Financial Data and Key Metrics Changes - The company reported a net loss of $0.07 per share for Q4 2024, with adjusted distributable earnings of $0.27 per share, maintaining a strong net interest margin of 5.07% [23][21][24] - The debt-to-equity ratio adjusted for unsettled trades increased to 2.9 times from 2.5 times at the end of Q3 2024, while the net mortgage assets-to-equity ratio decreased to 2.6 times from 3 times [27][21] - The book value per share was $6.53 at year-end, with combined cash and unencumbered assets totaling $111 million [26][21] Business Line Data and Key Metrics Changes - The CLO portfolio grew by 18% to $171 million at year-end, with capital allocated to CLOs increasing to 72% from 58% at the end of Q3 2024 [28][9] - The CLO mezzanine debt portfolio performed well, contributing positively to adjusted distributable earnings, while the Agency mortgage portfolio experienced a loss due to interest rate volatility [20][24] - The Agency RMBS holdings increased by 11% to $512 million at year-end, but the Agency strategy generated a net loss for the quarter [28][20] Market Data and Key Metrics Changes - Strong credit fundamentals and robust demand for leveraged loans supported the CLO markets, with credit spreads tightening and record high corporate loan issuance [17][18] - The CLO equity investments delivered modest returns, impacted by high pre-payment rates and coupon spread compression in the loan market [32][31] - The market experienced heightened volatility, with credit market conditions creating both challenges and opportunities for CLO investments [38][39] Company Strategy and Development Direction - The company is on track to complete its conversion to a closed-end fund on April 1, 2025, which is expected to enhance risk-adjusted returns and access to capital markets [9][51] - The focus has shifted towards liquidity in the Agency pool positions, with plans to sell these pools post-conversion to deploy capital into CLOs [16][49] - The company anticipates a fully ramped CLO portfolio by mid-year 2025, aiming to balance swift ramp-up with careful asset selection [50][49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the timing of the conversion, suggesting it may align well with emerging investment opportunities in the second quarter [57][51] - There are concerns about potential long-term stresses on corporate borrowers, but the company remains focused on maintaining liquidity and capitalizing on market inefficiencies [37][39] - The anticipated market volatility is seen as a chance to deploy capital effectively, with a focus on CLO equity investments [40][51] Other Important Information - The company has significantly derisked its Agency MBS portfolio by increasing short TBA hedging positions, effectively offsetting most of its Agency MBS exposure [43][42] - The transition from a mortgage REIT to a CLO-focused closed-end fund has been a complex process, supported by extensive planning and shareholder backing [46][48] Q&A Session Summary Question: How much capital will be freed up on April 1 when selling the Agency portfolio? - Management indicated that approximately 28% of the portfolio not in CLOs would be available for deployment, which is expected to be well-timed given current market volatility [54][56] Question: How have different parts of the CLO market reacted to recent volatility? - Responses highlighted that AAA tranches have seen slight declines, while equity investments have generally decreased several points, with market dynamics being manager-dependent [60][61] Question: What is the expected leverage range once fully invested in CLOs? - Management suggested a reasonable estimate of half the churn of leverage, indicating a potential for $150 million worth of CLOs for every $100 million of common equity [88][87]

Earnings Conference Call Q4 2024 March 13, 2025 Q4 2024 EARNINGS Important Notice Forward-Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking s ...

Financial Data and Key Metrics Changes - In Q4 2024, the company reported net income of $0.25 per share and adjusted distributable earnings (ADE) of $0.45 per share, which comfortably covered the quarterly dividend of $0.39 per share [7][19] - The ADE increased from $0.28 per share in Q1 2024 to $0.45 per share in Q4 2024, reflecting a 25% year-over-year growth in the credit portfolio [44] Business Line Data and Key Metrics Changes - The Longbridge reverse mortgage segment performed excellently, contributing $0.30 per share to net income, while the credit portfolio generated $0.32 per share [19] - The credit portfolio increased by 5% to $3.42 billion, driven by net purchases of closed-end seconds, HELOCs, commercial mortgage bridge loans, and non-agency RMBS [24] - The Longbridge portfolio decreased by 15% sequentially to $420 million due to the impact of proprietary reverse mortgage securitization [25] Market Data and Key Metrics Changes - The agency strategy generated a modest loss due to rising interest rates and volatility around the presidential election, impacting Agency RMBS performance [22] - The overall debt-to-equity ratio increased to 8.8:1 from 8.3:1, while the recourse debt-to-equity ratio remained unchanged at 1.8:1 [26] Company Strategy and Development Direction - The company aims to continue leveraging its vertical integration to grow its loan origination business and maintain a focus on credit investments rather than agency securities [30][79] - The strategic use of securitizations is viewed as a core competitive advantage, expected to drive strong earnings and support dividend coverage [14][58] Management's Comments on Operating Environment and Future Outlook - Management noted an uptick in residential loan delinquencies, particularly in the non-QM portfolio, but does not expect material losses due to strong underlying real estate security [39] - The company remains optimistic about the demand for proprietary reverse mortgage products and anticipates continued ADE growth to cover dividends moving forward [45] Other Important Information - The company completed four securitization transactions in Q4, capitalizing on favorable market conditions, which included two non-QM deals and a proprietary reverse mortgage securitization [10][12] - The total weighted average borrowing rate on recourse borrowings decreased by 56 basis points to 6.21% due to lower short-term interest rates and tighter financing spreads [25] Q&A Session Summary Question: Can you talk about some of the originator investments and the appetite for non-QM given the commentary around delinquencies? - Management indicated that they have been making small investments in platforms where they have established relationships and can help lower warehousing costs and improve underwriting processes [63][64] Question: Can you contextualize the earnings expectations for Longbridge? - Management suggested a long-term run rate target of approximately $0.09 per share per quarter for Longbridge, with Q4 exceeding this expectation [68][70] Question: Why isn't the agency portfolio more attractive at current valuations? - Management explained that while the agency sector has been good, they believe their capital can be better utilized in credit-focused investments that leverage their vertical integration [76][79] Question: Is there an expectation from investors to buy loans out of the securitization trust? - Management clarified that they expect to work out and resolve loans while they remain in the securitization, rather than buying them out [84] Question: What is the current run rate for net interest income? - Management indicated that the net interest income seen in Q4 is a good run rate moving forward, supported by ongoing improvements in liability management [91][92] Question: What is the impact of staffing cuts at HUD on Longbridge? - Management acknowledged the uncertainty but emphasized that their proprietary business has been driving earnings, and they will have to wait and see how regulatory changes unfold [121][123]

