Commercial mortgage REIT Starwood Property Trust (STWD) has carved out a niche in the heart of commercial real estate lending. The company has put itself in position to get a favorable shot at the most profitable lending deals rolling through the commercial real estate market. Investors in Starwood Property Trust will be happy with the company's dividend results and policy.
I covered the background of Starwood Property Trust back in July with this article: Take A Look At Starwood Property Trust For An 8% Yield And Growth Potential. Here are the major points about the company and its business:
- Starwood Property Trust is by far the largest commercial property mortgage REIT. The company is now a major player in the commercial real estate lending space.
- The company has little competition when borrowers are looking for larger RE loans, in the $100 million and up category. Starwood Property Trust has put together deals for over $400 million.
- The company's affiliation with the global private investment firm Starwood Capital Group provides a high level of expertise and access to the potential deals the different parts of Starwood Capital Group run across.
- Starwood Property Trust has competitive advantages in its ability to structure flexible loans to meet special borrower requirements and the fact that it can quickly analyze, approve and fund loans.
These benefits allow Starwood Property Trust to develop and grow a portfolio of commercial mortgage loans. The company currently is earning 11.6% on the portfolio with a very moderate amount of leverage and the loan-to-value ratio is below 65%.
Third Quarter Results
During the 2012 third quarter Starwood Property Trust originated loans or made investments for a total of $600 million. In the first 5 weeks of the fourth quarter another $500 million of investments have been made. The company's portfolio value was $3.1 billion at the end of the 3rd quarter. Expect Starwood Property Trust to continue to generate about $500 million of new portfolio business each quarter.
Core earnings for the quarter came in at $0.50 per share, up from $0.42 a year earlier. For the first three quarters of the year, core EPS were $1.50, up 19% from the $1.28. There should not be a problem for Starwood Capital Trust to meet or exceed the company's guidance of $1.85 to $1.95 in per share earnings for the full year.
Bonus Dividend For Year End
Earlier in the year, Starwood Property Trust management announced that the quarterly dividend would be stabilized at 44 cents quarterly or $1.76 per year. At the current share price, the result is a very attractive 7.9% yield. During the third quarter conference call, management announced that an extra "true up" dividend would be announced before the end of the year. The regular dividend announced with third quarter earnings was for the fourth quarter with a December 31 record date. The true up dividend should be paid at the same time and investors should expect an extra 10 to 15 cents per share.
Additional comments during the conference call indicate that management expects 2013 to be much better than 2012 and that it is very probable the dividend will be increased at some point during the year to keep the payout inline with REIT rules. Starwood Property Trust is a REIT investment with both an attractive current yield and very attractive long term prospects.