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STWD

Starwood Property Trust NYSE:STWD Stock Report

Last Price

US$19.51

Market Cap

US$6.0b

7D

-4.0%

1Y

-21.3%

Updated

05 Oct, 2022

Data

Company Financials +

Starwood Property Trust, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Starwood Property Trust
Historical stock prices
Current Share PriceUS$19.51
52 Week HighUS$26.36
52 Week LowUS$17.69
Beta1.48
1 Month Change-13.10%
3 Month Change-9.21%
1 Year Change-21.30%
3 Year Change-18.78%
5 Year Change-10.09%
Change since IPO-2.45%

Recent News & Updates

Sep 27

Starwood Property Trust: Why STWD Has Been One Of My Favorite REITs

Summary Starwood Property Trust was my first REIT investment, and its turned out to do quite well as I have reinvested every dividend, which has increased my share count and dividend income. In this article, I go over the numbers from my initial investment in STWD and show how powerful compound interest can be. STWD has done a good job of increasing critical metrics in its financials which has allowed them to maintain a large dividend over the years. Starwood Property Trust (STWD) was the first REIT I invested in. While there were many quality REITs I was considering, a speech by Barry Sternlicht, STWD's CEO, sealed the deal for me. If you have never listened to Mr. Sternlicht speak, I suggest listing to this interview from Capital Allocators featuring Barry Sternlicht. STWD is a hybrid mREIT that operates a commercial lending segment, a property portfolio, Real Estate Investing & Servicing, Residential Lending, and Infrastructure financing. STWD has deployed over $91.4 billion since its inception in 2019, and has a current portfolio of $26.9 billion across its business segments. Over the years, STWD has grown its loans and lease receivables and its net interest income while maintaining its large dividend of $1.92 per share. When I invest in REITs I am looking for them to just trade sideways and generate a large yield that I can reinvest to grow my share count and my future projected income. STWD has done this in spades, and the power of compound interest has made STWD a great income investment over the years for me. In this article, I will go through the numbers and illustrate how my investment has grown and what the future potential could become. Starwood Property Trust as a company STWD is an mREIT that is focused on originating, acquiring, financing, and managing mortgage loans and other real estate investments in the United States, Europe, and Australia. STWD has four main reportable business segments, which include commercial and residential real estate lending, infrastructure lending, real estate property, and real estate investing and servicing. The commercial and residential real estate lending segment focuses on originating, acquiring, financing and managing commercial first mortgages, non-agency residential mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities, residential mortgage-backed securities, and other real estate and real estate related debt investments. Infrastructure lending engages in originating, acquiring, financing, and managing infrastructure debt investments. STWD's real estate property segment acquires and manages equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, that are held for investment purposes. STWD's real estate investing and servicing business acquires and manages unrated, investment grade, and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions. Starwood Property Trust STWD's largest segment is its commercial lending, as it represents 65% of its portfolio and 55% of the distributable earnings generated. Commercial lending has roughly a $16.5 billion portfolio and targets 10-13% levered returns. Real Estate Investing and Servicing is STWD's highest margin business segment as it represents 6% of its portfolio but generates 21% of its distributable earnings. STWD's real estate segment has a $2.5 billion portfolio and targets 10-12% cash on cash returns with the potential for capital appreciation. Starwood Property Trust Over the past 6 years, since I have been a shareholder of STWD, its done a good job of growing several key metrics within its financials. STWD's net interest income has grown by $149.4 million, or 48.63%, as it increased to $456.6 million. STWD has increased its long-term investments by 1.55 billion (152.69%) and its loans and lease receivables by $12.01 billion (204.2%) over this period. STWD's loans held for sale have also increased from $63.3 million to $2.24 billion. STWD currently has $7.1 billion in equity on its books, and each share has a book value of $20.68. STWD's market cap trades at a -3.31% discount to its equity, and its overall share price trades at a 3.41% premium to its book value. STWD's metrics indicate that it's successfully allocated capital during the pandemic as many critical numbers continue to grow. STWD trades close to its book and equity levels, indicating that a significant premium could be achieved when the economic environment improves. The power of compound interest STWD was the first REIT I invested in. The determining factor was Barry Sternlicht, as I had watched a speech he delivered and decided I wanted to be invested in the company he was the CEO of. I will show all of the figures from my investment in STWD and how this position has grown over the years. At the end of 2016, I purchased 135 shares of STWD at $22.66 for $3,059.07. At the close on 9/23, STWD traded for $21.41, which is a decline of -5.52% over the previous 6 years. While STWD's share price has declined by -5.52%, I am up 58.64% on my initial investment. Through reinvesting each dividend and harnessing the power of compound interest, my share count has increased by 67.93%, my quarterly dividend payment has increased by 63.14%, and my future annual cash flow has increased by 67.93%. I will walk you through all of the numbers as it will illustrate why I love dividend investing. I collected my first dividend in Q1 of 2017. The initial 135 shares of STWD generated a $64.80 dividend which was reinvested. Since my initial investment, STWD has produced 23 quarterly dividends, and I have reinvested all of them. Over the next 22 dividends, STWD paid, my quarterly dividend increased from $64.80 to $106.43. Through the power of compounding, my quarterly dividend income grew by $41.63 (64.24%). My average quarterly dividend increase has been $1.89 or 2.28%. Steven Fiorillo Over the past 6 years, my initial share count has grown by 91.7 shares (67.93%) from 135 to 226.70. While STWD's share price is down -5.52% from where my initial purchase was, my current share amount of 226.70 (in this account) is worth $4,853.65. I am up $1,794.57 (58.66%), while my projected annual income has increased by $176.06 (67.93%) from $259.2 to $435.26. If history repeats itself over the next 6 years and my share count grows by another 67.93%, I will add 153.99 shares, bringing my total shares to 380.69 in 2028. Assuming STWD's dividend stays at $1.92, my future annual dividend income would be $730.92, which would be an increase of 67.93% or $295.66. Hypothetically, if this occurred another 2 times, my share count would increase by 67.93% by 2034, and then again by 2040, I would amass over 1,000 shares from my initial purchase of 135. Staying with these numbers, I would have 639.27 shares in 2034, paying $1,227.41 in annual dividends, and 1,073.51 shares in 2040, paying $2,061.13 in annual dividends. This is why I love dividend investing over long periods of time; as long as the stock has a high yield and just trades sideways, compound interest can turn it into a great investment if you have enough time on your side. Starwood's Dividend History Since STWD's inception in 2009, its paid a quarterly dividend without cutting or reducing the dividend. STWD went public during the financial crisis and managed to increase its quarterly dividend 7 consecutive times from Q4 2009 to Q2 2011. In 2013 STWD provided an additional quarterly increase, then in 2014, STWD raised its quarterly dividend to $0.48, bringing its annual dividend to $1.92. STWD has paid 35 consecutive quarterly dividends of $0.48, establishing a strong track record.