Starwood Property Trust, Inc. (NYSE:STWD) Q4 2024 Earnings Conference Call February 27, 2025 10:00 AM ET Company Participants Zachary Tanenbaum - Head of Investor Relations Barry Sternlicht - Chairman & CEO Jeffrey DiModica - President Rina Paniry - Chief Financial Officer Conference Call Participants Steven Laws - Raymond James Richard Shane - JPMorgan Jade Rahmani - KBW Douglas Harter - UBS Donald Fandetti - Wells Fargo Securities Operator Greetings, and welcome to Starwood Property Trust, Inc.'s fourth q ...

Financial Data and Key Metrics Changes - The book value at the end of Q4 was reported at $12.70 per share, with an economic return of 1% for the quarter and 7.4% for the year [13] - The common equity capital grew to over $1,000,000,000, reflecting a year-over-year growth of over 40% [10] - The leverage increased from 7.6% to 7.9% during Q4 as new pools and TBAs were added [21] Business Line Data and Key Metrics Changes - Interest income increased due to the addition of higher-yielding assets, while older lower-yielding assets continued to pay down [14] - The company raised $64,000,000 in new capital during Q4, maintaining ample liquidity to deploy into higher yield markets [15] Market Data and Key Metrics Changes - The investment environment remains favorable, with mortgage spreads in the range of 130 to 140 basis points over 7-year treasuries and 175 to 185 over swaps [26] - The company noted that bond fund flows have been positive at higher yields, which could accelerate given the sizable holdings in money market funds [26] Company Strategy and Development Direction - The company is focused on delivering value at the intersection of capital markets and housing finance, with a strong emphasis on agency-backed single-family residential MBS [5] - The management team is committed to proactive engagement with policymakers to navigate the evolving policy environment [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver dividends driven by current and future returns, emphasizing the importance of scale and disciplined capital deployment [33] - The macroeconomic landscape is evolving, with expectations of a wider distribution of rates and potential volatility due to government policy changes [23] Other Important Information - The company has generated the leading total shareholder return among agency-focused mortgage REITs over 1, 3, and 5 years, even during challenging market conditions [11] - The management team has been actively engaged with Washington to monitor developments related to GSE reform and its implications for housing finance [20] Q&A Session Summary Question: Can you walk through the drivers of the shift from treasury futures to swaps this quarter and any impact that has on spreads? - The shift was driven by swap spreads reaching levels that compensate for potential fiscal issuance, with an expected addition of 200 to 300 basis points of marginal ROE from this change [37][38] Question: Can we get an update on book value quarter to date, any big changes? - The book value has remained essentially flat since the end of the quarter [39] Question: Can you talk about your strategy for continuing to grow the capital base in 2025? - The strategy is predicated on the investment environment, focusing on accretive capital deployment when ROEs exceed long-term dividend levels [43] Question: How do you think the MBS market is currently pricing in the potential for GSE reform? - The MBS market appears to be pricing in a small percentage risk of meaningful changes, with spreads currently reflecting a low probability of significant shifts [46] Question: If we see swap spreads stay around current levels, would you expect that shift to continue to move more into swaps? - The hedge portfolio is currently positioned as desired given the market environment, with no immediate plans for further shifts [53] Question: How do you still price in the risk to spreads related to short-term rallies and rates? - The company is preparing for segments of the market that are less refinanceable, focusing on security selection to mitigate risks [67] Question: With the new FHFA Director, where do you see the origination footprint of the GSEs moving? - It is difficult to predict, but a smaller footprint and increased private label issuance are logical expectations based on ideological biases [72]