Better Buy: Apollo Commercial Real Estate Finance vs. Starwood Property Trust
Apollo Commercial Real Estate Finance
Apollo Commercial originated in and invests in senior notes, mezzanine loans and other commercial real estate debt with a portfolio of approximately $ 6.8 billion. USD in amortization balances. As of the first quarter of 2021, 84% of the company’s portfolio is senior loan and includes loans in both the US and Western Europe. The company is focused on real estate lending in gateway markets with a diversified portfolio of commercial real estate. However, the largest underlying assets of the 67 loans are office (26%) and hotel (23%), two sectors that have been hard hit by the global pandemic. The largest operating market is New York City. Around 35% of all loans are there, followed by the UK, which accounts for 22% of its portfolio. Both areas have had severe closures related to COVID-19, although the company has not disclosed its explicit impact of the pandemic in its latest earnings report. The company has $ 356 million in liquidity with low debt-to-equity ratios and relatively conservative payout ratios compared to other mREITs.
Starwood Property Trust
Starwood Property Trust is primarily a commercial lender with approximately 64% of its portfolio comprised of senior and mezzanine commercial loans. However, the company also provides loans to infrastructure projects and home loans. Starwood has approximately $ 18 billion in loans under management as of the first quarter of 2021, including loans in the US, Asia, Europe and Australia. Of the 122 commercial loans, 32% are office loans, followed by hotels and apartment buildings, each accounting for 19%. Starwood Property Trust has $ 351 million in cash as of the beginning of 2021, which has improved significantly over the past year. The service industry achieved a record volume in the past quarter.
Which is the better buy?
Starwood’s larger portfolio size allows for greater diversification than Apollo Commercial, which is a little more secure in the current economic climate. While both appear to increase capital outlay and new loan creation, which helps keep the business moving and increase revenue as the loans mature, Apollo’s lower payout rates and debt-to-earnings ratio really stand out from both of them. This, along with its higher return, makes it a cheaper buy at this point; However, both are worthwhile investments in their potential markets.