Starwood Expands in Florida with Multifamily Housing Buyout

Pierhouse - Curbed NY

Starwood Property Trust’s STWD focus on expansion of multi-family housing portfolio is highlighted in its recent attempt to buy a portfolio of 28 properties in Florida. Notably, the company has entered into a definitive agreement to acquire the portfolio of institutional-quality multifamily affordable housing units for nearly $600 million.

The portfolio, which consists of 6,185 units, is 99% leased. These apartments are primarily located in Orlando and are also distributed in the West Palm Beach, Tampa, and Miami MSA’s. The transaction represents management’s confidence in the Florida markets which exhibit strong fundamentals. In fact, when the company completes this transaction, its portfolio will comprise more than 15,000 residential units concentrated in Florida.

Per a costar article, to execute the transaction, Starwood will combine units of a recently-formed subsidiary called SPT Dolphin Intermediate LLC. These units can be exchanged into STWD common shares, cash and debt financing.

Due to the assumption of in-place financing and timing of regulatory approvals, the transaction is being closed in phases. In fact, the company has already closed eight properties, comprising 1,740 units in December 2017. The remaining phases of the transaction are anticipated to close by the end of second-quarter 2018, subject to customary closing conditions.

Management believes the inconsistency between demand and supply for rental housing, as well as the favorable financing options available to the company will likely provide high cash-on-cash returns over the long run.

Other than this acquisition, Starwood Capital Group, which manages the REIT’s manager, has also invested in nearly 20,000 market rate units that complement the Florida markets. Per management, it will continue to leverage on its scale and industry relations to identify opportunities which offer attractive returns and drive shareholders’ value.

However, over the past year, shares of this Zacks Rank #3 (Hold) company have underperformed the industry. While the company’s shares have lost 5.5%, the industry has recorded growth of 1.3% during this period.

Better-ranked stocks in the REIT space include Five Oaks Investment OAKS, Healthcare Trust of America HTA and CorEnergy Infrastructure Trust CORR. All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Five Oaks’ funds from operations (FFO) per share estimates for 2017 remained unchanged at $0.49 over the past month. Its share price has increased 24.8% in three months’ time.

Healthcare Trust FFO per share estimates for the current year has remained unchanged at $1.65 in a month’s time. Over the past three months, the stock has declined 3.1%.

CorEnergy‘s Zacks Consensus Estimate for 2017 FFO has remained unchanged at $4.21 in a month’s time. Also, its shares have gained 5.1% in three months’ time.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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