Starwood Property Trust, Inc. (STWD) Earnings Call Transcript & Summary

Good day and welcome to the Starwood Property Trust, Inc. Annual Meeting of Stockholders. I would now like to turn the conference over to Barry Sternlicht. Please go ahead.

Good afternoon, ladies and gentlemen. I'm Barry Sternlicht, Chief Executive Officer and Chairman of the Board of Starwood Property Trust. It's my pleasure to welcome you to the company's 2020 Annual Meeting of Shareholders. We're conducting our annual meeting this year virtually via the Internet. We adopted this meeting format in light of the public health concerns regarding the coronavirus outbreak and in order to provide expanded access, improved communication and cost savings for our shareholders. I'm also pleased to introduce the following executive officers who are also in attendance today: Jeff DiModica; Andrew Sossen; and Rina Paniry, our CFO. I'd like to take this opportunity to introduce Rob Fleshman of Deloitte & Touche, who is available to respond to any questions that shareholders may have. We have 2 parts to today's meeting -- I should also mention that the Board of Directors is attending by phone. I believe they're all on the phone. We have 2 parts to the meeting today: First, we will cover the 3 items in the notice of annual meeting and proxy statement that was made available to shareholders on March 20, 2020. Second, we'll take questions, if any. [Operator Instructions] Let me begin by calling our Annual Shareholder Meeting of Shareholders to order. We are conducting this meeting in accordance with the company's articles and bylaws, and we have 3 business items on the agenda. The first item on the agenda is to elect 7 directors to the company's Board of Directors, each to serve until the next Annual Meeting of the Shareholders and until his or her successor is duly elected and qualified. The second item is the approval on an advisory basis of the compensation of the company's executive officers as disclosed in the proxy statement. The third item is the ratification of the appointment by the Board of Directors and its Audit Committee of Deloitte & Touche LLP as the company's independent registered public accounting firm for the year ending December 31, 2020. Before turning to the items to be covered in today's meeting, I would like to review some of the rules of conduct that we will follow for this meeting. A copy of the rules of conduct is located on the virtual meeting website. Shareholders who wish to do so are welcome to raise appropriate questions in accordance with these rules. When asking your question, please include your name, the organization you represent, if any, and whether you are a shareholder or a proxy holder. Shareholders will be limited to a maximum of 2 questions each. Questions must be limited to matters properly before this meeting and of general concern to the company. I have proof of affidavit that notice of this meeting has been duly given and that a notice of annual meeting and proxy statement has been furnished to shareholders of record as of March 3, 2020, which is the record date set by the Board of Directors to determine the eligibility to vote at today's meeting. Copies of the notice of annual meeting and proxy statement and the affidavits of mailing will be filed with the minutes of this meeting. A representative of the American Election Services will serve as our inspector of election for this year's meeting, and she has signed the oath of office. This oath will also be filed with the minutes of the meeting. The inspector of election has in his possession a list of the company's shareholders of record as of March 3, 2020, the record date of today's meeting. And he has advised me that as of the date, there were 282,970,469 common shares outstanding, each entitled to one vote on each item of business. The inspector of election has further informed me that more than 84% of the company's outstanding common shares entitled to vote are represented at the meeting by webcast or by proxy. This is a sufficient number of shares to constitute a quorum. Accordingly, this meeting is duly constituted. As of this date and time, the polls are open for voting on the matters before this annual meeting and set forth in the notice of annual meeting and proxy statement. We would now like to begin the formal business of the meeting. The polls are now open for the proposals to be voted on at this meeting. Shareholders attending the virtual meeting can vote their shares online from now through the closing of the polls. As a reminder, if you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed and no further action is required. The first order of business is the election of directors. The Board of Directors currently has 7 members, each of whom is elected annually. The common shareholders have the right to elect all 7 members to serve until the next Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. The nominees for the Board of Directors are named in your notice of annual meeting and proxy statement. The Board of Directors unanimously recommends that you vote for the election of each of the 7 nominees. The second order of business is approval on an advisory basis of the company's executive compensation as disclosed in its proxy statement. This advisory vote is commonly referred to as a say-on-pay vote. The Board of Directors unanimously recommends a vote for the approval of the advisory resolution relating to the compensation of our named executive officers as disclosed in the proxy statement. The third order of business is to ratify the appointment of Deloitte & Touche as the independent registered public accounting firm for the company for the fiscal year ending December 31, 2020. The Board of Directors acting upon the recommendation of its Audit Committee has appointed Deloitte & Touche LLP to audit the financial statements of the company and is asking that you ratify this appointment. The Board of Directors unanimously recommends that you vote for the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the company. If you have not yet completed delivery of your proxies or ballots, please do so now since we will be closing the polls for voting at this time. I am pausing for you to vote. [Voting]

As of this date and time, the polls are closed for voting. And at this time, I'll ask Andrew Sossen, Secretary of the company, to report the results of the votes.

Thanks, Barry. Based on a preliminary count, the entire management slate of nominees for directors has been elected, the advisory resolution relating to the compensation of our named executive officers has been approved, and the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the company has been ratified. The final results of voting will be made publicly available in a Form 8-K to be filed with the SEC within the next 4 business days. That concludes the formal business of today's shareholder meeting. And I therefore declare that the formal part of today's meeting is hereby adjourned. We'll now answer questions, if any. [Operator Instructions] Questions must be limited to matters properly before this meeting and of general concern to the company.

