Starwood Property Trust (STWD) Q4 2021 Earnings Call Transcript

Starwood Property Trust (STWD 1.13%)
Q4 2021 Earnings Call
Feb 25, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Starwood Property Trust fourth quarter and full year 2021 earnings call. [Operator instructions] And please note that this conference is being recorded. I would now like to turn the conference over to Zach Tanenbaum, head of investor relations.

Thank you. You may begin.

Zach Tanenbaum

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 December 31, 2021, filed its Form 10-K 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 on 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. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov. Joining me on the call today are Barry Sternlicht, the company's 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 -- Chief Financial Officer

Thank you, Zach, and good morning, everyone. The fourth quarter capped off a record year for us with distributable earnings or DE of $335 million or $1.10 per share for the quarter and $794 million or $2.63 for the year. DE in both periods includes a $191 million or $0.62 per share gain related to the sale of an interest in our newly established WoodStar Affordable Housing Investment Fund, which I will walk you through later. Throughout 2021, we were active on both the left and right-hand sides of our balance sheet with a record $16.7 billion of new investments across businesses funded by multiple capital sources, including an equity issuance, corporate debt and CLOs.

I will start my segment discussion this morning with Commercial and Residential Lending, which contributed DE of $126 million to the quarter. In commercial lending, we originated $4.4 billion across 33 loans in the quarter, bringing our full year volume to $10 billion across 72 loans, the highest origination quarter and year in our 13-year history. Of the full year amount, 42% was multifamily and 15% industrial, contributing to the transformation of our collateral mix, which is now 27% multifamily versus 16% a year ago. During the quarter, we funded $2.6 billion of new loans and $244 million of pre-existing loan commitments with most of our fundings back ended to the last 35 days of the quarter.

We continue to see increasing lending opportunities across Europe and Australia, with international loans representing 33% of our fourth quarter originations and 28% of the full year. The $10 billion of loans we originated this year were 100% floating rate and 98% of our $14 billion year-end balance is likewise floating rate. We maintain LIBOR floors on nearly all of our domestic loans as rates were rising. Our weighted average floor has declined as some of our higher LIBOR floors have repaid.

Our domestic loans started the year with a weighted average floor of 141 basis points, which is now 66 basis points today. Our existing above-market floors will become less impactful to earnings over time as older loans repay. During the quarter, we received $600 million from loan repayments and $64 million for A-note sales, bringing total repayments for the year to $3.7 billion and A-note sales to $330 million. Nearly a third of our 2021 repayments were in the office sector, which is now less than 30% of our loan portfolio.

The credit performance of our portfolio continues to be strong with a weighted average LTV still at 61% and a weighted average risk rating falling to 2.6% this quarter. Our CECL reserve remained relatively flat to last quarter at $59 million with reserves for new loans mostly offset by a $7 million charge-off related to a loan on a Chicago department store outparcel. We previously impaired this loan for GAAP purposes and recognized the reduction to DE this quarter due to an expected sale of the asset and a corporate guarantee that we previously deemed to be partially collectible. In our residential business, we acquired $1.8 billion of loans during the quarter, bringing our total purchases for the year to a record $4.5 billion.

Our on-balance sheet loan portfolio ended the year at $2.6 billion, a weighted average coupon of 4.2%, average LTV of 67% and average FICO of 7.48%. $1 billion of our year-end balance represents agency investor loans which we acquired opportunistically and which carry coupons that are approximately 90 basis points tighter than non-QM. Subsequent to quarter end, we sold $745 million of these loans to a third party bringing our agency investor loan portfolio to $360 million today. On the non-QM side, we securitized $870 million of loans in our 14th and 15th securitizations this quarter bringing our full year volume to six securitizations totaling $2.3 billion.

Our retained RMBS portfolio ended the year at $250 million. Next, I will discuss our Property segment, which contributed $203 million of DE to the quarter. As discussed on our last earnings call, during the fourth quarter, we established the Woodstar Fund to hold our over 15,000 affordable housing units in Florida. The fund was actively marketed in an aggregate 20.6% interest was sold to sophisticated global institutional investors at an asset valuation of $2.3 billion.

You will notice a change in the presentation of our financial statements as a result of the accounting for this fund. For GAAP purposes, the fund follows investment company accounting, with investments reported on its balance sheet at fair value and changes in value recognized through GAAP earnings each quarter. Because we serve as managing member, we consolidate the accounts of the fund into our financial statements, which means we retain the fair value basis of accounting for this investment. Due to this accounting change, we recognized a $1.2 billion increase to GAAP equity for the step-up of 100% of our existing bases from depreciated cost to fair value.

Because we received cash for the 20.6% interest that was sold, you will see a GAAP-to-DE adjustment for our recognition of a $191 million DE gain related to this portion. Prior to establishment of the fund, we upsized the debt of Woodstar I by $163 million in October at a coupon of LIBOR plus 2.11% with LIBOR capped at 1%. Our refinancings to date for this portfolio totaled $350 million, more than fully returning our original equity basis in this investment. In connection with the upside, we wrote off deferred debt issuance cost of $5 million, which flowed through both GAAP and DE for the quarter.

Despite both the gain and the refinancing generating distribution requirements, we did not pay a special tax distribution. This is because we were able to meet 100% of our distribution requirements via our carryover dividend from the fourth quarter of 2020 and a full -- four quarters of dividends in 2021. We have now largely exhausted our dividend cushion and will not easily be able to shelter future gains of this magnitude. Next, I will discuss our Investing and Servicing segment, which contributed DE of $44 million in the quarter.

