight spreads. So we continue to look for stuff to do.

We made a large loan on a building in the City of London -- which is a great loan and it was a transitional loan and I won't go into the details but it's a great brand new office building. So we cherry pick and we're agnostic as long as the returns meet our criteria and the risk profile suits us..

Just jumping back to the [indiscernible] Andrew mentioned $1.5 billion or so that we have remaining, you have to remember also that more than half of what we do today, we finance in the A note market by selling off a senior mortgage as opposed to putting it on a warehouse fund.

So we have significantly higher capacity to the extent that we do sell off A notes and create mezzanine versus some of our peers who will look just at the warehouse fund capacity..

Actually in your exhibit, there is a slide that shows what we expect the capacity originally required, which should outline how we get to a $1.5 billion. So..

And we will take our next question from Jade Rahmani from KBW..

I was wondering if you could elaborate on how you are thinking about diversifying the business. You mentioned exploring large transactions, can you give any sense for the kinds of things that could make sense.

Is it geared toward lending for example, spaces that you might not be active in such as multifamily, healthcare, maybe international or even residential, or is it focused equity or otherwise services such as events in sales or even investment management?.

All the above, thanks for the question. No seriously, we like to -- we're looking at lending businesses that fit our criteria. Obviously I would rather not talk about it because we do have competition and -- but we're not, we've always been transparent, just one disclosure again from NAREIT.

We're telling you heads up, we're been looking for five years, we haven’t done anything major.

I mentioned at the Investor Day that we looked at a company like Caplease [ph] that had great credit, triple net, bond like equivalent, but had fully amortizing debt which meant that all the income we had wasn’t actually cash and we'd have to pay out a dividend based on and borrow the money to pay you a dividend, and yeah it could work, but I didn’t want to do it.

I didn’t want to borrow, we like to pay our dividend on cash we earn each quarter and safety and security is pretty constant theme. And we are -- this is not a high wire act and we won't lend into a high wire act. We won't do that.

And the guys who asked me on our road show how do I know that your mortgage REIT loan acts like other mortgage REIT's, it's welcome because we're going to not lend. And so you see us beginning to diversify into equity.

And actually if you don’t like, you should sell the stock, because I'm not going to drive this Company into the ground and run at a high credit risk book, I just won't do it. So I'm not interested in that. We're going to make money for you long-term and do our best trying to do so..

Okay, a related question..

That's an aggressive answer..

A related question..

I think you don't do it, that's the moral of the story..

A related question, which I think was mentioned at the Investor Day.

Can you, what can you say about whether the management or Board is looking at a cost benefit rationale to potential internalization transactions with the manager?.

It hasn’t really come up. At the Board level we haven’t raised this discussion. I think even today our overheads are nine figures, more than nine figures, Starwood Enterprises, 1,500 executives or people in our enterprise. It's interesting.

We just have -- every Monday morning we have our acquisition meetings with equity teams and the debt guys come in and listen in we're getting very -- we've spread our stock to the equity guys too and sent them to bring us deals.

And one of the things we're going to have to think about is it is all about yield, it is just yield, if we're consistent growing yield, agnostic to real estate asset class or we pick one asset class and we're doing x a triple net because we've talked about it and loans and/or the way we're going to do, are we going to do.

And that's something we'll discuss at our Board meeting and probably make a decision, are we going to a [indiscernible] of very carefully curated assets across the globe that produced the kinds of consistent high cash. Look, the equity REITs are yielding 3, 3.5 I think. Some of them are yielding 2. We're yielding 8. So we can keep this up.

And as you've seen, as the companies like Colony [ph] which have internalized and NorthStar, well NorthStar is little bit of a hybrid but Colony [ph] seems to guide credit and the yield for moving into the equity space recently and they were always sort of a hybrid REIT, a very complicated and hard to understand, not a bad thing.

They're different than us we are looking at that because we’re going to -- if we are doing an equity REIT, dividend falls sort 3.5% to 4% or 5% then our stock goes to 35. So something we’re considering although we've to look at that and I think that’s something we’re thinking about.

We are not in this core business -- core plus business, Starwood Capital Group, and as you know there is a bright line which is -- and over five years I think we've crossed it twice, where -- three times maybe. We’re the investment higher than a 14 IRR and we split it, the REIT gets 75% and the fund gets 25%.

It happens in all small multi deals, small deals this year and the LRN acquisition. .

Lastly on risk retention, I wasn’t sure if in Rina's comments there was an offset that it may benefit the Company.

Can you just elaborate on your thoughts there?.

We've anticipated Jade, that we thought it would benefit us. We continue to believe that but the issue really is at the tier implementation period which is fairly long period of time, and there is a lot of back and forth as to what exactly the roles mean and how they are going to be implemented.

