Good day, and welcome to the Starwood Property Trust First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Zach Tanenbaum, Director of Investor Relations. Please go ahead, sir..

Thank you, Operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning, the Company released its financial results for the quarter ended March 31, 2016, filed its 10-Q with the Securities and Exchange Commission and posted its earnings supplement to its website.

These documents are available on the Investor Relations section of the Company's website at www.starwoodpropertytrust.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the Company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

The Company undertakes no duty to update any forward-looking statements that may be made during the course of this call. Additionally, certain non-GAAP financial measures will be discussed in this conference call.

A 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. Reconciliation 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; Andrew Sossen, the Company’s COO; and Adam Behlman, the President of our Real Estate Investing and Servicing Segment. With that, I’m now going to turn the call over to Rina..

Thank you, Zach, and good morning, everyone. Despite of all our market backdrop this quarter once again demonstrated the strength of our multi cylinder platform with core earnings at $0.50 per diluted share and an annualized return on equity of 11.6%. I will begin our discussion this morning with the results of our lending segment.

During the quarter this segment contributed core earnings of $98.5 million or $0.41 per share. We originated or acquired $437 million of investments of which we funded $341 million. We also funded an additional $186 million under preexisting loan commitment.

These amounts were funded mostly with recycled cash from the Lending segments seasoned investment portfolio, which returns $302 million during the quarter in line with our expectation. We expect over $2 billion of additional repayments this year, $671 million of which we all already received in April.

The credit quality of this portfolio remains exceptionally strong with weighted average LTV declining to 61.2% the lowest in our history. This improvement was due in part to the LTV of our new investments during the quarter which averaged 54.6%.

I will now turn to our Investing and Servicing segment, which contributed core earnings of $52.4 million or $0.22 per share. Because of the $51.5 million unrealized decline in our CMBS portfolio we reported a GAAP loss of $2.2 million.

As we communicated during our last call the marks in our CMBS portfolio were impacted by the significant spread widening that occurred this quarter. While GAAP requires us to mark all of the CMBS in this segments to market.

The portion that is most vulnerable to spread business are the BBs and BBBs, which are more liquid and this purely reflects market-based pricing. These bonds constitute approximately 25% of our portfolio and represents 64% of the change in value recorded this quarter. There are few important items to consider when looking at our CMBS book.

First, ours is not a short-term business model. For the contrary we intend to hold these investments long-term and unrealized spread marks are not an indicator of value recovery over time.

Unfortunately, the GAAP consolidation model which causes us to consolidate $85 billion of the [indiscernible] on our balance sheet also causes us to elect the fair value option on the bonds we own. If we were able to follow the held-to-maturity models for CMBS like we do on our Lending Segment you would not see these marks in our P&L.

On this point it is important to note that our core earnings recognition model for CMBS follows unamortized cost approach in line with a long-term home strategy for these bonds. Despite the decline in value we recorded this quarter if we would liquidate our CMBS book at its March 31 fair value.

We would not realize a single dollar of loss in core earnings. The second items to consider it’s the non-credit related nature of these marks. Over 90% of the change in value reported this quarter was non-credit. which means that the underlying cash flows of the bond did not decline? To give you some color on the cash flows of this portfolio.

The bonds returns cash interest of $48 million and repayments of $20 million this quarter. These cash flows are what enable us to pay our dividend. And finally, our CMBS book is incredibly diversified with over 300 and 250 at an average price as a percentage of base value of just $0.22.

We choose to make $47 million in CMBS purchases during the quarter. These consisted almost entirely a senior rated securities with strong credit metrics and attractive pricing levels. We choose not to invest in any new issued deals simply due to the widespread market volatility and our cautious approach to investing this quarter.

Moving on to our Servicer. As of March 31, we were named Special Servicer on 154 trusts with a collateral balance of approximately $106 billion and we are actively servicing $10.6 billion of loans in REO. You’ve heard us talk about the wall of maturities resulting from the 2006 and 2007 CMBS vintages.

In the first quarter, we saw the beginnings of this wall with $256 million entering special servicing. This quarter end an additional $636 million entered special servicing in line with our expectation that more default would occur as the year progress. And now turning to our conduit.

As we mentioned during our last call, the extreme volatility in the credit markets impacted pricing on our securitizations this quarter resulting in our conduit reporting its first ever securitization loss of $1.4 million.