This year proved to be another record year for our conduit, Starwood Mortgage Capital, who completed two securitizations totaling $207 million in the quarter, bringing our total securitization volume for the year to $1.2 billion in each transaction. In our special servicer, we obtained six new servicing assignments totaling $5 billion during the quarter and 26 assignments totaling $21 billion during the year, bringing our named servicing portfolio to $95 billion, the highest level since 2017. Our active servicing portfolio remained steady at $7.3 billion as $500 million of resolutions were offset by transfers into servicing of the same amount. Concluding my business segment discussion is our Infrastructure Lending segment, or SIF, which contributed DE of $12 million for the quarter.

We acquired $427 million of loans in the quarter, bringing our total volume for the year to $772 million. In the quarter, we funded $411 million related to new loans and $17 million under pre-existing loan commitments. These fundings outpaced repayments of $148 million increasing the portfolio to $2.1 billion from $1.8 billion last quarter. I will conclude this morning with a few comments about our liquidity and capitalization.

We continue to focus on nonrecourse and non-mark-to-market financing. Since quarter end, we completed two CLOs, a $1 billion CRE CLO and a $500 million infrastructure CLO. We also completed our fourth sustainability bond issuance, a five-year $500 million issue with a fixed coupon of 4.375%. This is in addition to our fourth quarter capital raises where we issued $400 million of three-year sustainability bonds at a fixed coupon of 3.75% and raised $393 million of common equity at a premium to book value.

We are able to issue these bonds given our unique platform, which has investments across the green and ESG spectrum, including loans on green-certified buildings and commercial lending, loans to homebuyers within residential lending, affordable housing within our Property segment and renewable energy within our Infrastructure segment. In addition to financing capacity available to us via the corporate debt and securitization markets, we continue to have ample credit capacity across our business lines, ending the year with $6.9 billion of availability under our existing financing lines, unencumbered assets of $3.4 billion and an adjusted debt to undepreciated equity ratio of 2.3 times, which is down from 2.5 times last quarter. With that, I'll turn the call over to Jeff.

Jeff DiModica -- President

Thanks, Rina. 2021 was an incredible year for Starwood Property Trust, and we deployed record amounts of capital. All of our businesses performed extremely well, and we were able to take advantage of investment opportunities globally across business lines. Our seven investing cylinders deployed a record $7.1 billion in Q4 and $16.7 billion for the year, the most among our peers.

And we believe the current environment gives us unique opportunities to deploy accretive capital globally. Our undepreciated book value was up over 20% this quarter to $20.74, the highest level since our SWAY Spin in 2013. Our resulting price-to-book multiple is 1.12 times, significantly below the 1.4 times we ended 2019 at. The vast majority of our previous fair value marks were validated by the Woodstar transaction, lending credibility to our internal valuation process for marking these assets.

On a fair value basis, at our marks on our property portfolio, our price to book multiple is just over 1 times. We have been patient with our capital raises and have raised equity at an average price to undepreciated book value multiple of 1.24 times since inception. We have done so in part to keep our leverage low in order to derisk our balance sheet. This lower leverage and lower risk should imply a lower dividend yield.

We continue to believe our uniquely diversified company with only  2.3 times leverage in highly accretive businesses should and will again trade to a higher premium to book value in the future, thus a lower dividend yield. The business environment continues to be attractive for us, and we have a large opportunity set of investments to choose from, particularly in Europe and Australia, where we have continued to expand our footprint with 28% of 2021 investments being in Europe and Australia. We accretively raised debt and equity capital over the last three months to fund increased volumes across our investing sectors. We also recently issued two CLOs to further derisk our balance sheet.

We have $6.9 billion of credit capacity in addition to excess unencumbered collateral that gives us the unique ability to incrementally raise over $1 billion each of corporate debt and term loans to continue to fund the robust pipeline in front of us and we expect volumes to remain elevated in the near term. We have financing capacity in 32 warehouse facilities across 18 banks and are not reliant on any one counterparty. In total, we executed $5 billion of securitizations and CLOs in 2021. It was a very busy year.

As Rina said, in Q4, we originated $4.4 billion in our CRE lending segment and our CRE loan book, inclusive of senior loan participation sales is over $18 billion today. Three-quarters of the record 33 loans we wrote in Q4 were multifamily or industrial, both are records for us, and our funded multifamily loan book is up 138% versus the year ago to almost $4 billion or 27% of our loan book and is on pace to become our largest lending sector with a robust pipeline and $1 billion of unfunded multifamily commitments coming on the balance sheet over time. We expect to report another strong quarter of originations in Q1 and have closed $1 billion of loans in Q1 to date, again, 75% multifamily and industrial and have well in excess of that in the process of closing. This floating rate book was built to outperform in inflationary environments and over time, will benefit from the cycle we are entering.

Our weighted average LIBOR floor has fallen almost 50% from last year and is headed lower at the same time that LIBOR is expected to head higher. We expect to make more money if LIBOR follows the forward curve, and that will be expedited in 2022 as above-market legacy LIBOR floors continue to burn off. With loans closed to date, our funded CRE loan portfolio today is approximately 60% post-COVID originations and the credits of our book continued to improve with our weighted average risk rating down to 2.6% in the quarter. The post-COVID recovery is best seen in our hotel loans.

