Over the last several years, the higher interest rate environment has been a persistent headwind for commercial real estate, and Starwood Property Trust (NYSE: STWD) has been no exception. The real estate investment trust (REIT)—which specializes in originating, acquiring, and managing commercial mortgage loans and other real estate-related investments—has seen its stock trend meaningfully lower over the last five years.
The past year has been challenging for the company, driven by a combination of disappointing revenue, declines in book value per share (BVPS), and several quarters in which earnings failed to cover its dividend payout. However, the tide may be turning, as a mix of recent developments could signal near-term upside.
Pandemic Pressure Followed by Rising Rates Pressured Shares
Starwood’s struggles began during the COVID-19 pandemic, as shares plunged in early 2020, falling from around $26 to below $10 as mortgage REITs were hit by liquidity concerns and uncertainty across commercial real estate markets. While shares rebounded to pre-pandemic levels by mid-2021 as investor confidence returned, new headwinds quickly emerged. But as rates began rising in March 2022, property values declined and lending margins tightened, once again putting pressure on commercial mortgage REITs.
The impact on STWD stock has been significant, with shares falling more than 30% over the past five years. But Starwood was not alone. Competitors such as Ares Commercial Real Estate (NYSE: ACRE), Blackstone Mortgage Trust (NYSE: BXMT), and Apollo Commercial Real Estate Finance (NYSE: ARI) also felt the pinch, falling roughly 65%, 40%, and 27%, respectively, over the same period.
However, over the last year, Starwood has faced its own pressures, which have caused it to underperform the group. The stock has declined roughly 12% over the last year, and at a recent trading price around $17.37, it has been flirting with the 52-week low it hit in April 2025.
The stock has also lagged the broader REIT industry, which is down less than 12%, and has been notably weaker than many of its closest peers. Over the past 12 months, Ares shares have risen around 4.75%, Blackstone Mortgage Trust is down roughly 3.65%, and Apollo Commercial Real Estate Finance is up more than 10%.
Inconsistent Earnings and Dividend Coverage Weigh on Sentiment
One issue that has weighed on Starwood is its inconsistent earnings. While earnings per share (EPS) have beaten expectations in four of the last six quarters, revenue has missed in five of those six quarters. The company has also reported negative net interest income in certain quarters, which has weighed on sentiment.
Starwood’s dividend has also created some uncertainty. For more than a decade, the REIT has maintained its quarterly dividend of 48 cents per share, which currently yields about 11.26%. However, over the past four quarters, earnings have not fully covered the dividend, resulting in an unsustainable payout ratio of roughly 165%.
Against the still-challenging higher-rate backdrop, the combination of mixed earnings and uneven dividend coverage has made some investors cautious. However, several recent developments could help reignite optimism. Better-than-expected revenue for the first time in a while, positive commentary from the company regarding its dividend coverage, and a newly authorized share buyback may be just what investors need to regain confidence.
Stronger Results and a Potential Buyback Could Shift Sentiment
In Starwood’s Q4 2025 earnings report, released on Feb. 25, the REIT reported EPS of 42 cents, beating analyst estimates by a penny. Revenue of $492.95 million came in roughly $23 million above estimates. The better-than-expected revenue followed multiple consecutive quarters of revenue misses.
Starwood also pointed to a stronger balance sheet, having executed $4.4 billion in capital raises and ending the year with $1.4 billion in liquidity. While EPS did not cover the 48-cent quarterly dividend, the company said on the earnings call that it expects dividend coverage to improve steadily throughout the year. Despite these positives, a continued decline in BVPS remained a concern.
Following the earnings release, the company also announced that its board of directors authorized the repurchase of up to $400 million of its outstanding common stock and convertible notes over the next 12 months using existing cash. It remains to be seen how this will play out, but a buyback of up to 6% of shares outstanding could have a meaningful impact on earnings and support the stock.
Wall Street Is Waiting for Clearer Signs of Improvement
The reaction to the fourth-quarter earnings report and buyback announcement was mixed. Shares rose roughly 2% on higher-than-normal volume, though two analysts lowered their price targets despite both maintaining Outperform ratings on the stock.
Currently, four analysts rate the stock a Hold while three rate it a Buy. However, the average 12-month price target implies potential upside of nearly 16% over the next 12 months.
While Wall Street may continue its wait-and-see approach for the time being, the outlook could turn more bullish in the near term if Starwood delivers another quarter of strong earnings and revenue, improves its dividend coverage, and begins actively repurchasing shares.
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The article "Starwood Shares Have Struggled, but Catalysts Could Signal a Turn" first appeared on MarketBeat.