However, as the market continues to recover we are pleased that the business has returned to profitability either at or above historical levels. I will now turn to our Property segment which contributed core earnings of $9.8 million or $0.04 per share this quarter.

Unrealized changes in value led to a GAAP loss in this segment as well with depreciation and amortization of $0.07 and a decline in value of our foreign currency hedges of $0.04. The economic reality is that these assets are not depreciating.

Likewise, our foreign currency hedges are effective economic hedges but there is a timing mismatch under GAAP, which causes the value of the hedge to flow through earnings today, while the impact to the related asset will not flow through earnings until future period. Core earnings does not contain these unrealized charges.

During the quarter, we added another $203 million of assets to this segment closing on 12 of our previously announced Woodstar multifamily affordable housing communities. As a reminder, these assets are levered with 74% fixed rate financing that has an 18-year average term.

And finally, I will add just a few brief comments about our capitalization, investment capacity, and our forward outlook. Our debt-to-equity ratio was just 1.4 times at the end of the quarter. If we were to include off-balance sheet leverage in the form of A-Note fold, our debt-to-equity ratio would be 2.5 times or 2.4 times excluding cash.

We believe these levels are conservative or compared to others in our sector and when compared to the LTV of our loan portfolio. Given our current investment capacity of $2.5 billion and expected loan repayments throughout the remainder of 2016, we continue to have adequate liquidity to execute on our core business strategy going forward.

We have ample capacity on our existing lines and are in regular communication with our lenders to extend these lines when and as needed. Looking ahead, we reiterate what we said to you last quarter. We will commit to earnings and continuing to pay our $0.48 quarterly dividend this year.

To that end, for the second quarter of 2016, we have declared a $0.48 dividend which will be paid on July 15 to shareholders of record on June 30. This represents a 9.8% annualized dividend yield on Friday’s closing share price of $19.67. With that, I'll turn the call over to Jeff for his comments..

Thanks, Rina. Our last earnings call was on February 25 and we told you we are holding more cash than we ever have. Spreads had just hit their cycle wide, and we said we would remain patience in deploying capital.

Soon after we saw normalization returning to the debt market to support the lender and a borrower and we began the process of putting that money back to work in our loan book and we’ve done so at the highest risk-adjusted yields I have seen since I have been here.

We will continue to be opportunistic and expect to redeploy ideal cash mostly through our loan book, moving forward, and at likely higher blended yields.

The optimal leverage yields on new originations and loan purchases averaged over 14% this quarter at just 54% LTV and shows that we are able to take advantage of the market implication in quarter one.

Although the first quarter maybe an outlier, it feels like we can maintain the credit quality of our book and invested higher yields today than we could in 2015. But the volatility that has allowed us to invest more accretively on our lending book has also had an effect on the CMBS market.

On that first quarter call, I said that the widening in spread will create more opportunities, and that lower volumes would lead to scarcities, which would lead to tighter spreads. We are seeing that now, and CMBS spread have rallied back in, with blue and new issue in the market and volume expectations continuing drop in 2016.

Buyers have less paper to choose from, and shorts have been reduced.

I think hedge funds and others spent a lot of time looking under the hood at CMBS in quarter one, and saw what we have been saying that today’s CMBS is different than pre-crisis originations in LTV, IO percentage, enhancement and importantly the ability of the BP buyer to shape a pool through kick-out.

We expect ultimately to see significantly better performancefrom recent origination. The investing landscape will continue to improve for permanent capital vehicles like ours are positioned to take advantage of the implementation of the new risk retention rules later this year.

It will also create an opportunity for Starwood Mortgage Capital which after a slow first quarter is recently are gained on sale margins in line with the best 15 inspiring the business. We talk a lat about our credit first philosophy at Starwood. In over sever years since our inception we’ve yet to take a $1 loss and announced $18 billion of loans.

Also as Rina mentioned, our weighted average LTV declined this quarter to a record level of 61.2% with 95% below 70 LTV. The more interesting statistic to me is that not a single loan in our book is about 80% LTV today. The risk in a book like ours is not in the averages, but in the tail and simply said we have no tail risk in the book today.

We underwrite an asset managed every loan in our book ourselves and our credit committee consist with most senior people of both Starwood and our Manager at Starwood Capital Group. We share a tremendous amount of information and data across our platform of over 2000 employees and we will not sacrifice credit to reach REO.

I’m now going to turn it over to Barry..