Occupancy was up over 40% in our portfolio last year and NOI at our hotels, which was negative in 2020, is almost $300 million in 2021 and expect it to head higher this year. In Capital Markets, we priced our third $1 billion CRE CLO on January 20 into a market that is digesting record CRE CLO supply. The 1.63% average bond coupon we priced our CLO at was 15 basis points cheaper than the 1.78% average coupon of the other five deals that came so far in Q1, both before and after us. Four of the other five deals had 100% multifamily collateral, which should always price to a lower cost of funds and the only other mixed collateral deal priced almost 40 basis points behind our deal.

Our CLO increased returns on our portfolio by 200 basis points on that collateral, and we already have collateral to issue two to three more CLOs opportunistically in 2022. In summary, the bond markets like the Starwood name and our credit process, and we are able to source cheaper liabilities because of that. Our residential non-QM lending business ended a record origination year with another strong quarter, purchasing over $1.8 billion in loans and securitizing $900 million in the quarter. Subsequent to quarter end, we sold over $700 million of agency investor loans that we bought opportunistically in 2021.

With that sale, our upcoming securitization and a significant increase in our non mark-to-market financing facilities, we believe we will be able to operate our residential business almost entirely with non-mark-to-market aggregation financing and term off-balance sheet securitization funding. As interest rates increase, we expect lower prepayments, which should increase the returns on our existing retained portfolio. After adding $1.6 billion of loans in 2020, we were able to add a record $4.5 billion of loans in 2021, $3.5 billion of which were non-QM and are off to a strong start again in Q1. In our Property segment, Rina spoke at length about our Woodstar sale.

I will add that management has observed continued cap rate compression in this sector since our sale, and we expect income on these properties to continue to rise with MSA incomes in the fast-growing Central Florida market. As a reminder, these rent increases are determined by HUD based on Average Median Income, or AMI, from three years ago. Because the recent increases in AMI are not yet reflected in the three-year look back, we expect the pace of these rent increases to continue rising going forward given wage increases in Florida during 2020 and 2021 that will not yet be reflected in the calculation of rent increases until 2023 and 2024. In our Bass Pro master lease portfolio, we benefit from a strong credit with significant EBITDAR coverage of 5.1 times or 6.5 times, including their credit card business.

Our long-term lease benefits from a CPI-based step-up provision every five years, which will step up significantly for the first time this September, the fifth anniversary of our lease commencement. With the embedded gains in our book, we believe we have created a material shareholder value. After taking this quarter's with their gain at our marks, management believes we have nearly $4 per share in DE gains still on our books, giving us unique flexibility across market cycles. In REIS, SMC was again the largest nonbank CMBS loan originator in 2021.

We hedge interest rates and credit exposure in this business, and it continues to earn consistent high-quality gain on sale margins for the firm across market cycles. Our special servicer was again affirmed as the only CMBS special service with the highest S&P rating. This business also made consistent high ROE contributions in 2021 as assets in servicing continue to resolve. Our subordinate CMBS portfolio is significantly smaller than it was a few years ago and continues to perform very well.

Our REIT platform is uniquely positioned with decades of experience, access to terabytes of data and a robust underwriting infrastructure to continue to find ways to invest accretively. Rina mentioned our SIF portfolio increased to $2.1 billion in the quarter. We invested $771 million this year at a 14.4% optimal IRR and our post-acquisition book continues to lift the overall portfolio yield as lower-yielding loans acquired from GE in 2018 repay and become a smaller part of our portfolio. We continue to diversify this book across power and midstream assets and markets and importantly, also continued to diversify our funding sources, having completed our second actively managed $500 million CLO.

Our ability to diversify funding will continue to drive our pace of investments as we take a slow and steady approach to this business that continues to improve. Our team is best-in-class and has tremendous experience in this sector, and we are constantly looking at new accretive low-risk areas to lend into and are optimistic we will continue to diversify and grow this business in the coming years. Management is very pleased with the performance of our company in 2021, and we are grateful that shareholders have begun to recognize the power of the unique diversified platform we have created. With nearly $4 per share in additional DE gains that we can harvest when we choose, we believe our company is undervalued on various earnings, price to book value and dividend coverage metrics, and we believe our bond-like returns are durable across market cycles.

With that, I will turn the call to Barry.

Barry Sternlicht -- Chairman and Chief Executive Officer

Thanks, Jeff. Thanks, Rina. Thank you, Zach, and good morning, everyone. I'll start again by reiterating what Jeff said that it was an incredible an unbelievable year for the firm, $16.7 billion of investments across all our business lines.

And then unlocking the -- what we told you about the book value of the Woodstar portfolio, moving our book value of undepreciated book almost to $21. And then quickly following on that, as Jeff mentioned, the equity assets, this Woodstar portfolio is the gift that keeps on giving. That portfolio of affordable housing is 50% located in Orlando to remind you and 30% in Tampa, and 10% in West Palm Beach. And what we're seeing in those markets and market rate apartments today are 20% increases in rents.

And as Jeff mentioned, the AMI or the rent that is set in affordable housing is on a trailing basis and it's based on both average incomes, as well as inflation. And obviously, 2019, what we've seen recently is not [Inaudible] to 2019. And to give you an idea of the orders of magnitude of what that could look like, the portfolio makes roughly around $90 million, every $10 million increase would be a couple of hundred million dollar increase in our book value, and we would expect to see $10 million in compounding more than $10 million gains in that income for the next several years. So -- and it's pretty much locked in because you know what wage inflation is and you know what CPI is.

So it could be an extraordinary gift that keeps on giving a tune of maybe $400 million or $500 million. And that is with no change in the cap rate. We have seen recent trades well below the cap rate that we executed that trade at because people are buying down cap rates given the built-in growth of the cash flow streams, which are unique, they don't go down, they only go up. So this has become almost like mobile home parks and I see you're seeing cap rates approaching the threes versus the four something we executed that trade at.

