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Starwood Rides On Portfolio Optimization Amid Escalating Expenses
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Key Takeaways
STWD continues to earn stable income from its $1.02B CMBS and CRE debt portfolio.
The 2024 divestitures, including $387.1M in retail sales, generated above $100M in total gains.
Expenses rose, seeing a 19.9% CAGR since 2020, and liquidity is tight with $17.6B debt vs. $447.6M cash.
Starwood Property Trust, Inc. (STWD - Free Report) is gaining from its steady income through investments in commercial mortgage-backed securities (CMBS) and commercial real estate (CRE) debt. Its portfolio optimization through acquisitions and divestitures is another positive. However, an elevated cost base and liquidity pressure are concerning.
Key Drivers for STWD Stock
Stable Income From Real Estate Investments: Starwood stands out in the commercial real estate market with its diversified portfolio of $1.02 billion as of March 31, 2025. Its focus on CMBS and commercial real estate debt allows it to generate steady income while seizing market chances. Even though there was a slight decline in CMBS holdings in the first quarter of 2025, the company continued to earn stable income from repayments and new acquisitions, benefiting from its asset management expertise and ability to navigate the challenges of the CMBS market.
Portfolio Optimization Through Acquisitions & Divestitures: The company has been managing its portfolio by actively engaging in acquisitions and divestitures policy. In February 2024, it sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, in 2024, Starwood sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with an increase of $8.3 million, reflecting continued portfolio optimization. The strategy of selective sales and reinvestments supports the company's goal of enhancing its portfolio.
Capital Distribution Activities: Starwood continues to strengthen its financial position and support shareholder returns through strategic capital raising and disciplined investment. The company raised funds of 17.5 million shares of its common stock through an underwritten public offering in September 2024, with plans to use the proceeds for originating additional commercial mortgage loans and possibly for the repayment of outstanding debt.
Apart from this, the company currently pays out quarterly dividends of 48 cents per share. The company has a 108% dividend payout ratio along with a current dividend yield of 9.47%.
Impressive Return on Equity (ROE):The company’s 12-month trailing ROE stands at 8.87%, above the industry average of 7.94%. This reflects its superiority in terms of utilizing shareholders’ funds.
Challenges for STWD Stock
Rising Cost Concerns: Expenses have remained a concern for STWD in recent years. The company has seen a sharp rise in its non-interest expenses, which recorded a compound annual growth rate (CAGR) of 19.9% over the four years from 2020 to 2024. Further, expenses continued to increase in the first quarter of 2025. Given the company’s investment in franchise expansion, the expense base is likely to remain elevated in the near term.
Weak Liquidity Position: As of March 2025, STWD reported cash, cash equivalents and restricted cash of $447.6 million, while total debt (comprising secured financing agreements, collateralized loan obligations, single asset securitization and unsecured senior notes) was $17.6 billion. Given the weak liquidity position, the company might default on interest and debt repayments if the economic situation worsens.
STWD's Zacks Rank & Price Performance
Over the past year, shares of Starwood have gained 5.2% against the 6.4% decline recorded by the industry.
Image Source: Zacks Investment Research
Currently, Starwood carries a Zacks Rank #4 (Sell).
Finance Stocks Worth Considering
Some better-ranked finance stocks are New York Mortgage Trust (NYMT - Free Report) and Apollo Commercial Real Estate Finance (ARI - Free Report) .
Estimates for NYMT’s current-year earnings have been unchanged in the past 30 days at 61 cents per share. The company’s shares have gained 11.6% in the past six months. NYMT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Estimates for ARI’s current-year earnings have been the same in the past 30 days at $1.03 per share. The company’s shares have risen 9.7% in the past six months. ARI currently carries a Zacks Rank #2 (Buy).
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Starwood Rides On Portfolio Optimization Amid Escalating Expenses
Key Takeaways
Starwood Property Trust, Inc. (STWD - Free Report) is gaining from its steady income through investments in commercial mortgage-backed securities (CMBS) and commercial real estate (CRE) debt. Its portfolio optimization through acquisitions and divestitures is another positive. However, an elevated cost base and liquidity pressure are concerning.
Key Drivers for STWD Stock
Stable Income From Real Estate Investments: Starwood stands out in the commercial real estate market with its diversified portfolio of $1.02 billion as of March 31, 2025. Its focus on CMBS and commercial real estate debt allows it to generate steady income while seizing market chances. Even though there was a slight decline in CMBS holdings in the first quarter of 2025, the company continued to earn stable income from repayments and new acquisitions, benefiting from its asset management expertise and ability to navigate the challenges of the CMBS market.
Portfolio Optimization Through Acquisitions & Divestitures: The company has been managing its portfolio by actively engaging in acquisitions and divestitures policy. In February 2024, it sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, in 2024, Starwood sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with an increase of $8.3 million, reflecting continued portfolio optimization. The strategy of selective sales and reinvestments supports the company's goal of enhancing its portfolio.
Capital Distribution Activities: Starwood continues to strengthen its financial position and support shareholder returns through strategic capital raising and disciplined investment. The company raised funds of 17.5 million shares of its common stock through an underwritten public offering in September 2024, with plans to use the proceeds for originating additional commercial mortgage loans and possibly for the repayment of outstanding debt.
Apart from this, the company currently pays out quarterly dividends of 48 cents per share. The company has a 108% dividend payout ratio along with a current dividend yield of 9.47%.
Impressive Return on Equity (ROE):The company’s 12-month trailing ROE stands at 8.87%, above the industry average of 7.94%. This reflects its superiority in terms of utilizing shareholders’ funds.
Challenges for STWD Stock
Rising Cost Concerns: Expenses have remained a concern for STWD in recent years. The company has seen a sharp rise in its non-interest expenses, which recorded a compound annual growth rate (CAGR) of 19.9% over the four years from 2020 to 2024. Further, expenses continued to increase in the first quarter of 2025. Given the company’s investment in franchise expansion, the expense base is likely to remain elevated in the near term.
Weak Liquidity Position: As of March 2025, STWD reported cash, cash equivalents and restricted cash of $447.6 million, while total debt (comprising secured financing agreements, collateralized loan obligations, single asset securitization and unsecured senior notes) was $17.6 billion. Given the weak liquidity position, the company might default on interest and debt repayments if the economic situation worsens.
STWD's Zacks Rank & Price Performance
Over the past year, shares of Starwood have gained 5.2% against the 6.4% decline recorded by the industry.
Image Source: Zacks Investment Research
Currently, Starwood carries a Zacks Rank #4 (Sell).
Finance Stocks Worth Considering
Some better-ranked finance stocks are New York Mortgage Trust (NYMT - Free Report) and Apollo Commercial Real Estate Finance (ARI - Free Report) .
Estimates for NYMT’s current-year earnings have been unchanged in the past 30 days at 61 cents per share. The company’s shares have gained 11.6% in the past six months. NYMT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Estimates for ARI’s current-year earnings have been the same in the past 30 days at $1.03 per share. The company’s shares have risen 9.7% in the past six months. ARI currently carries a Zacks Rank #2 (Buy).