Thanks, Jeff, and thanks, Rina and good morning, everyone. I glad you are with us an hour earlier than our usual call. We are all wondering why we did this. I have to say I am really happy with the quarter. We didn’t have a lot of – some of our cylinders were off, our conduit business being negative in the quarter.

It’s a tribute actually losing $9 million in one of the most valuable credit metrics we have seen since the start of the company five years ago and a tribute that actual model of turning their inventory 11 times during the year.

And as you heard since then we return to profitability and that’s a business we countered on to make a huge shekels every quarter and delighted to see not only it survived the trade, because the structures environment continue to change within conduits which were shut.

And clearly the Fed is going banks to cool it on leading property and with the new risk retention requirement coming at the end of the year. I probably never have been as excited about the prospects for our Company going forward.

We really as the largest player in the space and with the coming liquidity we are anticipating in our book and the quality is just that of what we are lending against and returns we are seeing.

This is a full all pedals to the metal environment again for us and we find ourselves really cherry picking loans again and relying on our equity credit underwriting orientation to take the best.

And that really is our core business – the lending business and then I am happy to see that we can get back in that business and its scale which is unique to us given the scale of our company and the breadth of our organization.

That was included by the way of picking up our lending in Europe where we have been incredibly successful, too good because many of our loans are being repaid which you heard from me and there is a lot of loans in Europe.

So we charged 50 or sell direct employees in Europe finding opportunity for us and they are responding and what you see here is being mired in Europe where banks are getting little bit more of shy and that creates great opportunities for us as a creative lender.

And not only in transitional asset today, so some of them are just – the banks wearing us and scale of their loans and inability to securitize just back in that on the market and we are obviously a lender to hold.

I just want to point out and highlight again the Rina’s comment about our overall leverage at 2.5 to 1, when our nearest competitors nearly 3.5 to 1. This all the way a different strategy obviously and we have a multi-cylinder strategy that are all credit related, but we are trying to extend maturities and that was moving to the equity book.

And I will make a comment about the equity book and it’s really exciting for the company.

There are two loans in the company that we made, sorry two purchases one, portfolio of assets in Ireland and another one of the loan 7th Avenue in New York City, which is the redevelopment that we hold to senior mortgage and there was five financing place of others. I know we have an equity kicker which will hold on our books to zero.

In the quarter the company or the developer executing the major lease with a credit institution for considerable portion of the leased based of the properties, but it’s a very exciting tenant so are still back still that now with – add great space which is our premium today and based on that we think as equity kicker worth a lot of money tens of millions of dollars and in aggregate I can safely say that a gain in our equity portfolio is over $100 million.

Consisting from really three positions that we hold in a conservative market on the fourth, so our adjusted book value our share market value is well above the book value we see here and as Rina pointed out we are going to have fluctuation both in currencies and in CMBS that are going to affect our mark-to-market book value which we hope will be conservative.

The other exercises we undertook in the quarter was to value our service charge to just out of curiosity we were able to layout, what we expect are the cash flow streams for the servicer going forward for the next four years.

And we also think fairly conservative mark and very conservative marks on our servicers, somewhere around $122 million at the end of the quarter.

So we think that’s also fairly very conservatively March given the discount rates we are using on our cash flow chain, which were probably considerably in excess of what they ought to be given the near-term nature of the cash flow coming in.

So I want to summarize by just saying as I think the environment is really good for us and I can’t – I think this is our fifth cycle in five years where things gapped out, things came in, we were very cautious, as we told you we would be.

We want to get through Hurricane and hit the credit market and I ask myself sort of everyday given what we do here in equity book we have and our $70 billion of asset. Is this summer of 2008? Like we’re all getting well-into a storm and the [indiscernible] market is getting a blow-out? And the one big positive I see today versus that period of time.

Those are two at this $10 trillion of capital or bonds with negative yields in the world, and to produce the 10 dividend yield with 61% LTV is absurd.

I think the credit quality of our book obviously has never been better, but the market don’t seem to pay attention to that, but what I really like about the market right it’s the credit markets are rallying. They’re not falling a part, but actually AAAs are coming from 175-ish to 125 on loss securitization.

So where you really in the summer of 2008 you probably would see the credit markets deteriorating and they are not, even the yield market is opened up again and companies are issuing debt. So I think that bodes well but the structure of the market is probably never seen this much term oil.

With banks basically least shutting down lending operations and traditional lenders jockeying for position, with the post December risk retention changes in the world and I don’t think any company in our sector is positioned than us, take advantage of those changes both because of our underwriting capacity and our conduit business.

