Starwood Property Trust - Earnings Call - Q3 2020

Transcript

Operator (participant)

Greetings. Welcome to the Starwood Property Trust third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Zach Tanenbaum, head of investor relations. You may begin.

Zach Tanenbaum (Head of Investor Relations)

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 September 30th, 2020, filed its Form 10Q with the Securities and Exchange Commission, and posted its earnings supplement to its website. These documents are available in the investor relations section of the company's website at www.starwoodpropertytrust.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the company's filings made with the SEC for 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 on 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. 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 Chairman and Chief Executive Officer, Jeff Dimodica, the company's President, Rina Paniry, the company's Chief Financial Officer, and Andrew Sossen, the company's Chief Operating Officer. With that, I am now going to turn the call over to Rina.

Rina Paniry (CFO)

Thank you, Zack, and good morning, everyone. This quarter once again highlighted the power of our diverse platform with core earnings of $149 million or $0.50 per share and GAAP earnings of $152 million or $0.52 per share. Our higher GAAP earnings this quarter, driven primarily by realized and unrealized gains in our non-QM residential lending portfolio, resulted in a $0.07 increase in GAAP book value per share to $15.86 and a $0.14 increase in undepreciated book value per share to $17.17. These book value metrics include $0.54 of declines related to CECL and mark-to-market adjustments on our assets, both of which are non-cash and unrealized. As we have discussed before, these book value metrics do not reflect the fair value of our owned property assets, which we continue to believe have appreciated significantly since we acquired them.

Our fair value per share estimate increased by $0.48 this quarter to $20.18. Coming off the heels of a slow and cautious second quarter due to COVID-19, we invested $1.5 billion into new assets this quarter and funded an additional $273 million under pre-existing loan commitments. We were also active on the right-hand side of our balance sheet, successfully completing two debt raises after quarter end with attractive pricing and $550 million in proceeds. I will discuss these a little later. I will start my segment discussion this morning with commercial and residential lending, which contributed core earnings of $150 million to the quarter. In commercial lending, we originated $441 million of loans with a weighted average LTV of 69%, nearly all of which was funded at closing.

We funded an additional $229 million under pre-existing loan commitments and received $335 million in loan repayments, bringing our commercial loan portfolio to $9.8 billion at quarter end. $7.1 billion of these loans benefited from a weighted average LIBOR floor of 145 basis points. Our interest collections remain strong, with 97% of our loans current as of quarter end. Since we last spoke, we executed one new modification, bringing our total payment-related modifications to 12 loans with a balance of $1.3 billion. As a reminder, these modifications are short-term, generally permitting only the temporary deferrals of interest and the repurposing of reserves, and are often coupled with additional equity commitments from our sponsors. As a testament to the commitment and strength of our borrowers, three of these interest deferrals, all of which were related to hospitality loans, were repaid in the quarter.

The credit quality of our loan portfolio remains strong, with a weighted average LTV of 61%. Since the onset of the pandemic, we have had no loans that warranted loan-specific reserves or placement on non-accrual status. Also, none of our modifications were deemed to be troubled debt restructuring, meaning that the modifications we granted did not constitute a concession to our borrowers under GAAP. On the CESOL front, while the macroeconomic forecast in our model indicated substantial growth and a recession that was in the rearview mirror, we believe that the path of future recovery will take more time. We therefore applied more adverse economic scenarios to several of the real estate asset classes represented by our loans. In doing so, our CRE CESOL reserve of $104 million remained flat to last quarter.

At quarter end, we had a weighted average risk rating of 2.9 on our five-point scale, with no downgrades in the quarter. More details on our risk ratings can be found in our supplemental. I will now turn to our residential portfolio, which represented just over half of our new investment spend in the quarter. In our last earnings call, we discussed a potential transaction which would allow us to acquire a pool of non-QM loans at a discount. In the quarter, we executed this transaction with $479 million of loans simultaneously acquired and sold into our eighth non-QM securitization. In connection with the securitization, we recognized gross profit of $50 million, which you will find in the change in fair value of mortgage loans line in our P&L. Net of income taxes and the interest rate hedges that were unwound with the sale, a gain of $28 million.

In addition to this transaction, we acquired $336 million of loans at a weighted average 2% discount to par. Our residential loan portfolio ended the quarter with a balance of $1 billion, a weighted average coupon of 6%, average LTV of 68%, and average FICO of 731. Our RMBS portfolio was $374 million. The credit performance of both our on-balance sheet and securitized loans was strong, with over half of the loans that were in forbearance last quarter brought current. In doing so, these borrowers repaid all outstanding balances in full. As we continue expanding this business, we executed two new financing facilities totaling $600 million in the past couple of months, bringing our total funding capacity to $1 billion over three facilities.

Along with our proven access to the securitization market, these facilities provide ample financing capacity to replace our Federal Home Loan Bank facility, which had a balance of $620 million at quarter end and matures in February. Next, I will discuss our property segment, which contributed $20 million of core earnings to the quarter. This portfolio continues to perform very well, with blended cash-on-cash yields of 15.4% in the quarter. Rent collections were strong at 96%, and weighted average occupancy remained steady at 97%. I will now turn to our investing and servicing segment, which contributed core earnings of $17 million to the quarter. Our special servicer continues to see increased activity due to COVID. Since the onset of the pandemic, $4.2 billion of loans have transferred into special servicing, while $800 million have been resolved, bringing our active servicing portfolio to $8.8 billion.

Given the current environment, we generally expect to see longer resolution times for these assets, which will result in delayed fee recognition for the assets that are currently in servicing. The activity this quarter contributed to a $5 million increase in servicing fees and a $4 million increase in our servicing intangible. In our conduit, we patiently waited for the securitization markets to recover before attempting to securitize our pre-COVID portfolio. Our patience paid off, and we were able to securitize $151 million of these loans at nearly break-even. Subsequent to quarter end, we attained record execution levels as we securitized another $232 million of conduit loans. Concluding my business segment discussion is our infrastructure lending segment, which contributed core earnings of $6 million to the quarter. We acquired two new loans totaling $25 million and funded $44 million under pre-existing loan commitments.