So it's really exciting for the company to own assets like that, long duration assets that we don't intend to sell. But as Jeff said, we can always dip into that account if we want to, to support the dividend at any times of trouble. And that's why we only sold such a work creative fun with selling only 20% interest in it because we just wanted to show you what we were telling you is real and it is real. That was funded by a couple of sovereigns and I'm sure would love to buy the rest of the portfolio because I'm not sure you can buy risk-adjusted cash flow like that anywhere in the marketplace today.

That's a long decide. The other highlights of the year were really extraordinary job on the balance sheet again, the number of lenders and the number of funding sources and the movement corporate debt makes us somewhat unique in the marketplace. We have great liquidity in our stock and great liquidity as a company. And the other big shift of the loan book to multifamily, which shouldn't go unnoticed, that is a tremendous execution by our teams.

And obviously, the most solid or secure part of the entire real estate infrastructure right now is multifamily and single family for that matter, single-family for rent. And also the expansion of our activities in Europe, we've added more and more bodies to our team over there to continue to grow our loan book and excited about staffing people, some actually in Asia to increase looking for opportunities, primarily in countries like Australia, which we know quite well from our equity involvement in that part of the world. So I think in sum, I'll just talk quickly about the property markets because they are at the end of the day. Again, I can't understand how a 62% loan-to-book traded close to 8% dividend yield.

If you actually aggregated our assets and sold or went out to the marketplace and said I'm going to get a loan against 62% of -- you can imagine this whole book going together, the pricing would probably be $400, $375, $350, which is a forward LIBOR like the 4% or 5% dividend yield. This is a 8%. So it's surprising to me. I mean one of the reasons we tried to unlock this book value and move it was because we feel like the multiple of book has actually been an issue for us.

And now we will look more like our peers, and you'll see the value of the equity assets in the book value, at least partially because not everything was mark-to-market. As you know, we didn't sell our interest in the medical office or in the net lease portfolio. So -- but it's a step in the right direction. So turning back to the property markets.

I think this is the strongest real estate markets I've seen in 30 years, 35 years if you count my time before Starwood, and the strongest asset classes are obviously multifamily and industrial. You all know that the speed of rent growth in multifamily has been accelerating, not decelerating, which I see numbers trailing 90 trailing, 60 trailing 30, and we are -- have a portfolio of well over 100,000 apartments between our equity book and our assets in the REIT. So we have a really good view place. It can't go on forever, and nobody is expecting it to but it is a very healthy market and tenants seem capable and willing to pay these rent increases.

And their action -- the highlight is they're actually going up faster than you think because the rollover rents are probably 10%, 11%, but the actual increase in rents are north of 20%. So you're going to get catch-up and cash flows are going to continue to rise, while in-place tenants move out and roll to today's market. And this is pretty much the case across the country with only a few exceptions that you're seeing that activity. And the same thing is true in the single-family for rent business, which has been extraordinary.

There are some cautious signs because in many places now it is cheaper to buy a house than it is to rent one. But there are a lot of reasons why people rent and that asset class has become a mature one in the United States with huge investor activity, including us playing in that space. Probably the more interesting is the office markets. And we watch really closely what's happening in these markets across the United States.

And it is a tale of -- like everything else, it's city by city. The fate of Austin and Miami and Nashville and Raleigh is very different, and Boston actually is really different than some of the weaker towns like San Francisco, Houston, Chicago. New York City has held up better than probably I would have thought. I don't know if that will last.

And what we're watching is tours and tour activity. And tour activity in some cities like Boston is actually 130% of 2019. So there are tenants and they're looking, and they're looking at accelerated pace. It's not back to 2019, but I do think you'll see a recovery of office.

And I'm hearing from my fellow CEOs is that even though they're in three days a week, they're still looking for more space, which I find fascinating, and maybe it will change. But the other thing of course about this pandemic period is the insensitivity of customers to price. And that has shown itself in a big way in the hotel market. And there again, it's a tale of haves and have nots.

If you're running a resort and we have some exposure in our portfolio to like the Grande Lakes in Orlando in the securities book, those assets are flying. And our one South Beach is 50% ahead of 2019. And we had a Super Bowl here in 2019. So -- and accelerating at pace.

So the rates are flying in the assets that people will stay in a resort community or resort-oriented places ski resorts. The big box city hotels are the weakest and will probably stay weak for a while. Not just because of the lack of groups, but the groups but also because where they're located and the lack of attractiveness to those cities to companies who want to take their employees away right now. You're going to see a burst of group activity judging by our own book.

We've seen a real pickup in group activity. So that will come back, too. Retail has been shockingly interesting. And I think when people couldn't find stuff online, they actually ran to the stores to see if they had in stock in the stores.

And so I don't know, we're still really cautious about retail and have almost no retail exposure, but we're pretty optimistic that the consumer's wealth will continue to shop though he may not shop they'll shop differently than you shop before. And I think that covers the major asset classes. And the question for real estate investors and for us is what happens to values if rates rise and rates are obviously forecast to rise and will rise. And I think our feeling is that rent growth will overwhelm a rate rise when key value is stable in many of these asset classes.

And we have waited 30 years as equity investors. I started my career in inflationary environment, the treasury was nine, 10 year. And I've been waiting 30 years for rates to go up and inflation to hit the real estate markets again. So I think your big cautious flag is supply.