And our issue shelf through Starwood Mortgage Capital as well as our ability to write large loan loans and then syndicate them is we choose to do so. So I am looking forward to the next 12 months for the firm and hopefully next 10-years. But is a very good quarter I am really happy with the performance of the firm.

Specially when – that’s why we have 10 cylinders.

So that one shutdown we can look on others and we always have something to do and we’ll never push the credit curve and the credit cycle course and we will stay the course and we sat on a lot of cash, we paid for it but now we can deployed it and really excited about the opportunity there in front of the company right now.

So with that, we will take questions. One more thing before I take questions. Operator as you there. What you don’t also see is that the credit quality the book really has gotten better because we paid off or been repaid on $1.5 billion in structural loans.

So that we have gone into construction a couple of years ago in fact I thought the book was too heavily laid in construction we actually avoided construction in New York city in particular beings there was too much exposure to the city. And that turned out to the incredibly precious move.

We will get repaid on Hudson Yards probably on the day it is open, for repayments. But actually that loan which was a fabulous risk awarded loan with an 8% interest mortgage - we’ve only levered at the corporate level, we’ve never levered at the asset levels.

So it actually was a drag on the ROE of the company despite the fact that an 8% first mortgage on a trophy office building nearly fully let today, would be amazing deal and today you could probably sell in 50 or 200 over. It is not a net accretive transactions to the firm even though it’s a great way deploy capital.

So we’re super excited about reducing our construction exposure and excited about looking at new opportunities in construction, which again, changes in regulations are allowing us to do.

So and we can go into that detail offline if you would like to know how the change will offer - people on land for long periods of time, they are in a world of hurt right now, getting a construction loan. So thank you very much. And we will take question..

[Operator Instructions] And we’ll go first to Steve DeLaney with JMP Securities..

Good morning, and thanks for taking the question. I’m going to start with the small item. I noticed in the principal the target portfolio that you sold about $98 million of loans and should we just assume that was a senior participation or in A-Note that’s the first part of the question.

And then secondly when you take a whole loan and you sell that interested you then reclassify your retained piece down to the subordinate loan bucket? Thanks..

Let me do the first one, and then second one – did you hear the second one? What was that question? Second one..

Okay. Barry, so the first part was just….

Okay. Let me do the first one..

Yes, sir..

I mean we made a loan, we got a little of our key I felt and we made a loan on the market that fell in New York City and we flipped it. We got out of the position.

It was to equity like I thought and a lot of the asset come from leases on mega condos at the top of the building, and they rent for like $70,000 a second and it’s hard to underwrite and I was just not comfortable with the loans, so we made the loans and then we sold the loans basically….

We are under mid-teens return and had a slight profit on it..

Slight profit. Again, you don't see these things, but I just didn't want to hold the market fell on it, look like it’s 13, but it’s hard to tell. I mean it’s hard to get….

Yes, got it. Okay, so no retained exposure..

No. None, zero..

Okay, great..

[Indiscernible] it’s still not the case..

Sold the whole loan. We originated 53 and then syndicated the loan back out..

All right. That’s very helpful. Thanks. And as far as – I think we are all amazed, I mean what was it, Jeff said it was late February, we were sitting around on our last call, wondering about whether CMBS were going to get 200 before they came back to 100.

So we’re thinking is way that turned out, but I’m curious if you're back active, you are seeing some good results, would you describe yourself then Larry’s team has being fully engaged with the market now and to that end we saw lot of lay-offs of conduit lenders, was he able to do out that just kind of shutdown period was he able to maintain his staff?.

Yes. We maintain staff and if anything I think we would go the other way given the opportunity that we see. The reality over the last couple of months is volumes do go down when spreads widen.

The rate that’s getting pass through to the borrower is significantly higher and it becomes significantly higher than they get in the bank or insurance market and you will see loans that don’t have to get done, not get done and loans that have to get done go to the bank and insurance market because CMBS volumes come down, we certainly saw less of production from people like us.

So although we were pricing in wider spreads both because of the volatility and because the spreads are wider and ultimately you will see us and people like us make significantly larger gain on sale margins on anything they were able to write in February, March or April.

Unfortunately, the volumes won’t be quite as big this time around for these couple of months, but we’re hoping to pick that back up into the quarter, but we are hoping to continue and potentially grow our SMP business..

Great. Thanks, Jeff..