These fundings were offset by repayments of $28 million, leaving the portfolio flat to last quarter at $1.6 billion. We continue to be pleased with the credit performance of this portfolio, which had 100% interest collections in the quarter. We also recognize a $4 million decrease in our CESOL reserve due to improved macroeconomic conditions and increased liquidity in the project finance space. I will conclude this morning with a few comments about our liquidity and capitalization. We continue to have ample credit capacity across our business line. We ended the quarter with undrawn debt capacity of $8.1 billion and an adjusted debt-to-undepreciated equity ratio of 2.1 times. We also had $2.9 billion of unencumbered assets. As I mentioned earlier, demonstrating our proven access to diverse capital sources, we proactively raised debt after quarter end to address our upcoming $500 million unsecured debt maturity in February.

We executed a $250 million upside to our term loan B due July 2026 at an attractive price of L350 with a 75 basis point floor and 100 basis points of OID. We also completed our first sustainability bond issuance for $300 million with a three-year term and a fixed coupon of 5.5%. With these proceeds, we retired $250 million of our February 2021 notes earlier this week. After this payment, we had $880 million cash and improved undrawn debt capacity, which provides ample liquidity to retire the remaining balance of our February unsecured debt maturity and to continue pursuing new investment opportunities. With that, I'll turn the call over to Jeff for his comments.

Jeff Dimodica (President)

Thanks, Rina. Our diversified platform enabled us to take advantage of dislocated markets across investing segments and invest $1.5 billion in the quarter, predominantly in residential lending, where $450 million was immediately returned to us through our simultaneous purchase and securitization of loans. As Rina mentioned, we have ample liquidity to continue to invest across our business lines. As we have said in the past, we are not forced to invest only in CRE loans and will pivot investment divisions to invest in the best risk-adjusted opportunities we see at any point in time. We are seeing ample opportunity across all of our segments to invest even more capital if our loan repayment assumptions end up being too conservative and capital is returned to us more quickly than expected. Although we are not out of the woods from COVID, we are very pleased with our performance and outlook.

Rina mentioned our $550 million in debt issuances, which will pay off our February 2021 bond and also create additional investable liquidity. The bond markets continue to treat us well. Our multi-cylinder portfolio allowed us to issue our inaugural sustainability bond in October, which was four times oversubscribed with nearly 100 bespoke investors, allowing us to achieve better-than-expected distribution and pricing. We are pleased with the interest collections and credit performance of our predominantly first mortgage loan book through this unprecedented period. Our 61% LTV portfolio continues to perform well since the depths of COVID. Our sponsors have continued to invest capital into their projects, with $360 million of the $475 million we expect to receive in 2020 already funded. Our 22 hotel loans make up 12% of our assets, and we expect only four of them will require partial interest deferrals as we head into the new year.

The pandemic subsides and travel resumes. Rina mentioned the risk ratings in our supplement, and I will add that our average risk rating is 2.9 today, which is slightly better than the 3.0 that every loan starts at origination. We originated $441 million in large loans in the quarter, predominantly on low LTV multifamily and industrial loans, with a particular emphasis on European investments, which have grown from 13% of our lending portfolio a year ago to 20% today. European investments made up almost 90% of this quarter's originations and were led by a bank-quality loan to a world-class sponsor on industrial and student housing assets. In Q4 to date, we've originated over $200 million of loans and expect to remain active, yet selective, in the coming quarters.

Our assets today have less than 0.5% exposure to CRE loans in San Francisco and less than 4% to CRE loans in Manhattan, the bulk of which are to sponsors at bases that we would be happy to write post-COVID loans. We de-risked our only New York City hotel exposure in the quarter, selling the mezz and buying the first mortgage, reducing our per-key basis of this brand new hotel by 25% to almost $300,000 per key. We again significantly reduced future funding exposure and construction exposure in the quarter. Year to date, we have reduced our net future funding exposure by 43%, and for the first time I can remember, future funding requirements account for less than 10% of our outstanding loan book, leaving us only $542 million in net future fundings relating to construction loans that will go out over the next 8-10 quarters.

In summary, our liquidity position remains strong. In our residential lending business, we created opportunities to lean in on offense during COVID, when loan prices were the most distressed this spring. In addition to the $50 million gain Rina mentioned on our $479 million securitization in the quarter, we purchased another $336 million of loans at a discount to par that will go into future securitization. We continue to optimize our liabilities in the segment away from securitization, and Rina mentioned $600 million in new repo facilities this quarter. I will add that this includes our first non-mark-to-market, non-recourse warehouse line, which goes along with the strategy we've employed in our CRE lending business, which is to diversify our funding sources with a focus on non-mark-to-market, non-recourse funding.

That goes for our energy infrastructure segment as well, where we added loans in the quarter and are working to add the final loan that we expect to comprise our first energy infrastructure CLO that we hope to price in the first half of 2021. This will be the culmination of the business plan we set up with two years ago, allowing us to accretively grow the book with non-recourse, non-mark-to-market term financing. This had no adversities or interest deferrals in the first three quarters of 2020, and our portfolio has withstood the lowest natural gas prices since 2005 and negative oil prices in April, further proving the book's insulation to commodity prices. In our property segment, Rina mentioned we had a 54% cash return on our quasi-bond-like portfolio.

Based on similar low-income housing tax credit properties that we saw trade in the quarter at lower cap rates, we tightened the cap rate on our internal marks to 4.5% on our 15,000-unit Florida portfolio, which increased our fair value mark by almost $100 million. The embedded gains in this portfolio now make up $2.25 of the $3 per share fair value upside across our owned asset portfolios. These marks on a GAAP basis would be almost $1.25 billion today versus $1.1 billion last quarter. Adjusted for depreciation and fair market value marks, our book value is back over $20 today, making our stock price very attractive at under 75% of that adjusted book value and an over 13% dividend yield. In recent years, our CMBS book remains near its lowest balance in years, with a just over $700 million balance today.

Subsequent to quarter end, we took advantage of recent dislocation to add a majority interest in a pool with significantly better credit collateral and higher yield than pre-COVID deals. We continue to increase our named special servicing to take advantage of COVID-related dislocations in the years to come. Our servicer is very busy, and we expect it to be for the foreseeable future. During COVID, while many pulled back, we chose to increase our pace of CMBS conduit originations, allowing us to make tremendously accretive gain-on-sale margins in Q4 securitizations on loans we wrote in Q2 and Q3.

