***************** DAIWA NEW ISSUE COLOR: STWD ******************
$450m (+67.5m) sen unsec cb coming tonight from DB/BOA/C/CS/GS.
TERMS:5y, 4.15-4.65% up 10%, full pctns. UOP=origination/purch of commercial mort. loans/gcp/potential funding of LNR purchase.
STWD originates and invests in commercial mort. loans&other comm. real estate investments. LNR acq. should help compliment biz, but they are taking on ~70bn in assets via acq. We’ll use L+475.
2y, 50/10%ile real vol=17.9/14.6. We’ll use 15. Theo=97 15/16/98⅞ / 99⅝. If shoe exercised, could go into o/r index (sigh). Why own this @ 4.4 up 10% when you could own IG-rated PSEC 5.8 up 8? We see Grey, but this deal dooesn’t do it for us. If you feel compelled to own, push for CHEAPS. Calendar warming up, might be better to come. Unless cheap, we’d AVOID {SRCE:bbg & Co.Filings)
**** STWD New Deal Summary ****
Announcing a $450mm 5-yr bullet senior convert. Px talk 4.15-4.65s up 10%. Proceeds to be used to fund LNR Property acquisition and/or investment in additional comm’l RE loans. STWD currently manages $3.8bn of assets, including $3.5bn of earning assets, funded via $1.4bn of secured debt. Assets This will be co’s first unsecured debt. Co. is structured as a REIT, so can use SFI, NLY and NRF as comps. SFI 5yr CDS currently 500bps, NLY models around L+400/24v and NRF around L+850/15v. Credit spread of L+500 implies 12.6vol. L+500/15v indicates FV of 101.67.
While STWD does own a decent chunk of subordinated and mezz exposure, the balance sheet is less levered vs. its peers (unencumbered assets ~3.3x converts vs. SFI at 1.5x and NRF at 3.5x). Largest sector concentration is hospitality sector at 49%, followed by office properties at 18%. Geographically, portfolio is 26% exposed to the Western US, while Northeast represents 20% and the South 18%. Portfolio consists of 78% whole loans and 24.5% in CMB and RMB securities. Loan book is a barbell of 51% first mortgage loans and 32% mezz debt (B-Notes), with the balance in sub notes. For the LTM, net investment totaled $1.4bn, primarily new whole loans. For the LTM, portfolio generated $265mm of NOI, or an asset yield of 7.6%. Dividend yield on the stock is 6.8% vs. 12% for NLY and 7.8% for NRF. Stock priced at 1.3x 2014 consensus book value vs. 1.1x for NRF, 0.9x for NLY, and 1.1x for SFI.