But supply gets harder and harder to build. You've seen the difficulty of finding workers, trades, wage growth. It's getting really expensive year over year, construction costs in many markets are up over 20%. So normally, you'd have enormous supply growth to meet all this growth in rents, especially in sectors like apartments.

And the permits are getting pulled. Permits are really high in multifamily. But I'm not sure these investments will pencil out, given that construction costs will be rising rapidly. And don't forget, when you look at construction costs, the government has not started buying anything for the $1.2 trillion infrastructure bill.

So they will be buying concrete, cement, steel, PVC piping and all kinds of stuff that will put continued pressure on materials prices. And it's really labor costs that are two-thirds of most construction. And I see no possibility of that letting up any time soon, they simply aren't workers. So overall, I think we're sitting really well.

Our 62% LTV on today's asset value will wind up being 55% if we do nothing because construction values are going to go up and replacement cost is going up for every asset class and real estate. So I think we're in a pretty good period. And obviously, we don't want -- the first six months of this year will be pretty clear sailing for real estate, I think. And then as the mortgage industry or the Fed raises rates, I think the economy will slow and which they wanted to slow.

That's why they're raising rates. I don't think they can slow it. I mean there's a lot of bubble issues numbers in the inflation numbers, which reflect the supply chain, but the underlying problem is not the supply chain the underlying problem or good news -- which is actually what we all wanted to see to help those who need it most. And so it's actually working OK, even though there's a lot of pain from this whole thing.

And I don't think just raising rates 100 basis points is going to change the inflation rate, which again is just driven by wages. So we're optimistic, again, because it is our year-end, I want to thank our board of directors for their awesome support and engagement in our activities. They're challenging us all the time, and we appreciate their efforts and also to all of our partner employees who made this all happen because this is a big company and it's complex, but it's -- it really is not that complex. I mean we run multiple businesses with excellent management teams across the world and have continued to outperform our peers now over our 12-year existence.

So thank you, and we'll take questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Rick Shane with J.P. Morgan. You may proceed with your question.

Rick Shane -- J.P. Morgan -- Analyst

Good morning, everybody, and thanks for taking my question. Look, I think the only thing that really surprised us in the fourth quarter was the decision to issue equity. And in my mind, there are really three reasons you would do that. It's either you like your stock price, which given your commentary about price to book and dividend yield, clearly not the case.

For liquidity given your access to the debt markets and everything that happened during the quarter, that's clearly not the case or a leverage issue, and that doesn't appear to be the case. So I'm really curious, given your discipline around raising equity over the last 10 years, what drove that decision?

Barry Sternlicht -- Chairman and Chief Executive Officer

We've chosen to run our business like a 2.2% debt level, right? And we are not at the 3.75% of our largest peer. And we kind of like the security and safety of that leverage level. We've been chatting whether we should take our leverage up a bunch. I mean, it would drive earnings growth and yes, but it would create inherently a riskier book.

And so we have a pipeline. We look into the future and we see when we need to raise equity. And as you point out, we've never raised equity below book and never, and we won't. So the stock we really needed equity at that time because of the forecast of our activities.

And we did have to also retire the $500 million debt line, which we did with the smaller debt issuance, too. Jeff, you want to add something?

Jeff DiModica -- President

No, not really. At the pace we're running at today, if we do another $10 billion in CRE lending, which I think the first quarter, we're off to a similar type of number and a little bit more elsewhere, we're going to have to -- we're going to have to need a significant amount of capital over time if we keep running at this very fast pace. And so as we look at it, and we care a lot about our ratings and our -- the way the rating agencies look at us for our corporate bond levels. And we like running our leverage low to down to 2.3%, 2.4%.

And we're below that today. If we were to do it all with debt, we would run that ratio higher and it's sort of a self-fulfilling thing where we wouldn't get on that path to investment grade that we ultimately want to get to. So mixing in one unit of equity for every 2.4 units of debt as we grow the company and have a high pace of originations. I think it's sort of important.

And ultimately, we think we win by having a better credit rating and lower cost of funds.

Rick Shane -- J.P. Morgan -- Analyst

Got it. That's helpful. And then I guess related to that is the other consideration that as you have less opportunity to retain gains as you've sort of worked through all of the deferrals. Is that the other consideration as well?

Barry Sternlicht -- Chairman and Chief Executive Officer

Well, we have a problem. We won't be able to shelter future gains the way we could. So we either -- we have to figure that out. It's actually come up given our forecast for this year.

So just to clarify for anyone who's listening we used up the last of our ability to shelter from the Spin-off SWAY a long time ago from SWAY spin. We created almost $1 billion of shelter. I think it was --

Rina Paniry -- Chief Financial Officer

We can carry a full quarter's worth of dividends. So it was about $150 million of shelter that came into this quarter.

Barry Sternlicht -- Chairman and Chief Executive Officer

Right. They came into this quarter, but now it's all gone. So yes, our -- we would have to -- if we earn much above the dividend, I assume we'd have to pay a special dividend if we don't do something about that. So -- and we'd have to raise the dividend, obviously.

So we're thinking and talking about that. And hopefully, that's a good problem for us, and for you, that's a good problem.

Rick Shane -- J.P. Morgan -- Analyst

Yeah, Barry. I'm guessing investors would rather see a special dividend then you create additional shelters?

Barry Sternlicht -- Chairman and Chief Executive Officer

We would -- yes, I mean we would love -- it'd be lovely to increase the dividend it's not my decision, that's the board's decision, but we'll look at our run rate. I mean, I think our equity book affords us a very interesting opportunity, obviously, and it's multiple years of harvesting if we want to. It's just hard to want to sell something that you'd want to buy in your kids' trust funds. So this is the bedrock of a company.

