Starwood Property Trust, Inc.

Starwood Property Trust, Inc. (STWD) , as stated on the company website, “focuses primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial and residential real estate-related debt investments. Starwood Property Trust, Inc. is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.” Barry Sternlicht is Chairman and CEO. 

Starwood’s material and their conference calls make it clear STWD is a lending institution. STWD says “We are a balance sheet lender,” using their balance sheet to make “structured and tailored loans ... across all product types except land and ground-up construction.” The website states, “As the country's largest commercial mortgage REIT, measured by equity capitalization, we are well positioned to make competitively-priced loans from $40 million to $500 million+.”

For the third quarter, STWD’s Non-GAAP “Core Earnings” were $58.8 million, or $0.50 per diluted share, for the quarter, an increase of 49% compared to $39.3 million, or $0.42 per diluted share, for the third quarter of 2011.  Core Earnings for the first nine months of 2012 were $163.8 million, or $1.52 per diluted share, an increase of approximately 19% over the per diluted share amount of $1.23 per diluted share for the first nine months of 2011. Core Earnings for the third quarter 2012 included $9 million, or $0.08 per diluted share, of income related to the sale of securities.

Net income attributable to the Company for the three and nine months ended September 30, 2012 was approximately $50.2 million and $144.9 million, respectively, compared to $14.5 million and $78.3 million, respectively, for the same period in 2011.  Net income per diluted share (EPS) outstanding for the third quarter 2012 was $0.43, compared to $0.15 in 2011.  For first nine months ended September 30, 2012, net income per diluted share increased over 43% to $1.34 compared to $0.94 for the first nine months of 2011.

STWD’s guidance for 2012 Core Earnings is a range of $1.85 to $1.95 per diluted share. 

The 2012 Q3 earnings release stated that the fair value of the Company's net assets at September 30, 2012 was approximately $20.13 per fully diluted share.  On a fully diluted basis, the Company's GAAP book value at September 30, 2012 was $19.56 per share.  Pro forma for the Company's October 2012 equity issuance, the fair value of the Company's net assets at September 30, 2012 was $20.48 per fully diluted share and the Company's GAAP book value at September 30, 2012 was $19.98 per fully diluted share.

Here is STWD’s brief dividend history:

$.01  Oct, 2009

$.10  Dec, 2009

$.22  Mar, 2010

$.25  Jun, 2010

$.33  Sep, 2010

$.40  Dec, 2010

$.42  Mar, 2011

$.44  Jun, 2011 through Dec, 2012 (seven quarters)

On November 6, 2012, STWD declared a dividend of $0.44 per share of for the quarter ending December 31, 2012. The dividend is payable on January 15, 2013 to stockholders of record as of December 31, 2012. The Company decided to "true-up" its required dividend distribution with a fourth quarter extraordinary dividend of 10 cents.  

The $.44 quarterly dividend provides an annual dividend rate of $1.76 per share. At a December 26, 2012 closing price of $23.25, this is a 7.57% yield.  I own shares of STWD in my retirement income account. I would consider adding more shares at $20.71 or less, and I would consider selling some shares at $30.61 or higher. I believe STWD is worthy of study for possible inclusion as a mortgage REIT in a dividend portfolio. This is not a recommendation to buy, but a suggestion for a stock to study. Do your own research.