Finally, we mentioned last quarter that Amazon signed a lease for the 1 million sq ft Orlando distribution facility we foreclosed on in Q2 2019, and we expect to sell that asset along with the 1 million sq ft distribution facility we foreclosed on simultaneously in Montgomery, Alabama, and subsequently leased to Dollar General. The Montgomery asset is under contract, and we expect to market the Orlando asset for sale in 2021. In sum, using the sale at our contract price on Montgomery and the appraisal we got on Orlando, we will have created approximately $90 million of investable equity. These sales will reverse a previous $8 million impairment and create over $50 million gains for the company due to the unique ability of our manager to maximize value on the only two assets we have ever foreclosed on in our 11-year history.

Importantly, we were able to accomplish this outcome in less than 18 months. It's been a hectic year, and the management team has never worked harder or been more aligned, and we have never benefited more from our ability to choose the most attractive sectors in our multi-cylinder platform, nor from the diversification of liabilities on our balance sheet. We run a uniquely diversified, low-leverage business that we set up long ago to outperform periods of dislocation, and we appreciate your trust in us. With that, I will turn the call to Barry.

Barry Sternlicht (Chairman and CEO)

Thank you, Zack, Rina, and Jeff, and good morning, everyone. Thanks for joining us. I have to say I'm pretty happy with the quarter, and I'm pretty happy with our outlook, which I think was reflected in my quote in the earnings release. We did build a differentiated platform. We're not just a commercial mortgage REIT. We don't rely on one business, and we have platform value, which is expressed and seen in our earnings for the quarter and which you'll see from us going forward. Some of our businesses are extremely high ROE, like our conduit facility, which completed a securitization after quarter end and will be the second most profitable securitization in our 11-year history, and other companies that we are compared to don't have those cylinders. They don't arm those businesses.

They have to force capital into a, and maybe at a time when they shouldn't, into one line of business. And that's why we created this multi-cylinder platform, and that is why I think we can continue to perform at the levels we have in the past. We've always created non-recurring, recurring earnings, and we always will probably create them. And the comfort you should take is the fact that we have $5 of value in our firm above book gap. And that represents future earnings power, which we can harvest at times we might need to, while other businesses might be having a lull. So let me back up and talk about the real estate markets because I think that's really important as we look at what we're going to be doing going forward.

I'll just walk through the five major asset categories and give you our view on them. Hang on a second. I'm going to move the mic closer to me. So let's start with the two most impaired asset classes and talk about our exposure to them. Probably the most difficult asset class in real estate at the moment is retail. Retail is difficult to underwrite because of the credit quality of the tenants, is uncertain, and because the tenant has all the leverage. And many retailers are deciding what footprint they want to have in this brave new world. Do they want to open stores? Do they want to work on their e-commerce platforms? Do they want to invest whatever capital they may have in their distribution centers and last mile? So retail is really hard to underwrite, and it's hard for lenders to underwrite.

Our exposure to retail is about 1.5% of our total assets, and the biggest component of that is a loan on the American Dream Mall in New Jersey, where we're participating in a first mortgage. We have about $1 billion at the top end of our stack, about $2 billion $195 million of exposure to the asset. It's a first mortgage. There's almost $1 billion of debt junior to us, and the loan is collateralized with seconds on the Mall of America and the other assets of the Ghermezian Brothers. We're participating with JPMorgan. They have not taken any write-downs. It's about a $170 million position in total for our company. It's inconceivable that the mall is worth nothing because you're the first mortgage, so the question is, do you have any doubt you'll collect this first mortgage? I don't really have a doubt.

The mall was reopened, and we underwrote it as an entertainment venue. It has rides and fairs and theme parks. And frankly, when I underwrote it with our team, I said, "Let's underwrite the retail at zero. Let's assume it never leases a store. What do we think the mall will make from its entertainment venues?" And we still feel comfortable that we'll be fine at that asset. And so that is not really a risk for us. The second major asset class I'd talk about is hotels. Obviously, hotels are different than retail because they will come back. They'll come back at different points in time, and they'll come back differently depending on what markets they serve. Since we're large players in the hotel market, we're not guessing. We know what's going on.

At the firm and the equity side, we probably have interest in over 600 hotels all over the world. Our drive-to assets in places like in suburbia that are not dependent on international travel or even domestic travel, as you can see the stats, they're running 50%-60% occupancy. Those are courtyards scattered around the country. We have low-end hotels that are actually running 80% occupancy. We own a chain of 200 hotels called InTown Suites that actually is up year over year in EBITDA, so it's very different to what you own, but hotels will come back. There will be a vaccine at some point. There will be international and domestic travel at some point, and we have a very good crew of borrowers. We only have four assets in our hotel book that we think will require additional restructuring at the moment and deferrals.

But we're really comfortable with our basis in these loans and feel fine. Office is yellow, but office isn't so yellow for a lender because often our offices have tenants in there. Whether they're physically there or not, they have to pay us rent and they're credit-quality tenants. And so you see our collections in our office book are fine, and most of our office deals are totally fine. We see no deterioration. We see no deterioration in our credit book. Slightly better than we had in our risk ratings. It improved slightly. And I'm not really worried about any impact of the current spike in coronavirus because I do think you are going to have testing. Better testing. I myself seen incredible testing devices coming out in the near future, which will help mobility and help all of our assets and help people get back to the office.

You have two other asset classes really that are large. One is a multi, and the other is industrial, both of which are green and maybe bright green in the industrial space. That was the heart of one of the deals we did in the quarter in the U.K., which was multi and industrial. I just want to take you through a quick comment on valuation of our company. I want to show you how ridiculous it is, actually. The GAAP book value of the company is $1,586 a share. The underappreciated book value is more like $1,710, something like that. If you actually take the GAAP book value of $1,586 and you believe us, I think we continue to believe our valuation of our affordable housing book is conservative. We are the nation's third largest owner of affordable housing in the country.

We have assets in the space outside of the mortgage trust. So we just bought a portfolio at a 4.25 cap. And there were 14 other guys behind us, and we're still valuing this portfolio at a 4.5 cap. So if you believe our $3 of fair value that's not in the underappreciated book value, bringing our fair value above 20 bucks a share, let's take the $15.86. Let's take the $3 out of it. That's $12.86. That's the $3 of equity assets that are largely either fully leased industrial buildings or affordable housing assets that are in some of the best markets in the country and stay completely full because rents are 30% below fair value of garden apartments, of market-rate apartments. And then take out the accumulated depreciation of $1.30.