And we just -- we -- I didn't want to sell 20% necessarily, but that was our little ham sandwich -- it was for Jeff and Rina that we talked about showing you that the gains that we talked about were absolutely real, and that allowed us to book the $20.74 book value, which is more reflective of the enterprise book value than the prior one you saw before. Obviously, we can talk about undepreciated book all we want. But most of the press releases pick up gap. And they don't adjust for all the management's estimates of value, which is -- I can understand why, in our case, I don't agree, but it's OK.

Jeff DiModica -- President

And if you go along the path, as Barry said out earlier, that there are hundreds of millions of dollars of upside potentially in our Woodstar portfolio alone. You could take cash out refinancing as you go. They have the same consequence for the problem we just talked about, but we could hold on to these properties and create more equity that we can then invest that will help us grow earnings. So there are a lot of ways we can do this while keeping Barry's generational trust fund assets.

Barry Sternlicht -- Chairman and Chief Executive Officer

It's not mine, though I do want to love the shareholders' asset. But thank you, Jeff. I'll take it. Do you want to give it to me?

Operator

Thank you. Our next question comes from Jade Rahmani with KBW. You may proceed with your question.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thank you very much. I wanted to get your thoughts on what's driving the surge in nonbank originations that took place in 2021 and seems to be continuing so far this year? And is there anything in that trend that might concern you?

Jeff DiModica -- President

Thanks, Jade. I think if you remember last quarter and the quarter before, I think I told you that we are going to continue to see elevated volumes and it's going to be rather significant. And I think it played out how we thought it would. You had a bunch of things happen here.

Obviously, a lower LIBOR means that anybody who had a LIBOR floor, and we have LIBOR floors as high as 252 in 2019 off of one of our largest loans. If you have a LIBOR floor that was sitting at 250 and today, you can get a LIBOR floor at 10 basis points, your spread could be 240 basis points wider and you're still 2 basis points better off refinancing. So the desire for people to get out of those is important. We had a year in 2020, where business plans were getting executed behind the scenes, but refinancings weren't happening.

So in 2021, a lot of these business plans and ultimately, we are investing into business plan execution. A lot of them got executed and they are in a position to refinance at lower rates. So we certainly saw that. We saw transaction volume in CRE in the United States, almost $600 billion last year.

To level set that, we had about $500 billion of transactions in 2007. We had $500 billion to $550 billion between 2015 and 2019. And this year, I think, was a record at about $580 billion, about $245 billion of that was multifamily, which was also a record. So you have a transaction volume and a tremendous weight of capital, there's a significant amount of equity on the sidelines looking to be deployed.

So we expect transaction volume to continue to be elevated, but that certainly drove some of what we saw in the fourth quarter. I think people love inflation, they love real estate and inflation, and we're seeing that. We're seeing more opportunities in Europe. So all of these things are creating a lot more opportunities.

I think the nonbank universe that we live in, it was probably up 30% to 40% in 2021 versus 2019. And that's pretty consistent. That's probably $100 billion plus of loans. Again, if you think there's probably $400 billion to $450 billion of loans off of that higher volume.

We're edging up to being a quarter to a third of that volume, and that's probably about where we sit for a while. You asked if there's risk to that, I do think things will slow. One of the problems Jade you're very aware of is the CRE CLO market has backed up a bit. And as that backed up people who are smaller companies than us who don't have the balance sheet to keep these loans on balance sheet who can't get into the CRE CLO market accretively today like they could three or four months ago, they're going to be sitting on bank warehouse lines for longer.

It's going to jam up the amount of warehouse exposure that they have, and it's going to be hard for them to continue to grow and to continue to get access to capital from banks without the CLO market performing again. We've never relied on it. We've told you every quarter, we don't need the CRE CLO market and we have accretive returns on our balance sheet, but I think that will slow down other people. And I think it will give us an opportunity to actually get paid a little bit more than we historically have because of the way we run our balance sheet, and it's a great opportunity for us.

But that's the one thing that could slow it down. Obviously, if the CRE CLO market picks up, then everybody will probably rush back into that door. We have enough collateral, as I said before, to do a couple more deals today. So we're optimistic the first half of this year will come out very strong.

I sort of feel like things could slow down a bit in the second half as these business plans have subsequently played out and the LIBOR floors have mostly burned off. So we'll see where we go, but it feels like a very good market, a lot of opportunities for us globally.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thank you. Second question would be the mortgage REIT space has some cohort of some scale companies trading below book value, not really creating shareholder value at this point. Lots of reasons for that could be corporate structure. It could be lack of scale.

But I guess, what are your thoughts on that cohort of companies and might that represent potential picking ground for Starwood in order to grow the scale of the overall platform?

Jeff DiModica -- President

OK. I'll start going to hint to Barry, but I'll start by saying if you take our fair market value gains and you think, Barry, is right on where we're going with the valuation of something like Woodstar, I could argue on a forward basis at our stock price today, it looks like we trade below book value. So a lot of people trade well below us, but the market is not treating us very well either, but Barry, I'll turn it to you on the -- 

Barry Sternlicht -- Chairman and Chief Executive Officer

I think boards won't sell any of those companies unless you pay book or close to book and then you wind up with social issues. Does the management team want to get retired or not. And so -- or -- and then what is really additive for all of us that are in the debt world, whether it's the BDCs or the private debt funds or the public mortgage REITs, they were all looking for product. So taking a competitor on my -- I mean the market is too fragmented, it wouldn't give us additional cloud in the marketplace.