We didn’t – Larry asked me if I wanted him to make up for that volume the we didn’t do in the first quarter and the rest of the year. And just run your business in the way you normally run the business, take the risk you took before and if it means you’re reaching $500 million loans in the quarter and that's totally fine.

You see opportunities will lay them out and go for them. And I think – as you point out and I was referring to the changes in the market with a conduit layoffs. We have such a strong balance sheet with so much capacity and we believe in Larry and his team so much that we will let him, well then do what you need to do it.

And never stop or loss and if you know our reputation in the lending market, other securitizations want Larry and then start mortgage capital loan in there, securitizations because they feel are well structured and well underwritten and also we are the BP buyer today as we have to do in the first quarter, but we tailored these portfolios with the team there that basically cherry pick and create a great securitization because of the knowledge we have in the marketplace so kind of an un level playing field and some level to our [indiscernible]..

Right. And Barry, let met close with one really big picture item if I could. There’s been some M&A going on in the mortgage REIT space that obviously we haven’t seen in prior years.

And I am just curious if you and the team are looking out this velocity just with the market in your own portfolio, but if you are looking at that group of roughly 50 companies and you know seeing anything that whether from a strategic perspective or just sort of a cost effective way of acquiring incremental capital if you think there is anything out there that might make sense.

I know you took at a run at something like that, I think back in 2011. I’m curious about your thought on the M&A going on in this space? Thanks..

We are watching and looking and if you see something that’s accretive and good for our shareholders and it’s doable and fits the strategy and we certainly would like to figure out if we can execute it, but our goal has to be accretive to both earnings and the book earnings and both….

Got it..

So those are our guidelines..

Thanks for the comments..

[Operator Instructions] Our next question will come from Eric Beardsley with Goldman Sachs..

Hi, thank you.

Just I guess I want to get a little bit color around the special servicing, I know you talked about seeing some potential decline in the first half of this year I guess given that you are now starting to see that way it come in and you mentioned roughly $600 million and in special servicing after quarter end, are we at a trough level now in terms of first quarter revenues and servicing?.

Let me just say one thing about the special I mean we always talk about this business begin a hedge to our - rest of our business.

And I think the tightening of the lending environment is causing more loans to go into specialty some of these are refinanceable, but today because we will play in equity and the debt, and they present opportunities to us either refinance the loan or restructure the loan even participate potentially the kicker.

But most of this is – often the borrowers wait too long, they have been just about what those to on the lease buy and the one thing that is interesting about the book. First of all the book Andrew, correct we’ve been in business seven years close to five same place and you having fun.

And when we would - remodel this book probably to be $5 million, $6 million at this point 10.5 and as we look out, we thought the maturities 2016 and 2017 as we take earnings in 2016 and 2017 and we actually don’t think that’s a recent one. We see these work out and cash flow is extending our further through 2018 and even 2019.

So it’s a – the longer life cash flow stream and then we probably thought and hopefully it will be even higher returns.

Some of the stuff is like, it’s hard to value, it’s hard to anticipate because as you know we get the default interest and hard to model and some times we offer this as historical thing not this year where we offer a refinancing to our borrower and chose to not do it and at the end of the day we waited too long and have to pay on the bunch of the interest.

So we try to do a conservative cash flow projections and budgeting and then good thing to happen, they happened and hopefully no bad things happened..

Got it.

I guess to follow-up on that are we near trough now are you near in the low end of where those balances will be you think or is this something were maybe you start to see more growth in 2017 and we are not quite trough out yet?.

And I think you probably further to following the balance in special servicing I think you are going to see more transfers out and transfers in say in Q2 and Q3 and then I think it will started pick up towards the later part of the year.

I mean we always thought that the majority of maturities default would start hitting later this year and so until we get there I do think that balance that $10.6 billion balance is going to go down. So I don’t think it….

Let me – if you guys quick - these loans – some of these loans will be 50 basis points over the LIBOR and three IOs indeed.

So the property hasn’t recovered our capital and probably it may not be cash flow profitable now, they probably need some kind of increase in loans to the IO or building improvement, so it’s really if anything covers at 50 basis points over LIBOR and IO, but it’s going to be a quite an interesting couple of years.

And again we want the credit markets to fall apart, you mean I like them to fall apart, but we would be really happy and then we would be earnings adjusted 14 on our capital it is ridiculous in a world like this so and our equity deals which we meant the core deals are quite high, shockingly high.