You're buying our stock at $1,076 against a GAAP book value of $1,586. That's 66% of the GAAP value of our company. Our average loan is 61% LTV. So you're buying these assets and the loans at 41% of the fair value of the asset. And for that, you're getting a 13% dividend yield. Seems a little ridiculous. So there's no way property values and what we have lent against are down 60%. So I don't think anyone's even considered that as a possibility. So our issue has always been the same issue. We could pay our dividend forever. And forever is a long time. But in the foreseeable future, we can pay our dividend. Should we pay our dividend is another story because nobody believes it's going to stay here. Clinton and Kramer recently talked about it on this program.

But we've been swept under the rug of all the other commercial mortgage REITs. I, myself, given my history in the space with the Starwood Financial, which became iStar, I'm painfully aware of what's happened to mortgage REITs in the past. And those of you who are with us and some of you who have been with us since we created this company in 2009, I said to you we would not stay past our time, and we would not go the way of many other mortgage REITs. And we're sitting with $880 million of available liquidity today and with a really good book and a really good team, 300 people here. There's no value for the platform and the stock price either. And we have a huge team.

I'm actually sitting in our offices in Miami with 300 people who are doing the work they've been doing for 11 years, originating nearly $50 billion in loans. And I feel really good about our position in the market. So hopefully the market will recognize that. I'm sorry we're not snowflake and trading at 176 times revenues. So we're sort of boring. We just pay cash. And we'll continue to earn our dividend. And that's our motto is we want to make sure that as long as we can earn the dividend, we'll pay the dividend. And we're pretty comfortable looking out into 2021 and what we see in front of us. We had very modest paybacks in our worst-case scenario in the 2021 forecast, stretching what we expected, what used to be expected maturities when people would pay us off. We put them to 2022 on our base models.

Shockingly, the money is beginning to come back. Some of you have mentioned to Zack our European exposure going up, which was really one loan, but two other loans are going to get repaid that we didn't think were going to get repaid. Our net exposure to Europe is going to go down and probably hold constant after those two repayments, which will come shortly. Rates are low. People would like to refinance. They'd like to get rid of our debt. As soon as the credit markets allow them to, I assume they will again. We'll be back aggressively looking for deals. It's kind of fun. I wish we're still running. I say we turn to become more aggressive. We're not cowboys. We're not doing anything that isn't like we think really good risk-reward in this environment. We do think things could go wrong.

We are going to keep around $400 million of liquidity. In the old days we used to keep $250 million. Over $400 million, we'd like to invest our capital. We'd like to do it in any of our businesses. You'll see us take up our energy book. Our energy business has been rock solid with no impairments at all. As you know, these are typically contracted properties. We'd like to increase that exposure. We expect to do a different kind of financing going forward, similar to what we've used in the CLO books and our real estate books. I think with that, that asset business, that asset is underperforming because of its scale. We expected to originate $1.3 billion of loans a year. We weren't able to do that. Not because we couldn't do it.

We just didn't want to do it because it couldn't get matched debt facilities for it. And that, without taking a liability like a savings loan with a short-term loan and a long-term asset, we held off pouring capital into that business until we got a new facility, which we just got, which will allow us to have matched financing and take the risk out of any mismatch in maturities between the energy paper. And if we can open up the CLO market for that business, you can see us make that a significant contribution to our business. The book is earning around, on the old book, around 7.5, and on the new book, greater than 14. The problem for us is that the scale it is, the overhead is bringing the ROE of the business below what it needs to be, kind of mid-single digits. And it will ride.

It should rise to double digits as we grow the book. And we're pretty excited about that because we have a really good team that does that. And again, there is platform value in our company because these people are the people earning that made all this money for us in these other business lines that are away from our commercial mortgage book. So we'd like the markets to think of us as a finance company and not just a commercial real estate lender. And we favor the real estate, all areas of real estate, but we have a lot of opportunity. The other interesting thing about us, of course, the servicing book is growing again. I think it was down at $60 billion, and now it's $80 billion. So we've turned the corner on that. It's getting bigger and bigger. A lot of loans are getting restructured.

A lot of them are coming in, and they're leaving more quickly. But we thought that would be a hedge. We thought we'd see opportunities to make new loans in that book. And of course, all that's actually going to happen. And so we'll provide a proprietary platform of opportunities for us going forward. So I think we're uniquely positioned against the competitive set to continue to perform at an exceptional level for our shareholders. I think we were the best-performing mortgage REIT in the United States for the past 10 years, including our dividends and our spin of SWAY, now Invitation Homes. And we'll continue to hopefully achieve that in the next 10 years. So thank you for everything. And I want to thank our team because we're working remotely. This is a big company, and we have a significant asset base.

And everyone is rowing in the same direction, dedicated to the task of being the best at what we do. And we appreciate your support. So with that, I think we'll take questions.

Operator (participant)

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. And our first question is from Steve Delaney with JMP Securities. Please proceed with your question.

Rina Paniry (CFO)

Good morning, everyone, and thanks for taking the question. Jeff, you mentioned in a number of comments, but you mentioned your conduit lending business. I think you were in one deal in July with Morgan Stanley in the third quarter. There was a piece in CMA back, I think, late October, talking about conduit profit margins in the third quarter in excess of 500 basis points. Just curious, as you see the business now, do you see it stepping up in the next few quarters going forward to maybe where you'd be involved in multiple new issues? And what are your thoughts about the sustainability of those profit margins? Thank you.

Jeff Dimodica (President)

Yeah, thanks, Steve. I really appreciate it. We have a great team at Starwood Mortgage Capital. We sort of sat quiet in the second quarter. We came into the summer and decided to hold on to some loans and wait for a better opportunity to securitize rather than do a private CLO, get out of risk, sell loans at a discount. And ultimately, we were rewarded with our patience. We make more money in conduit originations. Obviously, when markets are a little bit volatile like they've been, we can price in a little bit more spread. And somebody who needs to take a loan is going to be willing to pay that in times of volatility. But most importantly, we as an industry make more money when spreads tighten. You've seen AAA spreads tighten back to and through the tights.

