Critical Analysis: Starwood Property Trust (NYSE:STWD) and Orion Office REIT (NYSE:ONL)

Orion Office REIT (NYSE:ONL) and Starwood Property Trust (NYSE:STWD) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their valuation, analyst recommendations, institutional ownership, profitability, risk, earnings and dividends.

Insider & Institutional Ownership

79.9% of Orion Office REIT shares are owned by institutional investors. Comparatively, 49.8% of Starwood Property Trust shares are owned by institutional investors. 0.4% of Orion Office REIT shares are owned by insiders. Comparatively, 5.8% of Starwood Property Trust shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Valuation & Earnings

This table compares Orion Office REIT and Starwood Property Trust’s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Orion Office REIT	$195.04 million	0.92	-$57.30 million	($1.02)	-3.15
Starwood Property Trust	$2.05 billion	2.93	$339.21 million	$1.07	17.86

Starwood Property Trust has higher revenue and earnings than Orion Office REIT. Orion Office REIT is trading at a lower price-to-earnings ratio than Starwood Property Trust, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Orion Office REIT has a beta of 0.86, indicating that its stock price is 14% less volatile than the S&P 500. Comparatively, Starwood Property Trust has a beta of 1.65, indicating that its stock price is 65% more volatile than the S&P 500.

Dividends

Orion Office REIT pays an annual dividend of $0.40 per share and has a dividend yield of 12.4%. Starwood Property Trust pays an annual dividend of $1.92 per share and has a dividend yield of 10.0%. Orion Office REIT pays out -39.2% of its earnings in the form of a dividend. Starwood Property Trust pays out 179.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Orion Office REIT is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Orion Office REIT and Starwood Property Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Orion Office REIT	-29.38%	-6.20%	-3.82%
Starwood Property Trust	16.55%	9.38%	0.87%

Analyst Ratings

This is a summary of current ratings and price targets for Orion Office REIT and Starwood Property Trust, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Orion Office REIT	0	0	0	0	N/A
Starwood Property Trust	0	3	4	0	2.57

Starwood Property Trust has a consensus target price of $21.71, suggesting a potential upside of 13.60%. Given Starwood Property Trust’s higher possible upside, analysts plainly believe Starwood Property Trust is more favorable than Orion Office REIT.

Summary

Starwood Property Trust beats Orion Office REIT on 12 of the 15 factors compared between the two stocks.

About Orion Office REIT

Orion Office REIT specializes in the ownership, acquisition and management of a diversified portfolio of mission-critical and corporate headquarters office buildings in high-quality suburban markets across the U.S. The portfolio is leased primarily on a single-tenant net lease basis to creditworthy tenants. The company's team of experienced industry leaders employs a proven, cycle-tested investment evaluation framework which serves as the lens through which capital allocation decisions are made for the current portfolio and future acquisitions.

About Starwood Property Trust

Starwood Property Trust, Inc. operates as a real estate investment trust (REIT) in the United States and internationally. The company operates through Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing segments. The Commercial and Residential Lending segment originates, acquires, finances, and manages commercial first mortgages, non-agency residential mortgages, subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities, as well as other real estate and real estate-related debt investments, include distressed or non-performing loans. The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments. The Property segment engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, such as multifamily properties and commercial properties subject to net leases, that are held for investment. The Investing and Servicing segment manages and works out problem assets; acquires and manages unrated, investment grade, and non-investment grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions; originates conduit loans for the primary purpose of selling these loans into securitization transactions; and acquires commercial real estate assets that include properties acquired from CMBS trusts. The company qualifies as a REIT for federal income tax purposes and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was incorporated in 2009 and is headquartered in Greenwich, Connecticut.