You just it might raise the need to deploy capital. We ever increasing volumes. And so I don't know in our business exactly like we run our conduit business pretty much the same way for the last 10 years. And we're doing like $2 billion to $1.5 billion of loans.

They don't actually do $1 billion to $2 billion, $3 billion or $4 billion. So we would need a new business line, which we've looked at, things we could diversify into. But again, usually, in those few experiences that we've had, which is probably three or four, we have approached other people in the space. It's usually the social issues that keep us from getting done.

And maybe in the past, some disagreement on whether their book values are actually real. So -- and that would apply at least to two of our peers. So we did not believe that the books were accurate, reflecting the risk of the loan book.

Operator

Thank you. Our next question comes from Doug Harter with Credit Suisse. You may proceed with your question. 

Doug Harter -- Credit Suisse -- Analyst

Jeff, you talked about the backup with regards to CRE CLO spreads. Can you talk about the same impact on the non-QM financing markets and how that might influence the book you held at year-end and also kind of pricing and appetite for that business as we go through 2022?

Jeff DiModica -- President

Yeah, it's really interesting. It's kind of the same phenomenon. And when buyers of bonds, sit back and think that there's going to be a lot of issuance. Those buyers of bonds will tend to wait for the later issuance and they'll get stuff cheaper.

So you're seeing a little bit of a buyer strike to today on the non-QM securitization. It's small, I think there are definitely people out there who originate loans and have to get them off their balance sheet very quickly, and we'll punch them and we've seen some lower-priced whole loan sales recently because of that we're a long-term holder. We have great non-mark-to-market financing line. We can sit and wait for the market.

We're going to opportunistically securitize. And I think a lot of other people are unable to opportunistically securitize. So we've been backing pricing up daily as we've seen what you've seen, which is dollar prices are coming down slightly in this market. But being a long-term player, it's not a huge deal.

I'll put some context to it. I think the sort of low fours gross WAC pool today are probably securitizing to about 102 exit in the low 5% gross WAC pools are probably securitizing about 104 exit. We've been buying paper between 101 and 102.5 for a long period of time here. we're getting carry along the way while we wait to ultimately securitize at the right moment.

I think ultimately, we'll securitize when it makes sense and we're in the market today. We can't really talk about that because we're in the market. And based on that, we'll make money on that. We hedge our interest rates.

We actually overhedge versus almost anyone I see on the street. We're always worried about rates going higher and prepayment spiking and our hedge balances, our hedge gains are very significant versus the small markdown that we probably have for versus where we are. But ultimately, this paper has to clear that the every CLO market has a lot of paper that we'll have to clear because there we can who are dependent on it. We're just never going to be one of those.

And it's the beauty of our business model and it's the beauty of our balance sheet and our ability to finance ourselves in other ways that we will never go to the market at the wrong time. And if you look at how we've opportunistically done our securitizations and our CLOs over time, we're almost always pricing well inside of where the market is because we wait for the opportunistic time to do so, and we'll continue to do that.

Doug Harter -- Credit Suisse -- Analyst

Great. Do you envision there being kind of opportunistic bulk purchase opportunities like you've seen at other points of volatility? Or are we not kind of to that point yet?

Jeff DiModica -- President

I am hearing of some tools that are trading. I think ultimately, there's an insurance company backstop. Insurance companies are looking for NIM any way they can get it if an insurance company can get fixed rates over 3.5%, they're going to be awfully excited. If they can buy a 5% gross WAC pool at close to par or 101 or 101.5 or whatever that is, they're not going to underperform very much if rates go down because you're not getting hurt by prepayments when you have such a small premium.

But that a -- that's to a faster speed. That's probably a 4.5% yield 100 basis points, let's say, above where the insurance company needs to be. So I would expect that they'll be coming in who bring up bonds. One of the other things that happens in this market is all securitizations get run to 25 CPR.

So if I was to think that the pool is going to come at five CPR like a mid-fours gross WAC. They think it's going to actually come at 5%. The bonds are going to be a lot longer. And what's happened here with the curve, making it move and rates going higher is that obviously running to a longer part of the curve isn't a very good story.

But the reality is you're going to have very low prepayments and we have this book that's a large book that we built up through 15 securitizations now that's going to significantly outperform against these lower prepay speeds. So having a hedge owning a portfolio is certainly super helpful.

Barry Sternlicht -- Chairman and Chief Executive Officer

Let me just -- don't get too lost on this sort of bogged down in this. The business is like 8% of our earnings. So it's sort of ice cream. It's the whip cream on the ice cream.

It's not the ice cream. So it's a nice business, another cylinder. It's what it's advertised to be. But it is massively hedged, and I'm actually looking forward to outperforming our underwriting because we have underperformed actually in the past because of rates crashed and prepayments picked up and higher than we underwrote.

It wasn't a catastrophe, it's just -- we didn't run rate ROEs. We think this business is non-GAAP, is the 17% to 18% ROE business gap doesn't allow us to look that. So we book it sort of at the 10% to 11% currently. And it's driven by a refinancing assumption of the trust a couple of years out as the loans mature, it's complicated.

It's what we think we're going to earn but we can't actually give you that number because it hasn't happened. The refinance hasn't happened. So GAAP requires us to sort of just book what's there and not use the assumption. But if we were doing this in the private equity funds, we'll be looking to be earning 17%, 18% IRRs in this paper, the way we run the business.