We hedge our interest rate duration on our loans when we write the loans, and we only hedge a portion of the credit duration. Effectively, whatever we priced in as an industry, we assume that we can take a decent-sized credit widening and still do okay, so we don't pay a lot of money. Shorting CMBX is very expensive. Shorting CMBX, you have to post a full collateral of the amount that the dollar price is below par, so it costs you a lot in sort of negative drag to be short, so we're generally short about 30% of the credit, so when spreads tighten as an industry, we make more money in that business. We had two things happen: a more volatile market, people pulled back, we were able to write some higher coupon loans, and at the same time, spreads tightened.

So this time period of writing loans in Q2 and Q3 and securitizing in Q4, of which we did already, Barry mentioned, and we will do another one in December. I'd be really surprised if anybody who's in this business didn't do very well. We fortunately stepped on the gas a bit when we saw an opportunity. So we're glad we were able to do it.

Steve Delaney (Analyst)

Looking forward next year, what would you, just for modeling purposes, rates are low? I think CMBS issuance volume would be strong. What would you recommend as sort of an average gain on sale margin on your CMBS participation?

Jeff Dimodica (President)

Yeah, we tend to price loans to two to three points. And then when spreads tighten, we make a little bit more. And when spreads widen, we make a little bit less. So pretty much the whole market does that, Steve. We do focus on slightly smaller balance loans, which are more profitable than the large loans, large investment-grade loans that get done by many of the banks. So we tend to be able to have a little bit more cushion. I think we'll be back to $1.5 billion-$2 billion of originations in 2021.

Steve Delaney (Analyst)

Wow. Okay.

Jeff Dimodica (President)

The turnover in the book, I think we've lost $0.01. I think we lost money in one quarter in 11 years. I think it was $0.01.

Steve Delaney (Analyst)

Yeah.

Jeff Dimodica (President)

This team is exceptional, and we turn the book, so we're not holding giant loans for four months or six months and winding up in 11 securitizations a year. I mean, this thing is, and we're filler for other people's securitization with diversification. We just talk about loans and them, and the team has got relationships. I will tell you that this is the team I probably, well, there's two of them, not a couple of divisions here, but this one is really self-sufficient. They run an amazing business, and we had people who know me think I'm kind of getting involved. I might be too involved in certain things and controlling, so we set up a shop here with if loans were kicked out of securitizations, we would come help them. We would look down and get involved, and it's never happened.

They've never needed more credit than we've allocated to them. And they run a nice business for us. And we supply them with information and cross-fertilization and a balance sheet. And they provide us with information too, Steve. And we don't want to spend too much time on this sector, but we're really fortunate to have this business. And I believe that it will help us be a better CMBS investor. It does help us be a better CMBS investor. We often buy the B pieces of loans that we are in. And most importantly, as a massive B piece buyer, we know what loans they're originating are likely to get through the system. And so the kickouts, which cause other people losses in times of distress, we've just never had kickouts because we're so close with the rating agencies.

We understand the process, and we're in the B piece market, so that's really helped our profitability over those 11 years too.

Steve Delaney (Analyst)

Thanks for the comments.

Operator (participant)

Our next question is from Charlie Aresti with JP Morgan. Please proceed with your question.

Charlie Aresti (Analyst)

Hey, good morning, everybody. Thanks for taking the questions. Given all the avenues to deploy capital versus your peers, I'm not surprised to see you guys be among the first to kind of go back on offense as these opportunities arise, and as you noted, particularly outside of the traditional CRE balance sheet lending market, do you think that coming out of this Starwood will look pretty similar to pre-COVID Starwood from a capital allocation standpoint? Or do you think there's going to be more kind of fundamental changes to the earnings makeup of the company?

Barry Sternlicht (Chairman and CEO)

If you ask me, I mean, I'd love to be a little more balanced, so grow our RESI business, grow our energy business. We have some other assets that we're not going to talk about that I like to turn into a business, and I think we'll always be at least half, I would say, the large loan business, but it would be lovely if we could somehow be 30, 30, 40, or maybe it's 20, 20, 40, 20 from our servicing business. I mean, the more diversified, the better off I think our shareholders are, and we just need stability of our earnings stream. We went public, for those of you who were at our initial roadshow when we raised our initial $900 million. We were safe and predictable and dependable. We were a company that had everything we earned.

So we have no shelter other than the depreciation in our book, which would allow us to pay down our payout ratio lower than any other commercial mortgage REIT, frankly. It's why we bought the equity book. Originally, I bought the equity book to shelter the tax shelter for us so we didn't have to distribute 100% of our earnings, which we did for our first six years of our lives, whatever it was. So it would allow us to get the flexibility in a different if we needed it. We now have the flexibility. We don't need it at the moment. But the more diversified we are, I think it's complicated for you. I realize that for the analyst community. But I own probably more stock in this company than any sponsor does of their commercial mortgage REIT. And I'm going to run it like it was my money.

That's what I'm doing. We're running a diversified company with my position. You can look at it, you know how much it's worth. And I don't want to force that capital into a business when there's nothing to do. And I think our greatest problem right now is keeping everyone motivated because we have been letting capital out with a sieve. It's not a flood. We're cherry-picking deals. We're looking at opportunities as we lay out. And by the way, the overview is commercial real estate transactions are down like 60% across the world. So there aren't as many loan opportunities, frankly, at the moment for lenders because transaction volumes are down. And they're down because banks are extending loans and allowing, we call it pretend and extend, but it's not really pretending.

I mean, they're just allowing hotels to use FF&E reserves, which is perfectly fine because you don't need a reserve because there's nobody in the hotel. And they're extending the loans because they know that if they take the loan back, they're going to have to carry the asset until it becomes cash flow positive again. So I think I don't mind us being bigger in other sleeves. And one of the reasons is the loan book has a short duration, right? And I like to extend our duration. It makes our earnings and our dividends more predictable for us. And one of the questions we've had since we started, and we've been talking about for the last six years, is if we lowered our ROE targets for our loans, would the durations be longer? And how would that translate into our book? Would we grow bigger, faster?

And also then, could we pay the dividend? So that's sort of a strategic question that we have not, at the moment, we don't have to address, but we continue to look at it. So I think we have these businesses. They allow us to produce double-digit ROEs because some of them, like the conduit businesses, pretty much infinite capital turns. And the RESI trade we made in the quarter, we closed and sold the bonds the same day, I think. And we put out $400 million for a minute. We came right back, and we had a large gain from that trade. It was an incredible execution, a total home run for the company. And then you look at what happened with these two Amazon, or the Amazon and the Dollar General distribution centers. I mean, holy moly.