Sep 16

Starwood Property Trust declares $0.48 dividend

Starwood Property Trust (NYSE:STWD) declares $0.48/share quarterly dividend, in line with previous. Forward yield 8.25% Payable Oct. 14; for shareholders of record Sept. 30; ex-div Sept. 29. See STWD Dividend Scorecard, Yield Chart, & Dividend Growth.

Sep 03

My Oh My, Starwood Is A Buy

Summary Mortgage REITs generally own floating rate investments. This makes them a potentially effective hedge against rising interest rates, just like BDCs. Mortgage REIT investments are backed by physical properties with intrinsic value. Due to increasing replacement costs and other factors, this gives them additional protection like equity REITs. Mortgage REITs must be underwritten carefully as they can be complex and inherently use significant leverage. Historically, this has made them volatile during crises. I discuss my top 3 mortgage REITs in today's environment with today's mortgage REIT valuations (starting with Starwood Property Trust). This article was coproduced with Williams Equity Research. Sector Primer Mortgage real estate investment trusts, also known as mREITs, are not the easiest sector to understand. To start, there are commercial mREITs as well as residential (or "resi") mREITs. Commercial mREITs focus on commercial buildings with residential involving residential assets with loans either involving or subsidized directly or indirectly by the U.S. government. Those are Freddie and Fannie loans. iREIT We allocate the majority of our time, energy, and personal capital to commercial mREITs. It's for a long list of reasons, which we outlined in our "Building A Foundation Series" on mREITs. These include more reliable and predictable loan and interest payments, less leverage (2-3x less), greater borrower industry diversification, and a better track record during downturns. mREITs are internally or externally managed. That applies to equity REITs and Business Development Companies ("BDCs") too, but external management is particularly common with mREITs. We have to be especially careful about conflicts of interest, incentive structures, and critically evaluating management's performance when external management is involved. Several of the largest and best known mREITs are externally managed, including one of the companies we'll be focused on today. While some dismiss any company with an externally managed structure, I consider that throwing the baby out with the bathwater. All companies have negative and positive characteristics associated with their businesses, and how management is legally structured is just one variable. Internally managed companies have destroyed much more shareholder value than externally. That's more a function of the fact most companies are internally managed, but the fact still stands. Let's get into today's first mREIT we think is designed to provide attractive risk-adjusted returns in today's uncertainty and going forward. #1: Starwood Property Trust, Inc. (STWD) Starwood is managed by a leading Wall Street giant with over 4,000 employees. The bulk of Starwood Property Trust's assets and income are attached to its commercial lending portfolio. Source: STWD Q2 2022 Earnings Presentation Starwood's core business is the same as most mREITs. This loan pool is backed by 33% multifamily, 24% office, 16% hotel, 10% mixed-us, 5% industrial properties with the remaining spread across residential, retail, and other. Quality office properties have held up well during the pandemic, even as physical occupancy declines are still evident in some markets. Because of how these leases are legally structured, a tenant must pay the rent whether they use the space or not. That contributes to Starwood's weighted average portfolio risk rating of 2.5, which has been consistent for many quarters (2.6 in the prior quarter). Less than 10% of the portfolio is classified as problematic and potentially problematic. Releasing risk for office properties remains a concern, with geographic exposure the simplest way to measure whether it's a major issue (e.g., certain parts of New York City) or a minor one (much of the south and southwest). Hotel exposure is similar and must be analyzed on a case-by-case basis. A hotel tied to a large corporation is going to pay the rent - it has no good alternative. New development without an identified tenant is risky, however, and Starwood isn't exposed to that situation. Source: STWD Q2 2022 Earnings Presentation Note that both hotel and office exposures are down considerably since the pandemic started with multifamily the landing zone for recycled capital. Multifamily went from 13% of the portfolio at the end of 2019 to 33% today. That's no coincidence. Starwood Property Trust has a very well diversified portfolio with properties all across the U.S. and even small allocations to Europe, Australia, and the Bahamas. We'll continue to keep a close eye on the hotel and office properties and will take those exposures into account when analyzing cash flow and fair value. Source: STWD Q2 2022 Earnings Presentation A key element to underwriting mREITs is the construction of their portfolio. That's where both income is generated (the good) and losses occur (the bad) if loans