As of the moment, we have 3 questions. So Barry, I'm going to read those questions aloud to you and let you answer those. The first is from the Carpenters Pension Fund from [ Jim Lore ]. The question is, "Mr. Chairman, the Carpenter Union Pension Funds have a collective ownership position of 81,000 shares of the trust's common stock. As long-term shareholders, we appreciate the efforts of the company to address the difficulties faced during the COVID-19 pandemic. The Board recently authorized an outstanding share repurchase program of up to $400 million. Can you review the Board's thinking on the share repurchase program and when you expect the company to execute it? Thank you, Mr. Chairman."

Thank you for the question. You are correct, we did institute a $400 million share repurchase program. In the past, we have used these repurchase programs when the stock has traded below the fair value of the assets. It is -- you will learn on May 7, when we formally report earnings, that we did, in fact, buy some stock back and then suspended the repurchase agreement as the capital markets deteriorated and our focus became much more on liquidity of the enterprise given the unknowns in the capital markets at the time. So we'll address that further in the statements we can make during our earnings release in the coming week or so.

Great. And Barry, there's a second question on the same topic. I'll read it aloud, but I think you've answered most of this already. This is from a shareholder named [ Michael Peterson ]. The question is, "What is the current status of share buybacks/amount repurchased and average cost and the Board's intent to utilize all $400 million authorized for these buybacks?" So I think you've answered that sufficiently. Unless there's anything else you want to add, we'll move on to the next question.

Well, the only thing I'll add...

Go ahead.

That our stock obviously remains trading below the book value of the company, either direct book value or what we call the fair value of the assets given that we have significant gains that remain in our book that aren't recognized in our book value. So it included depreciation of our real estate assets, which have actually appreciated and make us quite different than our peers. So we're reluctant to dilute the value of our enterprise. And on the other hand, we are very concerned about maintaining liquidity. But I think the REITs are kind of being divided, the mortgage universe, between 2 sets of REITs today. One group that is, I would say for lack of a better word, fighting for their lives. They have liquidity issues and need capital; and the second group which is fairly well capitalized and is probably trying to decide how much liquidity to hold on to versus how much offense to play in these more distressed markets at the moment. We fall into the second category, which is we have plenty of liquidity and we're trying to make sure that we can take advantage of the times we're in right now while making sure that if there's a further downturn in the market, a subsequent downturn, which doesn't seem evident at the moment, that we're a survivor and can grow the company for the long term. So the share repurchase program really has been suspended at the moment not because we don't think the stock's in extraordinary value, just because I think our job is to maintain liquidity and to use the capital to build and restore the value of the company.

Great. Thanks, Barry. The last question we have is from a shareholder who didn't identify themselves, but the question is, "What do you anticipate regarding dividends in the third and fourth quarters of 2020?"

I think that's for the Board of Directors to decide, and we can't give you an answer today. We -- REITs have to pay out what they -- 95% of what they earn, their taxable earnings, and we will have significant earnings this year in almost any scenario. So -- but what our dividend is, it'd be premature for me to announce it in this Annual Shareholder Meeting, and that's really for the Board to decide. One of our largest peers this morning issued a statement that they would decide sometime in June what their earnings or dividends would be going forward. And obviously, as a significant shareholder myself, I like our dividends to be maximized while not jeopardizing the future of the company. So I can't comment further. It would be inappropriate because it is set by the Board of Directors.

Thanks. And Barry, we actually just got one more question in. It's from a shareholder named -- an individual shareholder named [ Fred Posternak ]. "Given the current environment, what is the company's overall strategy going forward to deal with 'social distancing?' And how safe is the dividend going forward?"

What's our policy on how to deal with social distancing, you mean in the office?

I'm just -- that's all I have for you, Barry. I mean it's just the question that came in. The company's strategy going forward to deal with social distancing.

Well, it's really our borrowers' job to modify the layouts and services that they provide to clients, whether it's a hotel, office building or industrial building. As far as us, we're all working virtually, but we look forward to reopening our main offices here in South Florida as well as New York shortly. And we're taking all the appropriate steps that all our peers are and making sure our employees are safe. So in that regard, that would be my answer on that. And the...

And Barry, I'll just -- I guess just add to that in case you wanted me. I mean we -- [ Fred ], we instituted our business continuity programs as soon as obviously the pandemic started. And we've had close to 350 people, so all the employees of STWD working remotely in a seamless environment for the past almost 2 months. So there's been no issues from a BCP perspective for STWD, and we've been able to execute really well on our business in a remote environment.

There was a second part to the question, which was...

Yes. It was another dividend-related question, Barry. He said -- [ Fred's ] question, the second part was, "How safe is the dividend going forward?"

I mean, what's the word, the Amazing Kreskin? I mean we -- I've commented on the dividend. I can't comment further. I mean if there's no further erosion of the markets, we're buying. But we can't know what the future holds, and we want to make sure that in this uncertain world, with uncertain return to business across the country, that we don't -- we preserve the value of the enterprise for the long haul. So at the moment, we're optimistic. Thank you.

Great. Barry, that would be -- that was the last question.

So I'd like to thank everyone for the opportunity to address your questions and for you listening in. On behalf of the Board of Directors and the management team, again, we want to thank you for your continued support. And we look forward to chatting with you, hopefully live, in our next annual meeting next year. Thank you so much.