I mean, we took an $8 million loss, and we'll make $65 million out of it on a gain. It's reversing a loss. I mean, like, wow. I'd like to do that every day. That is, by the way, what's going to happen for some of these commercial loans. We will take assets back if we have to. We'll reposition them with the strength of our balance sheet, and we will sell them whenever it's time to sell them, so I mean, that was a heroic execution by our team here, and leasing that asset to Amazon, it's like when we sell that asset, and we're going to have a large gain, and that's how I can be comfortable on our dividend at the moment. We can pay it. Should we pay it? I mean, the market thinks we're cutting the dividend. We're going to pay the dividend right now.

So if there's a big second crash in real estate prices, don't count on it. But right now, I think we're on a course to recovery. You're going to see a stimulus package coming out of the government. It doesn't matter who wins. You're going to get a stimulus package that will bridge us to the actual new normal. And the new normal, I believe people will go back to offices. They're not going to work from their houses forever, especially our tenants. They're not going to do it. And when people talk about this, I kind of giggle because in the middle of the pandemic, when everybody knew what was going on, this is April, Facebook took 750,000 sq ft at the Farley Building. We, as you may know, had a questionable loan for some of you on the Lord and Taylor Building.

Amazon bought the building, right, for more than $1 billion, and we got paid off, right? So tech is going to go back to work too. Kids want to be with kids. And don't confuse pandemic behavior with the long-term social patterns of human beings. And I see it. I'm in Florida now. I've shifted my office back down here for the winter season. I was in New York. Our office was totally full. Everyone was in the office in New York City. And the kids want to go back. They want to get out of their apartments. They want to go back to the office. They want to go back to the lives they had before. So New York City is in a world of hurt. I mean, I'm really glad we don't have exposure there. So material exposure. We restructured a loan.

We pushed ourselves down $50 million in the capital stack, and Jeff just handed me a note that Amazon bought 410th Avenue last week.

Charlie Aresti (Analyst)

That's in New York.

Barry Sternlicht (Chairman and CEO)

$1 billion, so I guess they think they're going back to work in New York, and that's true. The patterns are all over Europe. If you look at Europe, we talked about it in some of my equity calls. Paris was 83% occupied. Madrid and Berlin were in the 60s physical occupancy. The United States was led by Dallas at 40% physical occupancy, and then New York is at 12%. Because you have a mayor there who's bordering on insanity, so you have the city with, I think, the third lowest incidence of COVID in the country, and they won't let people eat in restaurants, so I mean, it's a whole nother cup of tea, right, but I think New York and San Francisco are two markets that if you have exposure to them in your commercial mortgage portfolio, you could see considerable issues arising.

We don't have any exposure to either city. That's actually also our equity book. We don't own any buildings in New York City or apartments in New York City in our equity book. We stayed away from those markets, primarily because of the pressure on costs, not even revenue. We thought rents would be okay, but the increases in real estate taxes were too great to underwrite the value of property. We're not there. The company has no exposure in those markets, really. We're grateful. Thanks for the question.

Operator (participant)

Our next question is from Don Fandetti with Wells Fargo. Please proceed with your question.

Hi, good morning. It's really interesting to see how quickly these debt markets have come back and taken a lot of the financing risk off the table. As you look at some of your businesses like the non-QM, where are returns today relative to pre-COVID? And do you see a lot of opportunity in that business still?

Jeff Dimodica (President)

Yeah. It's interesting. You're seeing loans trade back up in the $103-$104 dollar price. Securitization is probably $105 plus. There's still profitability in that. The bonds that we retain, we believe, are still low double-digit returns. Obviously, there was a moment in time where there was no liquidity in the loan business. There was no liquidity in the property business. There was very little liquidity in broadly syndicated energy loans, but there was great liquidity in loans on residential securities. So part of the reason why we jumped in there, there was great liquidity and an opportunity to take advantage. Part of it was we were able to get sort of non-mark-to-market guaranteed debt if we weren't able to securitize, and we were able to securitize, so you have to break it down into gain on sale.

I think the gain on sales will be smaller and more in line with what the securitization will be. So you'll go back to securitization yields. We own the IO. We own the bottom of the capital stack, and to the extent that we are correct in that 730 FICOs with new money put down at 65% of the value of the house, putting down 35% that they will defend their mortgages like they did in the great financial crisis, I think we'll be right in that our yields, which are low double-digits, can be high double-digits as we get the ability to call these deals and refinance them in the future, so we're excited about that business, but it was a moment in time that played out and we took advantage of.

Barry Sternlicht (Chairman and CEO)

Two things I'd add. One thing, Jeff, and he talks even more quickly than I do sometimes. GAAP accounting for non-QM does not allow you to assume refinance of the trust in three years, which is your underwriting. What we think are 16, 17, 18 IRRs, we're really accounting for more like 11. We follow GAAP. We're going to refinance right now the first of our securitizations, and we're going to lower the debt cost from three and a half to one and a half. The IRR is going to zoom up on the trust that we what little equity we have left in the trade, if you will.

It's a very funny business because it's almost better done in private than in public because what we think is 17%. Rina and our team, by the way, argue about this all the time, but Rina wins. We follow GAAP. We have to basically model what we're allowed to model. The IRRs in the business are better than when you see. You will see the gains, I guess, later when the resecuritization shows up. As these things season and they pay down, you now have no leverage against your book, so you have to refinance, take your equity out, and you get a much higher ROE. That's not a small thing because the businesses, we have $1.3 billion of exposure there right now of loans in the book. We've done nine securitizations.

Rina Paniry (CFO)

Ninth one's going to happen in the first quarter.

Barry Sternlicht (Chairman and CEO)

Okay. So there's an eight and nine. The ninth one will be this quarter. So the other thing that strategically is we don't want to buy these loans at these levels. The trade we made that we made a small fortune on, we bought at 94 in the middle of the crisis. But we don't want to pay one on two. So we've been working on ways to, and we have under contract an originator, basically, that will allow us to buy these apart, driving the yield on the portfolio way higher. So we're working on it. We've been stuck with some agencies in government waiting for an approval for quite some time. It's nothing to do with us. It has to do with them. So someday we may actually close this deal. It's the longest live deal, maybe, and start with history.

but it is an originator, and it would help us lower the raw product, the raw material for the securitization. So I think those are two critical elements for us to increase. The book would require us probably to add that element to our platform, essentially. It is under contract. It just hasn't closed.