underperform. Starwood's commercial portfolio is majority (90%+) first lien mortgage loans, which are the lowest risk. That is evident when we look at the bottom part of the above chart and see the interest rates assigned to each loan type. First mortgages yield only 5.5% compared to 12%+ for subordinated and mezzanine loans. Contrary to popular belief, there is no "right" loan type in all environments. A keen manager evaluates the risk and reward of each loan opportunity, regardless of where it resides in the capital stack, and then assesses individual loan and portfolio-level risk. Starwood concentrates on low yielding first mortgage loans, which stabilizes the net asset value and provides highly reliable income but recognizes the value in higher yielding loans when the right opportunity arises. That's one reason that many quality mREITs, including Starwood, maintained their dividend throughout the pandemic. For those who dismiss mREITs entirely because they are "too risky," that powerful statistic suggests a more nuanced look is warranted. For context, consider that global dividends were reduced by $220 billion in 2020 alone. That's a lot of companies cutting a lot of dividends, and Starwood wasn't among them. The most unique part of Starwood's mREIT is its diversification by strategy. The company has $2.6 billion in residential loans, many of which it securitizes and sells. The company experienced $86 million in unrealized decreases in fair value when interest rates, and subsequently spreads, increased. Overall, this segment is still doing well, but we'll keep an eye on it. Starwood has a similarly sized $2.4 billion infrastructure lending segment. It's 62% natural gas infrastructure with another 36% classified as midstream/downstream. This serves as a lender to a Master Limited Partnership or similar company that owns these types of assets. This is the newest addition to the Starwood lending model, and I like both the strategy in of itself as well as the low correlation to its other business divisions. Starwood owns physical property too. This $2.6 billion segment is primarily medical office buildings ("MOBs") and multifamily properties. Occupancy was 98% as of the end of last quarter, which is effectively full. This diversification into physical properties is rare for an mREIT. Lastly, Starwood engages in CMBS and special servicing. This sounds abstract but is a key cog in how loans are created and syndicated to buyers. This is a special and critical part of the global credit markets. Starwood ended last quarter with $6.1 billion in loans for this division. This is yet another uncorrelated revenue stream for Starwood and its investors. Cash Flow & Dividend Unlike equity REITs, which are more of a total return play, mREITs are owned primarily for their dividend. Book value appreciation is possible, but most mREITs are not structured in a manner where it can be significant. Starwood mostly fits that bill, but the physical property division and conservative payout ratio does permit modest increases in book value over time. Distributable earnings ("DE") are what most mREITs use to measure cash flow, including Starwood. Like all measures, it's not perfect, but it's a reasonable proxy for Starwood. The mREIT generated $0.51 in DE and $0.67 in GAAP earnings per diluted share in Q2 2022. After having its initial public offering in the heart of the Great Recession in 2009, Starwood's dividend rose to $0.40 quarterly in Q1 of 2011. That increased to $0.44 for the next few years and eventually reached $0.48 in in Q1 of 2014. That's the same rate as today. $1.92 per year or 8.2% is attractive on its own right and is a 6.7% higher than the S&P 500 ETF (SPY) and 5.2% above the Vanguard Real Estate ETF (VNQ). On the plus side, Starwood's dividend has only gone up and never been reduced. On the other, it has been flat for 8 solid years. This is a good track record for mREITs and investor expectations should be cognizant of that. The payout ratio based on DE is 94% if we annualize Q2's results. Starwood's track record and heavily diversified and stable cash flow profile means the dividend is safe. We now see why the dividend hasn't been increased in years - there isn't any room. Balance Sheet & Leverage Starwood's leverage profile is among the lowest in the sector at 1.7x unencumbered assets to unsecured debt and 2.3x adjusted debt-to-equity. Off-balance sheet items increase that to 3.9x, but the first is the apples-to-apples figure you'll want to use against peers. At the loan level, Starwood has a weighted average loan-to-value ("LTV") of 61%. In laymen's terms, the assets backing its loans require ~40% depreciation before principal loss occurs. It's not that quite that simple, but the premise is valid. This LTV, like the leverage profile, is among the most conservative in the industry. Starwood is truly huge and has $4.0 billion in unencumbered assets and $26.8 billion in total assets. Unencumbered just means investments with no debt attached. $16.5 billion of its debt have no margin call provisions, meaning there aren't any surprises if another pandemic or financial crisis occurs. That paid dividends during 2020 as other mREITs had to fire sale assets to maintain liquidity.

