Buy Better: Apollo Commercial Real Estate Finance vs Starwood Property Trust
Apollo Commercial Real Estate Finance
Apollo Commercial creates and invests in senior notes, mezzanine loans and other commercial real estate related debt, with a portfolio of approximately $ 6.8 billion in loan amortization balances. In the first quarter of 2021, 84% of the company’s portfolio is made up of senior loans and includes loans in the United States and Western Europe. The company is focused on lending properties in entry markets, with a diverse portfolio of commercial properties. However, its main underlying assets for its 67 loans are offices (26%) and hospitality (23%), two sectors that have been hit hard by the global pandemic. Its largest operating market is New York City, with around 35% of all loans located there, followed by the UK, which accounts for 22% of its portfolio. Both areas have experienced strict closures related to COVID-19, although the company did not share its explicit impact of the pandemic in its latest earnings report. The company has $ 356 million in cash with low debt-to-equity ratios and fairly conservative payout ratios compared to other mREITs.
Starwood Real Estate Trust
Starwood Property Trust is primarily a commercial lender, having around 64% of its portfolio comprised of senior and mezzanine commercial loans, but the company also lends on infrastructure projects and non-agency residential loans. Starwood, in the first quarter of 2021, had around $ 18 billion in loans under management, including loans in the United States, Asia, Europe and Australia. Of its 122 commercial loans, 32% are offices, followed by hotels and multi-family homes, which each account for 19%. Starwood Property Trust has $ 351 million in cash and cash equivalents at the start of 2021, which has improved significantly over the past year. Its service branch reached record volumes in the last quarter.
What is the best buy?
The larger size of Starwood’s portfolio allows it to have greater diversification than Apollo Commercial, which provides a bit more security in the current economic climate. While both appear to increase capital deployment and new loans, which helps move business forward and increase income as loans mature, lower repayment ratios and debt-to-earnings ratio Apollo really sets him apart from the two. This, coupled with its higher yield, makes it a more favorable buy at the moment; however, both are attractive investments in their potential markets.