Don Fandetti (Analyst)

Yeah. Thanks for the detail.

Operator (participant)

Our next question is from Douglas Harter with Credit Suisse. Please proceed with your questions.

Douglas Harter (Analyst)

Thanks. Barry, if you think the market continues to kind of undervalue your collection of assets, kind of how do you weigh the potential for maybe selling some of the assets to recognize that, spinning them off, or the continued benefit you get from diversity and stability in returns over time?

Barry Sternlicht (Chairman and CEO)

I'm glad you think it's a benefit at the moment. I don't think anyone cares, so I care, and so we've now, what we think matters to the machines that follow us, is book value, and there's a lot of commercial mortgage trading at 50 cents of book value, 60 cents of book value. It turns out we are trading at 61% of book value, which depresses the hell out of me, so we've charged our guys for thinking about how to take out some of the gain and actually keeping it in book value. Because if we just sell the assets, we'd have to pay out a substantial amount of cash, which won't help book value. We'd have to either put the money to work or an extraordinary dividend.

But we could do a JV on our affordable housing portfolio, for example, and take some of the gain, crystallize it, prove to the market that the value is the value, even though I sort of got it since I'm buying this stuff every day. We've probably bought four new portfolios of affordable housing in the last year and a half. Actually, one is closing right now. So why is it here? It's duration. It gives us dependable cash flows. I don't need to worry about the borrower paying me off suddenly, and the money comes back into the bucket. This was a way of increasing the duration of our book. And when we bought these assets, I said, "I never want to sell them. This is what I want to put my money in. I would give these to my kids.

It'll be in their trust funds for thousands of years," and they're in great markets, Orlando and Tampa. It's really good stuff and growing. The rents are set off of the income levels of these communities, and they never go down. They're not allowed to go down, so you have a one-way option on rents, and your rents are 70 cents of market, so you're full all the time. We're 98% occupancy, and we're 97% paying, I think it is, so it's gold, and I don't really want to sell it, but I'm disturbed that we get no credit for it, and so, yes, and if we sell it to a buyer who's going to buy it at an 8 IRR, and we redeploy the capital into 12s, 13s, 14s, we can do that. We won't have the duration on what we're doing, right?

A lot of what we do doesn't have. I love those. I got to pay them. I love the cash flow off these multies on our credit-leased assets, and so that's the trade-off. It's like I know it's there. I know the gain is there. It's there anytime we want to take it. In the first portfolio, we can peel the assets off one at a time if we wanted to, and we'd get quick little gains for the next 230 years, and that's one way. Or we could do a JV on the whole portfolio, and we have some tax considerations in the second portfolio, the Wilson portfolio we did. So does it have that backwards, the Dolphin portfolio?

Douglas Harter (Analyst)

Dolphin.

Barry Sternlicht (Chairman and CEO)

Dolphin portfolio. There's two Wilson and Dolphin. I forgot the order they go. But it's certainly something Jeff Dimodica is in my office like every week talking about. And I'm like, "I know it's there. I just don't want to do it because I can depend on those assets." And they're really no exposure to COVID. And the other ones are the Cabela's deal is like a 13% cash yield now. And boy, did their sales take off in COVID.

Jeff Dimodica (President)

COVID went.

Barry Sternlicht (Chairman and CEO)

Big gun sales are like skyrocketed. And that's a 25-year lease. So we're sitting really good with that book. It is a material amount of our original equity. Now it's been like, I think we have like $15 million left in the.

Jeff Dimodica (President)

18.

Barry Sternlicht (Chairman and CEO)

18 in the multi-book, and we've refinanced it like three times, and I don't know exactly, but I do realize that we should probably think about if we take that gain, maybe the shareholders will give us some respect and they'd move us away from then we can be like everyone else, we'd look like a commercial mortgage lender, but we obviously are getting no credit for it. Could we spin it out? It's very complicated with our corporate debt, right? We have corporate debt, and spinning it out in its own vehicle, we'd have to sort of figure that out with the corporate bonds.

Jeff Dimodica (President)

If we were to spin it out, the name Dolphin, like Snowflake and others, is probably our best spinable name, Barry. You can pay the premium for the name Dolphin.

Barry Sternlicht (Chairman and CEO)

We're going to have to use the S-platform multiple.

Jeff Dimodica (President)

But the last thing I'd say is the longer we hold on to these units do and will roll to market rate. And you will have significant pickup in rents. And at the cap rates we're talking about, that's a significant advantage to us for the longer we can hold on and roll more of that portfolio to market rate. So there's a lot of push and pull. But we'll continue to take cash-out refis and refinance that portfolio as time goes on if we end up holding it.

Operator (participant)

Our next question is from Stephen Laws with Raymond James. Please proceed with your question.

Stephen Laws (Analyst)

Hi, good morning. Appreciate everything you've covered so far. Can you maybe talk a little bit about rent collection? I know around the debt offering, it cited a 96% collection in July and August, and that it was 92% in September as of 9/30. Can you maybe provide some update there on where you're seeing it? You may have mentioned something earlier in the call in the low 90s, but wanted to get an update in kind of how that's trended in October and the outlook there. Thank you.

So Steven, that's a function of the timing. So September rents, by the time you get to the end of September, you haven't fully collected everything. It typically takes three to four weeks after the end of the month in which the rent was due to fully collect. So the 92% was simply a function of the timing that we've released that number, which is why we disclosed July and August. So if you look at collections through the end of October, we're back at 97% for the month of September, if that makes sense. So if the rent was due in September and you look at cash that came in through the end of October related to September, we're back at 97%. So it's been consistent to the second quarter numbers we disclosed. And the reason we split the months was simply timing.

So we've not seen a deterioration in rent collections at all. It's been steady.

Great. Thanks for clarifying, Rina. Appreciate that.

Operator (participant)

Our next question is from Jade Rahmani with KVW. Please proceed with your question.

Jade Rahmani (Analyst)

Thanks very much. Barry, it's interesting you mentioned ISTAR, which together with their ground lease REIT called SAFE now has a market cap of $4.3 billion, which is higher than where STWD is trading, yet they generate very little in operating cash flow. I think ISTAR would argue their stock is trading at 50% of where they claim fair value is. You also have a company like Ladder Capital sitting on $900 million in cash, which is about 57% of their book value and 100% of their market cap trading at 50% of book value.

