Starwood Property Trust: This Beastly REIT Is Leading The Blast

Summary

• Commercial Mortgage REITs are different from Equity REITs, because they do not own real estate. Most operate by originating commercial mortgages.
• Back in November, we recognized that Starwood was “cheap”, and when we saw a definitive margin of safety with catalysts in place, we took action.
• In rhino terms, we took charge.
• We’re delighted that we jumped in early and that this beastly REIT is leading the BLAST.
• This idea was discussed in more depth with members of my private investing community, Rhino Real Estate Advisors. Get started today »

Last year, we launched the commercial mortgage REIT Index called BLAST, that includes five of the most popular companies: Blackstone Mortgage (BXMT), Ladder Capital (LADR), Apollo Commercial (ARI), Starwood Property Trust (NYSE:STWD), and TPG Real Estate (TRTX).

We decided to create the Index as a tracking tool, so we could compare the performance with other Indexes such as the Equity REIT Index, referred to as DAVOS, and the Net Lease REIT Index, referred to as SWANO.

As you can see, the BLAST (commercial mortgage REIT Index) has returned 13.0% year-to-date, compared with 12.6% YTD for the SWANO (net lease REIT Index) and the DAVOS (Equity REIT Index). We cover a wide range of Commercial Mortgage REITs that include the following:

As you can see, these REITs offer a wide variety of dividend yields, ranging from 5.26% for Hannon Armstrong (HASI) to a yield of 11.36% for Colony Capital (CLNC).

Remember that Commercial Mortgage REITs are different from Equity REITs because they do not own real estate, most operate by originating commercial mortgages (some of them also own real estate: STWD, LADR, and ARI, for example).

Commercial mortgages are usually floating rate loans, meaning they're tied to LIBOR, and this means that usually profit in a rising rate environment. These days, there is a strong demand for CRE debt capital, driven by a high volume of over-leveraged and near-term loan maturities that provide for strong transaction volume fueled by improved economic conditions.

The commercial mortgage REIT sector can be further broken down into two categories: pure balance sheet lender and balance sheet/conduit lender.

A pure balance sheet lender originates or purchases loans for their own balance sheet and holds these loans on their balance sheet (although they may sell participation units in the loans to diversify some of the risks). Examples include Blackstone

Analyst’s Disclosure:I am/we are long STWD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.