So we are pretty excited about it and our job, my job, Jeff’s job is to position ourselves in a good manner for taking advantage of the change in the marketplace, sure that lead space..

Got it.

And just as a quick follow-up there, it sounds like the reinvesting environment is really strong right now and given those returns you mentioned I guess what can you do to take advantage of that I mean are there any opportunities to take up leverage or and also just to switch that are we going to start to see that start to translate three-year loan yields in the coming quarters?.

Yes, it take a long time to change the overall loan yields, that certainly will have some unlevered stuff rolling off and that we replace with leverage higher yields side it certainly make a difference, but I wouldn’t expect the wholesale change in that on an overall basis. From a leverage perspective we are credit first.

We look at every loan for us from a credit perspective and then figure out how much leverage are we comfortable with to maintain our credit first methodology and make sure that we don’t take that first dollar of law as I mentioned we don’t have a single asset above 80 LTV today and than we where we mark our book and we are very happy with that and proud that.

So we are unlike to push our leverage to a point where we thought to worry about that that 80% threshold and I think that the market today is a great opportunity to be reasonably levered not over levered and take advantage of areas were some of the banks have pulled out especially on the larger more complex transaction and as Barry said there are more opportunities in conjunction as well going forward and we are going to measure those against cash flowing deals and we think there may be an opportunity to get more deal there as well..

We have unless sight of the fact bigger is better, more diversified and it is less interruption cash flows I just think that the environment for us and we know the history of mortgage REITs and the environment for us has to be one where we have to be cautious and not be a slave to anyone business line necessarily.

So we continue to look at the opportunities and I just think the opportunity for non-bank lenders today is exceptional when you get your word out and the number of relationships we have, the repeat business we have, the team we have in the business were building, the coverage would have in the globe is really exciting for us.

Everyone so well for the last seven years we have rolled out and what are we going to do now. This is not one of those moments..

Got it. Great, well thanks so much..

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

Thanks.

I was hoping you could talk about the relative returns of the new loans are putting on versus the loans that are getting repaid on right now?.

Sure, I don’t have the exact on the repays I could talk a little bit about the – about what we are putting on in the first quarter we actually we had a few distressed opportunities where some things came to us that couldn’t step of that other lenders couldn’t get come to with couldn’t turn on quickly and through some relationship that we have we were able to do some fairly large accretive deals.

And I think on average we are seeing all of our loans over 12% or so where we’ve historically been a 11% in the first quarter and some outliers that broad us up significantly over 14% in the first quarter..

Don’t think that’s going to last.

What we do – we had a thin funnel because we were conservative in the quarter and its absolutely compiling we did it and that was 14% but that’s not our target return on what we do we would be competitive today 11% and 11.5% is perfect on the whole piece and frankly as you know we would take a wider piece at 11% and 14% or so.

We manage our cash and we are happy to earn - we didn’t get double-digit yields with these kind of LTVs it is compelling for our shareholders can be personally and managing team went over a $100 million in stock as we told, so we are right aside you we are taking [indiscernible] sizing the size of these investments both of own capacity and as well as the maximized duration and good opportunities, good assets..

And what rolled out just to answer your question it was assets that we expected to earn somewhere around 10% that actually earned somewhere around 12%..

Got it. Rina, you are talking about in the next couple quarter having more resolution had a specialty servicing then closed.

Can you just remind us kind of where the bigger what were you earned more of the fees or more revenue get recognized along that lifecycle?.

Sure that the bulk of the piece is recognized at liquidation because that were you typically would earn your 100 basis point fee. As appose to when they enter you will on your picking fee and you are waiting and it’s going to be asset results..

Look does that mean you have more resolutions that the revenue could be higher in the coming quarters..

I mean its depended on a lot of factors it could be better keep in mind that we have been liquidating at the stage for the past several quarters. So it’s not that our liquidations will be higher then in the past.

I think our liquidations will probably be similar to what they’ve been in the past, you are just kind of start building up your inventory with trends for that does that make sense, not necessarily an increased case..

Got it. It makes sense. Thanks, Rina..

We’ll go next to Jade Rahmani with KBW..

Thanks for taking my questions.

Wanted to find out Illinois looked at credit performance of new issued CMBS since 2009 versus legacy CMBS and whether the rate of delinquency increase on new issue has in fact been better than legacy or in line with say pre-2005 vintage CMBS?.