So we continue to believe it will benefit us for the reasons we've mentioned before that we’re able to hold -- to put our capital longer term and hold on to it, which may restrict others and so we still think there is a benefit there but we just don’t know it's the way that gets implemented is how we think it's going to be.

Two years, it's just a period of time. .

And Jade, we have our best and brightest in Grenache and Miami looking at it. Part of it is, it's a competitive world and to the extent we could find a better mouse trap, we obviously want to get that proprietary versus and talk about it publically. .

And the regulators will have a difficult time holding up the spirit of what they originally proposed, as there will be a number of lawyers and investment banks and others trying to figure out ways around it.

The original spirit is a great benefit to us and we'll see what their ability is to, to maintain that original spirit as we get closer to our implementation. .

And we will take our next question from Charles Nabhan from Wells Fargo. .

Could you comment on the ramp up and profitability of the Ireland transaction? How we think about that from a timing standpoint? And if we should expect any expenses to be incurred over the next couple of quarters?.

Its cash planned out of the box. The reason they ramp up get -- the cash flows do ramp but they start out as consistent with what Rina said, as better n than 10% cash return on our equity investment..

And I all the deal that will expense at the [indiscernible] question all embedded in cash-on-cash..

There is no fee there is no acquisition fees or anything paid to Starwood Capital Group. There is nothing -- we received no compensation. That's -- we get paid for that out of our management say. It's very straight up, that was a 100% purchase and that was done to further benefit..

It's 99% leased, with not many leases rolling in the near-term. So you don't have a lot of leasing upside and there is no TI to bring you back down on the other side. So we expect this yield. .

There is leasing upside. It's the opposite of what you think. Some of the markets are moving so fast it was like the [indiscernible], but that would pick your hopes high, that that would happen. .

On the liquidity side, could you comment on the 904 million in the expected maturities prepayments and sales? I believe that might include -- that might include some construction loan sales.

But could you give us a little color on the composition of that $904 million?.

I know like this for example more of our peers are selling a large company, which we’re actually bidding on. And so we know that that will be repaid. And we would love to buy but I don't think that we'll be able to. So we would act in there. And as far as construction loans, there are some but I don't have the details in front of me. .

I would say it's probably spread evenly between sales participations and expected repayments. .

And as far as managed versus senior, could you comment on that?.

You mean what's being repaid?.

Yes. .

Well, all-in-all, since you're asking for a lot of detail, I'm not necessary comfortable sharing. I'd say that we gave you earnings for the year. So we kind of know what's coming back in and we've modelled it into the earnings guidance we have. So I don't think, we don't think I don't know of anything.

We’re big enough now, at $9.3 billion or $9.4 billion asset base that it’s really, it's hinderable..

I would say that the earnings guidance we gave you and we go through a very rigorous asset management process on a quarterly basis where the entire management team gets in a room and looks at every asset obviously on a more granular basis for asset managers and just we’re looking at our assets on a daily basis.

Before of that quarterly review process as we every asset come up with an expected maturity date. And those expected maturity dates are actually what we've used to come up with our forecast on yearly basis and I would say this $904 million is coming back. The assets that are in there are coming into our expected maturity days.

So those are actually in our numbers getting that cash back. And it is [indiscernible] sales come from the construction loan. .

And one last thing where this is a 5.5 year mature REIT you will see four year loans, three years loans, and two year loans rolling off, and when you compare that other people who have ramped up a portfolio in the last year or two and don't show much in terms of those prepayments, it's a function of maturity of our business?.

There was a comment I shouldn’t say about purchase of the GE by one of our competitors, but it had three year duration. And that was the same duration of portfolio. We've tended not to try to do deals that are so short because we have to redeploy the capital just 12 months later.

So we've tried -- one of the tricks in the business has been to get lock outs and again, that’s one of the trickiest things that our lending today which we have three prepayments, the money could come back 43 minutes after we lent it, planning the legal fees put the deal out. And so that’s one of the challenges of staying in the lending business.

Yes, a guy borrows from us at our rates of return, which by the way we can lever of 4.5% loan or 4 loan for [indiscernible] and create nice piece of paper today, given our borrowing are plus few hundred, but it will repay us once the asset stabilized and we need duration. We cannot roll $9 billion of loans every five minutes.

That would be a really hard thing to do. So it's another reason to stretch our book into the equity side or build such as amazing origination machine, that we can keep lot of think -- a $1.10 billion loan. So that's an alternative for us. We require a new type of organization something.

We'll have to consider, like an insurance company or a bank or something where we don't look like the large loans lender that we've been but we’re creative. .

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Barry Sternlicht for any closing remarks. .

All right just want to thank everyone for being with us. And we appreciate your attention and your partnership. Thanks. Have a great day. .

And once gain ladies and gentlemen, that does conclude today's conference. We appreciate your participation today..