from Starwood European Real Estate Finance Ltd (isin : GG00B79WC100)
SWEF: Portfolio Update
Starwood European Real Estate Finance Ltd (SWEF)
Starwood European Real Estate Finance Limited
Quarterly Portfolio Update £37.9 million repaid across four investments Fourth and fifth capital redemptions totalling £45.0 million undertaken in February and March 2024
Starwood European Real Estate Finance Limited (“SEREF” or the “Group”), a leading investor managing and realising a diverse portfolio of high quality senior and mezzanine real estate debt in the UK and Europe, is pleased to present its performance for the quarter ended 31 March 2024.
Highlights
John Whittle, Chairman of SEREF, said:
“2024 has started well in terms of our orderly realisation strategy, with £37.9 million being realised from loan repayments during the quarter. This has enabled us to return £45.0 million to shareholders via two capital redemptions in 2024 to date.
Despite continued high interest rates, volatile economic conditions and lower transaction volumes, the portfolio has continued to perform well. Following the settlement of the Shopping Centre loan, Spain and the partial repayment of the Three Shopping Centres, Spain loan, just 5 per cent of the total funded loan portfolio is allocated to the Retail sector as of 31 March 2024.
We are on track to meet our aim of paying out a 5.5 pence per share dividend for 2024. We also expect to make further realisations in the coming months and look forward to updating shareholders on these realisations in due course.”
The factsheet for the period is available at: www.starwoodeuropeanfinance.com
Share Price / NAV at 31 March 2024
Key Portfolio Statistics at 31 March 2024
*excludes any permitted extensions. Note that borrowers may elect to repay loans before contractual maturity.
*the currency split refers to the underlying loan currency, however the capital on all non-sterling exposure is hedged back to sterling.
(1) The unlevered annualised total return is calculated on amounts outstanding at the reporting date, excluding undrawn commitments, and assuming all drawn loans are outstanding for the full contractual term. 10 of the loans are floating rate (partially or in whole and all with floors) and returns are based on an assumed profile for future interbank rates, but the actual rate received may be higher or lower. Calculated only on amounts funded at the reporting date and excluding committed amounts (but including commitment fees) and excluding cash uninvested. The calculation also excludes the origination fee paid to the Investment Manager. (2) LTV to Group last £ means the percentage which the total loan drawn less any deductible lender controlled cash reserves and less any amortisation received to date (when aggregated with any other indebtedness ranking alongside and/or senior to it) bears to the market value determined by the last formal lender valuation received by the reporting date. LTV to first Group £ means the starting point of the loan to value range of the loans drawn (when aggregated with any other indebtedness ranking senior to it). For development projects the calculation includes the total facility available and is calculated against the assumed market value on completion of the relevant project.
Orderly Realisation and Return of Capital
On 31 October 2022, the Board announced the Company’s Proposed Orderly Realisation and Return of Capital to Shareholders. A Circular relating to the Proposed Orderly Realisation, containing a Notice of Extraordinary General Meeting (EGM) was published on 28 December 2022. The proposals were approved by Shareholders at the EGM in January 2023 and the Company is now seeking to return cash to Shareholders in an orderly manner as soon as reasonably practicable following the repayment of loans, while retaining sufficient working capital for ongoing operations and the funding of committed but currently unfunded loan commitments.
The redemptions announced and implemented in 2023 returned circa £85.0 million in total to shareholders. During the first quarter of 2024, the Company announced and implemented its fourth and fifth capital redemptions, returning, in total, circa £45.0 million to shareholders through the compulsory redemption of 43,512,736 shares. Following the fifth redemption, the Company has 270,178,206 shares in issue and the total number of voting rights is 270,178,206.
Liquidity and credit facilities
During 2023 the Company built up a cash reserve sufficient to cover its unfunded commitments (which as at 31 March 2024 amounted to £31.4 million). This cash reserve is included in the £53.9 million of cash held as at 31 March 2024.
During the quarter the Lloyds £25.0 million revolving credit facility was terminated. It had been due to mature in May 2024. The decision was taken to terminate it early as the Company holds sufficient cash to meet its commitments and there was no intention to use the facility before the end of the availability period.