My question is, given the valuation discrepancy that you've enunciated and the current dividend yield that you've mentioned for many of the past quarters, what do you think the keys are to getting full recognition, and how do you compare allocating capital to new investments as opposed to buying back stock, which some of your peers like ARI have started to do, or perhaps acquiring some of those peers that are trading at a lower valuation?

Barry Sternlicht (Chairman and CEO)

Of course, I know about both those companies. And SAFE is a big welcome in, especially when some of those ground leases are on hotels at levels where you are valuing our loans. And we have dividends coming off of those, and they have a one% yield or something for their stock at these levels. It's an anomaly, the ground lease, since it was an arbitrage. And it's sort of available to everybody. Probably they could write a loan or ground lease at levels that would take out our debt, and you'd value it at one cap. So he should do that. It's completely absurd, frankly. And I've looked at it. I just think it's a joke. The way the market's valuing it, it's a good company. And Jay is going to kill me, but it's not valued appropriately, certainly relative to us.

That creates a discount in a parent company. But he's an absolute genius for doing it. And the market fell in love with it, mostly hedge funds. And people consider it safe and secure, and you go figure that out. I mean, we've paid dividends for 11 years, 44 quarters in a row at these levels. And I don't know. We have 350 people working here, something like that. So this is a big enterprise. We have $100 million of corporate overhead. I mean, we got a lot of bodies. And it's not like every time I look at our earnings and I look at the drag the corporate overhead is, it just is what it is. That's why we have these people so we can make money on these trades and everything else they do. Otherwise, we wouldn't need them. But I like it.

I mean, these are talented people that have an amazing seat at the table in the real estate sector. So as far as Ladder goes, I mean, they do a lot. Maybe Brian's a genius, and they do incredibly creative things. They do much more trading than we do. And I can't speak to the valuation of those enterprises. I mean, basically, real estate is a four-letter word in the capital markets right now. But it's interesting. The REITs are down. They take office REITs down 50%. I think we're raising our largest opportunity fund ever. And we think the best opportunities for us will be the public markets. We don't think private market valuations of assets in the yield-starved world are correct.

And so I think you'll see as soon as the pace car leaves the track and they tell us we can play with it, which is the elimination of COVID. I think you'll see firms like us and others take advantage of these discounts in the public market. I mean, to some extent, people look at real estate as a dead money. And they're perfectly happy buying Wayfair at 35 times revenue or whatever it is, up 300% this year. A company that's losing $500 million at EBITDA or was. I don't know what the current earnings are. So it's not the real estate's time in the marketplace, but look at yield. Yield from property is going to be very valuable in the yield-starved world, which everyone is basically saying is around. And we will have our day.

We will snap back as an asset class, and so will the stock. But it's going to take. You got to take the black cloud over the sector. I mean, people look at these companies. They don't take the time to understand us. They look at us as a bucket. They trade off book value. This one did this. This one did that. I'm somewhat encouraged by a couple of the companies in the sector that have done well, and again, we never needed a rescue financing. We had plenty of liquidity. And Jeff has a whole list of ways to create liquidity. He's been here for a year. We didn't take off our LIBOR hedges and produce $170 million of earnings. We didn't take off our foreign exchange. We had a whole bunch of ways to create cash if we needed it.

We never even came close to needing it. But we obviously could sell our property book at any time and didn't want to and don't want to if we don't have to. But I am concerned about this persistent valuation and the dividend. So we have stepped up and started a stock buyback of the parent company and started in this quarter. And we'll continue to look at that and other ways to deploy capital. I'd really rather grow our enterprise. And look, there are commercial mortgage REITs not paying a dividend, and they're trading at a decent percentage of book value. So I feel like a fool. But it's nice, Jack. We get nice dividends. I'm a big shareholder, so. And I'm not paying you money I'm not earning. So I mean, I'm giving you what we got.

And we didn't know we were going to make $50 million on this CS trade.

Oops. Oops, oops, oops. Sorry about that. Rewind and erase. So I didn't think those things. That's why we have 350 people to be able to execute opportunistic trades like that. So that was not. That's gross net. It was only $28 million, as Rina Paniry said in her comments. So thanks.

Jade Rahmani (Analyst)

Okay. Can I ask another question?

Barry Sternlicht (Chairman and CEO)

Maybe. Go ahead.

Jade Rahmani (Analyst)

I'll ask anyway. I appreciate the slide 14 disclosure for commercial portfolio snapshot and then top commercial lending commitments. Can you give an update on the American Dream project, which I think was about $175 million of exposure?

Barry Sternlicht (Chairman and CEO)

I did mention it in my comments, but we'll go back and talk about what would you like to know. The assets open now, and the amusement park is kind of open. The stores are about half leased or something like that. We underwrote it to just the theme park assets, and obviously, you need COVID to pass for the theme park to get to what it needs to get. Maybe the Jets will win the game, and the parking lots will be full on Sunday, so with the Jets performing the way they are and the Giants, the Sunday traffic is down. The good news is there's lots of parking spots, so I think, as you know, that we own the first, and pari passu, one of the major money center banks, and a few others.

Our exposure is $1 billion with accruals now $1 billion, almost $1.2 billion.

Jeff Dimodica (President)

Our exposure is 175.

Barry Sternlicht (Chairman and CEO)

Our total debt at our level is $195, of which we have $175. There's almost $1 billion of debt junior to us, and then our loan is cross-collateralized with the two other Gramazian malls, Mall of America and what's the other one called?

Jade Rahmani (Analyst)

West Edmonton.

Rina Paniry (CFO)

West Edmonton Mall. So we feel very comfortable where we are. And that's all we can really say about it.

Jade Rahmani (Analyst)

Okay. Thank you.

Operator (participant)

We have reached the end of the question and answer session. I'll now turn the call over to Barry Sternlicht for closing remarks.

Barry Sternlicht (Chairman and CEO)

We just want to thank you for giving us your time. Everyone's busy. I was going to say something like maybe the right candidate, maybe your favorite candidate win, but I don't know who that is. Anyway, thank you. Of course, we're all here to answer any questions. Thank you again for your support. Have a good election.

Operator (participant)

This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.