Shareholder Returns

STWDUS Mortgage REITsUS Market
7D-4.0%0.6%4.4%
1Y-21.3%-37.5%-18.2%

Return vs Industry: STWD exceeded the US Mortgage REITs industry which returned -37.5% over the past year.

Return vs Market: STWD underperformed the US Market which returned -18.2% over the past year.

Price Volatility

Is STWD's price volatile compared to industry and market?
STWD volatility
STWD Average Weekly Movement4.8%
Mortgage REITs Industry Average Movement5.4%
Market Average Movement6.9%
10% most volatile stocks in US Market15.5%
10% least volatile stocks in US Market2.8%

Stable Share Price: STWD is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 5% a week.

Volatility Over Time: STWD's weekly volatility (5%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
2009277Barry Sternlichthttps://www.starwoodpropertytrust.com

Starwood Property Trust, Inc. operates as a real estate investment trust (REIT) in the United States, Europe, and Australia. It operates through four segments: Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing segments. The Commercial and Residential Lending segment originates, acquires, finances, and manages commercial first mortgages, non-agency residential mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities, as well as other real estate and real estate-related debt investments, including distressed or non-performing loans.

Starwood Property Trust, Inc. Fundamentals Summary

How do Starwood Property Trust's earnings and revenue compare to its market cap?
STWD fundamental statistics
Market CapUS$6.03b
Earnings (TTM)US$741.03m
Revenue (TTM)US$675.88m

8.1x

P/E Ratio

8.9x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
STWD income statement (TTM)
RevenueUS$675.88m
Cost of RevenueUS$73.61m
Gross ProfitUS$602.27m
Other Expenses-US$138.77m
EarningsUS$741.03m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)2.40
Gross Margin89.11%
Net Profit Margin109.64%
Debt/Equity Ratio271.8%

How did STWD perform over the long term?

See historical performance and comparison

Dividends

9.8%

Current Dividend Yield

77%

Payout Ratio