So looking at 2009 – so there was nothing in 2009, the first deal got done at the end of 2011, so the new cycle is really 2012 vintages on. So if I'm comparing the 2012 vintage for the last four years versus 2005 deal for first four years.

Obviously it’s going to be almost impossible to compare them because the 2005 deal has hit the wall 2.5 yeas in, so they didn't make the four years, let them do issues that I’ve made it.

So we haven't done a study on it, but obviously at this point four years into the new cycle, the old cycle has completely deteriorated by then given what happened in 2008. So it’s a little bit hard. Our expectations are – you're going to have a significantly better performance and that isn't just – that hit the world.

IO percentages are only a little bit more than half of what they were at the highs LTVs versus CMBS today or something like 64 versus 69 to 70, LTV back then.

One of the things that I didn't mention is back in 2006, 2007, you were underwriting CMBS off of pro forma cash flows that you’ve expected to get, today we underwrite off of the cash flows you actually receive. Those are very big differences.

So you add those things up and I think that you're looking at like the extremely better performance, and if you look at enhancement to BBB the rating agencies are kind of getting the joke as well. Rating agencies are now putting 8.9% enhancement to BBB versus 3.3% in 2007, so they're getting it.

So on top of that Jade, as we talk a lot about our ability to shape the pool for kick out. We talked about in the second half of last year kicking out 25% to 30% of collateral in different deals. I think we're more aggressive there than other people.

I think you will see studies that show the market being lower, but we particularly push to shape our pool or we won’t play, you take a shaped pool with all those other characteristics and undoubtedly you’ll end up with a significantly different vintage performance..

In terms of the CMBS fair value market share you incurred this quarter, can you quantify what percentage were due to changes in your underwriting of our B-pieces in your discounted cash flow modeling and what the main changes in those models were?.

Adam is on the phone. Adam, do you want to answer..

I think as Rina stated early over 90% of the marks were due to really the liquid mark changes and spreads on the BBs and the BBBs there we have on the books. And no credit events for those BBs or BBBs we are seeing.

Obviously, each quarter we go through, we have different – we review our entire portfolio in our CMBS book and find loans that change characteristics during that time and they constantly are floating back and forth, so there is a proportion obviously each quarter that has a credit quality to it, but it's a really minor piece relative to the mark-to-market that happened in the first quarter..

You know, that’s 331 mark; don’t forget. So we have [indiscernible] for the quarter..

Just on the loan repayments. You gave the April figure and what you expect for the full-year.

Was 1Q impacted by the – I assume it was by the market volatility that slowed lending?.

No, I mean our loans 61% of the receivables can be paid, so I think Rina said something, I am going to double check live with Rina, she said we had 400….

300 – and that was actually….

And then 600 as we paid….

April..

Since than in April – expected and you said that there is another $2 billion, I think it’s another $1.3 billion..

It’s $2 billion and of the $2 billion….

Right. So that was a miss statement, we have another $1.3 billion coming in a large portion of which is actually [indiscernible]. We know we are getting back and we spend our-year accordingly. And one nice thing about the construction loan, that actually draws on that capital.

So to the extent we have other investments that are being build today stock up with $32 million as well. Well match to each other so we have excess liquidity right now..

Thanks for taking my questions..

We will take our next question from Charles Nabhan with Wells Fargo..

Thanks and good morning. In terms of the loans you're ticking out of pools or the loans you're seeing getting kicked out of pools. Are you seeing any common themes in terms of property type, structure or geography? And have you seen any change in underwriting as a result of the increased number of loans getting kicked out of pools..

If Larry was here I’ll kick it to him, but Adam is – probably the next best without Adam.

Adam do you have any comment?.

Adam do you seen - and tell everyone who you are?.

Sure. I’m Adam Behlman. I’m the President of the Real Estate Investing Servicing Segments of Starwood which was formerly known as Eleanor.

So, yes we are seeing an increase in overall kick off I think that the couple of the issues are single tenant types of stuffs we are seeing more of which we don’t like IOs versus non-IOs, different credit qualities that’s really I wouldn't say there's a trend in anything, we're not particularly just liking one thing, it’s just – well those times we think it’s over levered relative to where it should be.

Obviously, based upon our really incredible database of information we've had from what happened during the downturn. We know a lot about the loan – the area where that loan is that the borrowers themselves to really have a real input on information that we get from the new loans that are coming out.

So it affords us the ability to really quantify what we don't like about a loan and potentially those loans don’t ever wind up in our pool..