And the backup in the market is actually good for us. We're a very strong player and we we're just -- we'll slow volumes, probably slow volumes next quarter. Some origination shops don't want to sell their loans where we want to buy them right now. So they'll slow originations.

And in general, obviously, the single-family mortgage market is -- volumes are slowing as rates rise. So we'll just -- it will just be fine. It will just fit in alongside of our other cylinders. And that is the beauty of the business model, right? We take advantage of the cylinders when they're having great years.

We can't wait for the SIF to start making more loans. It was -- the volume in SIF is probably half of what we wanted to see, and we would like to do $1.5 billion when we did $700 million to $800 million. And now that we've created these two, I guess, there are two CLOs? Which match fund those investments, which was a problem for us when we started in the business. That's the model is to -- there's no duration risk.

There's no refi risk, it's match funded and the CLOs, which I think we did the first one in the space was an incredibly exciting moment for us. All in the interest of being safe and secure and predictable as opposed to being surprised by a mismatch in duration of a financing versus. We had a facility, I think, with one of the Japanese banks when we bought that business from GE, which I think had a one- or two-year term, but we're making five-year loans. So we were uncomfortable.

And if you remember, we slowed down originations just because we didn't want to deal with that mismatch even though you never know until the world if something went wrong. And then you'd ask us why we did it. We don't want to be an S&L crisis. So we're trying to avoid historic performance of mortgage REITs.

Jeff DiModica -- President

Doug, your specific question at the end was would we be buying here. And I think we like the risk reward a lot of these dollar prices. And I think the insurance companies will find tremendous yield at the dollar prices. So I think this will be a very short-term blip lower.

Operator

Thank you. Our next question comes from Tim Hayes with BTIG. You may proceed with your question.

Tim Hayes -- BTIG -- Analyst

Hey, good morning, guys. Look, a lot of kind of moving parts in the quarter, some one-time items with associated with the capital market issuance and extinguishment costs and the charge-off. And it sounds like originations are back-end loaded, and you still have some capital deployed from Woodstar. So putting that all together, can you just maybe try to frame what run rate earnings looks like going forward, especially given the strong outlook for growth in the first half of the year?

Barry Sternlicht -- Chairman and Chief Executive Officer

Do we have to?

Tim Hayes -- BTIG -- Analyst

Go ahead. I love it if you would.

Barry Sternlicht -- Chairman and Chief Executive Officer

There's another problem that we have or an opportunity that you have now it's in the things that didn't work as they would fix themselves to the pandemic. We are nonaccrual on a bunch of loans. And we can't wait to bring them back online. The biggest one is American Dream.

So that asset is doing pretty well. And at some point, that will get restructured, and we'll kick it back and it will earn -- we have some capital tied up and non-accruing assets that its material to our earnings. So material. To me, it's material.

It's not -- it's not overall anyway. It's a number. So yes, you're right. We sat with cash, and then we did the Woodstar, we can't deploy the capital that quickly.

And then we had some noise because we raised the money from the equity deal and the debt reissuance, you just sit with cash. So -- but the earnings potential of the company is higher than it has been in the past. And we're feeling pretty good about things right now. I'd say I don't see any real pockets.

My big worry is just sales volume transaction that the people slow down sales. Again, it's real estate I mentioned all the asset classes in my comments, but as an asset class as a whole, the volatility in the equity markets is good for real estate. Capital flows into real estate because it looks like a safe haven. And it does in private real estate and monitored REITs of which we have one they don't mark-to-market like the equity market.

So the vol in the equity markets is good capital flows into this asset class, which also keeps cap rates down. So because you're going for safety and security and for something that you think is going to behave pro-cyclical with inflation that will go with inflation. So again, if rates rise, we're floating rate book. We make more money.

And our borrowers, the coverage ratios are good because rents are good. So it's not going to get squeezed by rising rates, their incomes are going up. So our coverage ratios will stay pretty much, I think, intact, if not benefit from the rising rents in many of the asset classes we lend against.

Jeff DiModica -- President

Tim, you did a great job of talking about the nonrecurring losses in some of the small bits. And it's a difficult business we run, right? We missed by pennies you guys hold it against us, but we're creating dollars of value on the other side. I often think that people on the other side missed the forest in the tree-looking at the trees and we're running a diversified base low-levered company with a massive amount of gains. And there are going to be nonrecurring things that happen over time.

But hopefully, we can refocus them on the gains embedded gains. The gains are in unrealized gains. I asked our guys about this revenue number. I saw this morning, and they looked to me like a Medusa had 17 heads because that's something we never look at is that revenue number.

There's so much noise in those numbers. GAAP revenue, we just not everything we've ever looked at. I didn't know we missed one until I read it this morning. So it's not something that we pay much attention to.

Tim Hayes -- BTIG -- Analyst

Got it. Well, thanks for the comments and then for entertaining my question and appreciate all the color this morning.

Jeff DiModica -- President

Thanks, Tim.

Operator

Thank you. At this point, we have reached the end of the question-and-answer session. And I will now turn the call back over to Mr. Sternlicht for closing remarks.

Barry Sternlicht -- Chairman and Chief Executive Officer

Just want to say thank you, everyone, for giving us your morning and hope you stay safe. Good luck. Thank you.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Zach Tanenbaum

Rina Paniry -- Chief Financial Officer

Jeff DiModica -- President

Barry Sternlicht -- Chairman and Chief Executive Officer

Rick Shane -- J.P. Morgan -- Analyst

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Doug Harter -- Credit Suisse -- Analyst

Tim Hayes -- BTIG -- Analyst

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