Dividend
On 25 April 2024, the Directors announced a dividend, to be paid in May, in respect of the first quarter of 2024 of 1.375 pence per Ordinary Share in line with the 2024 dividend target of 5.5 pence per Ordinary Share
Portfolio Update
The Group continues to closely monitor and manage the credit quality of its loan exposures and repayments. Despite continued high interest rates, volatile economic conditions and lower transaction volumes, the portfolio has continued to perform well.
On an aggregate portfolio level we continue to benefit from material headroom in underlying collateral value against the loan basis, with a current weighted average loan to value of 58 per cent. These metrics are based on independent third party appraisals (with the exception of one loan that has been marked against lower recent comparable sale levels). These appraisals are typically updated annually for income producing assets. The current weighted average age of valuations is eight months.
Significant loan repayments totalling £37.9 million, equivalent to 14 per cent of the 31 December 2023 total funded portfolio, were received during the quarter to 31 March 2024. This included full settlement of the Shopping Centre, Spain loan and 60 per cent of the Three Shopping Centres, Spain loan. These repayments mark a significant 73 per cent reduction in the Group’s exposure to the Retail sector, with just 5 per cent of the total funded loan portfolio allocated to the Retail sector as of 31 March 2024.
The Group’s exposure is spread across eleven investments. 99 per cent of the total funded loan portfolio as of 31 March 2024 is spread across six asset classes; Hospitality (50 per cent), Office (14 per cent), Light industrial (12 per cent), Healthcare (11 per cent), Life sciences (7 per cent) and Retail (5 per cent).
Hospitality exposure (50 per cent) is diversified across five loan investments. Two loans (12 per cent of hospitality exposure) benefit from State/Government licences in place at the properties and also benefit from significant amortisation that continues to decrease these loan exposures. One loan (37 per cent of hospitality exposure) has two underlying key UK gateway city hotel assets, both of which are undergoing comprehensive refurbishment programmes which are due to complete during 2024. The remaining two loans (51 per cent of hospitality exposure) have both been recently refurbished. The Group expects its exposure to hospitality to significantly reduce during 2024 from a combination of planned asset sales and refinancings of stabilised, strong performing assets. The weighted average loan to value of the hospitality exposure is 54 per cent.
The Group’s Office exposure (14 per cent) is spread across three loan investments. The weighted average loan to value of loans with office exposure is 75 per cent. The average age of these independently instructed valuation reports is less than one year and there continues to be headroom to the Group’s loan basis.
Light industrial and healthcare exposures comprise 12 per cent and 11 per cent each respectively, totalling 23 per cent of the total funded portfolio (across two investments) and provides good diversification into asset classes that continue to have very strong occupational and investor demand. Weighted average loan to value of these exposures is 57 per cent.
The Group’s Retail exposure has been materially reduced in the quarter to 31 March 2024 to £11.4 million remaining on one loan, equivalent to 5 per cent of the total funded portfolio. This is a reduction of £31.1 million or 73 per cent of Retail exposure versus the 31 December 2023 position. This followed the sale of three of the shopping centres underlying two Retail loans, with 100 per cent of net disposal proceeds being used to pay down the loans. The remaining Retail exposure of £11.4 million is held against one remaining shopping centre under the Three Shopping Centres, Spain, senior loan. This asset is well occupied and 100 per cent of the loan is forecast to be recovered when the asset is sold. The weighted average loan to value of the remaining retail exposure is 75 per cent. The value basis of this calculation is the lower of projected sale value (benchmarked against the recent sales value realised) and most recent third party independent appraisals.
The Group has no exposure to development and heavy refurbishment projects (as at 31 March 2023 this exposure amounted to 11 per cent of total loan commitments).
Credit Risk Analysis
All loans within the portfolio are classified and measured at amortised cost less impairment.
During the quarter there have been no changes to the existing credit risk levels for any of the loans in the portfolio, however following the reduction during the quarter of the Retail sector exposure, there has been a £31.4 million, 33 per cent decrease in the aggregate of the Stage 2 and 3 category loans as of 31 March 2024 compared to 31 December 2023.
The Group follows a three-stage model for impairment based on changes in credit quality since initial recognition as summarised below:
The Group closely monitors all loans in the portfolio for any deterioration in credit risk. As of 31 March 2024, assigned classifications are:
|