Okay, great..

So probably remember at Investor Day when we prove up our internal LPM model showed you be the geography map of the tens of thousands of loans that are been for servicing through SMB through our Starwood Property Trust business and through Starwood Capital Group where we have a tremendous information on rent roll et cetera in any geography that we think it’s almost impossible to replicate and a lot of what we used to figure out our kick out is that proprietary data and more information on what’s going on downstream obviously make a better decision on the loan you are looking at especially in the smaller conduit loans where other peoples don’t have the access to type the information to make decisions on smaller loans like we do..

Great. And as a follow-up I wanted to switch back to loan yields. You talked about the opportunity in Europe and I understand the deals are – pricing on deals is very deal specific, but could you talk about what you're seeing in terms of yields – incremental yields in Europe relative to what you're seeing in the U.S.

and relative to the existing book?.

I’d say those deals are consistent maybe little higher in Europe, but the entire gaps seen as a reason the overall yields that tied to research, it’s not proceeds, they are not lending aggressively in Europe, but it’s actually obvious the most senior piece is being paid down to a level that well inside the United States, so we made a loan on – what’s been inherent to our in the city of London to Mike Milken in Starwood Wealth Fund from the Middle East and I think our loan is like 450 or 500 over and they not only took it our I think they took it out in states, we got excess proceeds inside 200, using 120 it was some ridiculous spread with the European Bank.

So they determined by the way the building leased up and it’s been a credit right now, but as build they guide we’re delighted to get the building back up in time today.

We say we are happy if they dissolve, but we don’t do that, we don’t the 61% LTV if you take a lot of it to fall, but we were taking out and we were astonished at this spend, but if the guy wants to get this LTVs up to 75 or 80 then we can price a pretty good piece of paper on top of it which is meets our objectives.

So it’s about diversification for us, I don’t you could save the returns that are significantly higher and we also have a red line to lot of Europe and we don’t do a lot of little loans in Spain or Italy on 200 euro building and they need $300 million to refurb and they have been – we are pretty much taking the modern buildings and well located urban market.

To date, we haven’t done much on the continent, we have done in the Ireland, we have done in the UK, and we really haven’t done that much Ireland on that we’ve looked, but we don’t really – we haven’t done – we won’t lend in France it’s not a really a some place to be a lender especially a foreign lender because the four banks going to market.

And we would like to lend in Northern Europe and we have done a lot of equity deals one of the biggest assets in Norway and Poland, Czech Republic. Those are defined and we see good opportunity there are hungry, big country, and the rules of law in place in the economy is not too bad.

So we are just seeing super cautious but there is enough to do just in England we are finding and in Ireland, which is really doing quite well. I think Dubin’s vacancy rate is 3.7%, which may make it the lowest vacancy rate in the world right now. So the rents are really moving..

Great thank you..

We will take our final question from Ken Bruce with Bank of America..

Hi, guys this is [indiscernible] for Ken.

I just had a quick question on the share repurchases I saw that you guys did some I think you talked about it on the call last time Barry that you had done some early in the quarter and they seem to taper off to the stock price and I guess you covered a little bit but it was still pretty in lower than I am sure what you would consider fair value so just wanted to see if have any comments on that.

Thanks..

Yes, because we’re so cautious around the world, is seem that we should step back and we attracted the couple of big sellers in the quarter and we wanted to flush them out of the market, we were just caching the stock it was stupid. And then we were working on the few transactions and we have the top buying.

So we bought around $20 million of stock at $18.71 of share and we will remain the opportunistic but whenever we’re working on a transaction we can’t buy stock and of course the back up here is coming to place.

So we’re there because excuse me and if we can’t but we do its like a lot of thing the push UMW our span off company or Starwood’s homes which was spun out from us and as you know there is a similar issue to buyback stock the company choosing it $0.65 of fair value or growth the better portfolio were paid down debt in our case.

But we have to balance the use of capital across all of the corporate opportunities.

I would like just been more aggressive on the share repurchase it was a scary time and again we had one large shareholder with the multi million position there is no point aiming in the way of that freight train and making sure that someone else if necessary if they clear market [indiscernible] selling so there is taking a lot of pressure on the stock.

So thank you. Thank you all we appreciate being with us today and as always the teams available myself included to answer your question going forward and look forward to hopefully an exciting quarter next quarter. Thank you very much. End of Q&A.

This does conclude today’s conference. We thank you for your participation. You may now disconnect..