(Cover photo:) Miami. Last year Starwood Property Trust entered the residential real estate market. The move comprises only a 2% slice of the company’s current loan book. That investment currently holds 15,000 low-income housing units in Florida.
Sternlicht seems a frustrated man. With Starwood property Trust trading at approximately $20 bucks, he feels it’s seriously undervalued. Maybe. As founder and acting CEO, Sternlicht goes on a rant during the now nine-year-old REIT’s Q3 conference call. Transcript excerpt:
“I’m really not excited about our stock price…when I look at our stock price, you might look at — the uninformed or financially illiterate might look at our book value.” -Berry Sternlicht, CEO, Starwood. Q3 conference call.
“Just sayin’.” Frustration? Plenty of frustration can be spotted on all points. Toil and trouble in the equity market bring on dreams of dancing dividends. The maddening crawl of accruing dividends suddenly feels snug, clever even. We’re there now. Got any? Starwood Property Trust does. 8.9% worth. But is it worth it?
-Toil and Trouble-
$SPX; 12-17-18, six-months, daily.
Relative performance long-term–2y.
$SPX, STWD overlay: 12-20-18, before pre-market. 2 years(subtracting weekends equals 608-days.)
Starwood’s Q3 call features five team members. Contributions by CFO Rina Paniry, and President & Managing Director, Jeffery DiModica, CFA, are professional and clear. However, the call suffers from repeated surprising interruptions. Garbling microphone noise, and repeated bouts of laughter mar comments by CEO Berry Sternlicht.
Starwood’s conference call production quality reads as a negative. Netflix founder and CEO Reed Hastings clearly understands production. How a company chooses to present itself professionally directly reflects on enterprise credibility.
Does it matter if the CEO of your company devolves into laughter while presenting the health of the enterprise? And if the ringing cell is his mom? And if it rings twice?
Conference calls are not box office events. Nor are they meant as frat house meetings. The Q3 call Starwood produced ranks mostly as the later. Meanwhile, NFLX conference calls are Youtube video events, both informative and professionally focused.
Can one accept an enterprise as focused on execution when their main conduit of communication with shareholders repeatedly degenerates into giggling?
Equally puzzling is the CEO Sternlicht’s lack of detailed knowledge regarding the particulars of his own company. “Rina–I think that’s in the financial statement.” In opening remarks Mr. Sternlicht is unclear about the age of the company of his own founding. Although STWD is now in it’s ninth year, Sternlicht vacillates between eight and nine. Far more important details elude his recall throughout the call.
As a shareholder, are you satisfied by a CEO unclear on many company metrics? Conference calls are scheduled events. Cleanly conveying details remains the point.
Company founders functioning as CEO are the face of that company. Founders such as Amazon’s Jeff Bezos, Reed Hastings, and Tesla’s Musk, are the lightening rod and voice of their enterprises. Such high profile figures are scrutinized by shareholders. Prudence and consistent professionalism are the substance of things hoped for.
Musk, Hastings, and Bezos are visionaries. Visionaries often–and probably should–receive more room for variance from the norm. Difference is a requirement for visionary. Not long after the 1998 founding of Google, both Larry Page and Sergey Brin became widely held as that, visionaries.
Page and Brin doubt both yuck it up while trawling the cloistered hangers of Google X. But therein seems to be the point. Brin, Page, Bezos, and Hastings, all do it offline. And Musk? His behavior–“taking it private…”–in particular, remains in the hands of this shareholder jury. But then, they love him, for many good reasons.
STWD, Q3, 2018 conference call transcript excerpt:
“Our book value’s declining, the stated book value. But if you take the underappreciated book value, that would be significantly higher…And then, if you do your job, you should look at the value of our equity assets. Because if you add that, the stock is — book value is north of $20.00 a share. So, all of your models, which show an embarrassing lack of sophistication, do not take into account the fair value or the liquidation of our company…Look at the business we’ve created…”
“…We outperform every hedge fund in the United States that I’ve seen, more or less, given the risk that we’re taking. So, it’s an incredible company that we’ve built, and I’m super proud of the board and our team, and with that, I’m gonna knock it off and go take a drink. Thank you.”
STWD, 12-20-18, 2-year(trading days only.)
$SPX, STWD overlay: 12-20-18, before pre-market. Six months.
“It’s your mom–again.”
Professionalism matters in business, as does personality. Actions outside of the norm raise appropriate questions. Quite likely, investors vary in their comfort with CEO behavior. And why not? We love the antics of Musk, but find no value in the recent on-call comments made by Cleveland Cliffs CEO.
Passion is a powerful force. It works both ways. Passion powers the NFL and the boardroom. True out-performance can’t come without it. Perhaps the passion of CEO Berry Sternlicht is the precise reason Starwood is the biggest in the game.
Stable returns supporting a huge yet payable dividend are what investors love. By our best estimate, Starwood Property Trust is doing just that, regardless of the ear-popping verbiage. Frankly, good luck finding many other stable 9% dividend plays in this roaring down-suck we know as a stock market. But listen to the Q3 call, and decide for yourself. Do you want to buy with Berry? STOCKjAW remains on the fence.
Starwood Property Trust