Starwood Property Trust: The Election Means Everything

Summary

• Barry Sternlicht’s Starwood Property is a professionally managed company and a consistent dividend payer.
• Of late, the stock has been hit by news of its regional malls not doing well and the possibility of its WeWork loan going bad.
• The election will likely determine future prospects.
• I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate. ~ Donald Trump

Real estate mogul Barry Sternlicht’s Starwood Property Trust reported solid earnings of $153 million ($0.52 per share) for Q3 2019. Of this, $109 million was contributed by the company’s Commercial and Residential Lending unit.

This event has passed, and though Starwood (NYSE:STWD) looks bullish on the monthly charts, every investor would be keen to know what the future holds because 2020 is expected to be a volatile year, full of surprises.

Here’s my analysis of what 2020 has in store for Starwood:

The WeWork Lord & Taylor Building Financing Deal

WeWork paid $850M for the entire Lord & Taylor 660K SF building (424, Fifth Avenue, NY). The rent agreed on was $105 per SF, way over the existing $80 per SF in the area. Starwood Property along with a couple of other lenders financed the deal. Starwood financed $229 million (of the $500 million first mortgage loan), and the entire $150 million senior mezzanine loan. There's also a $250 million junior mezzanine loan, that’s subordinated to Starwood.

Now what will happen if WeWork declares bankruptcy in 2020? That’s the question haunting investors.

Here’s the possible outcome:

1. Starwood is covered with a 15-year corporate guarantee from WeWork, and it’s going to be tough to walk away from it.

1. Andrew Sossen, Starwood’s COO, opines that there’s a solid demand for the space and that the company has already been approached to buy their note. Starwood is still deciding whether it wants to sell or not.
2. Jeff DiModica, Starwood’s President, says that even if the tenant stops being a going concern, and the office has to be re-let at $30 lower, Starwood would still walk away with a near-70% loan-to-value and a debt yield of almost 7%.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.