Starwood European Real Estate Finance Ltd (SWEF) SWEF: Quarterly
Portfolio Update 22-Oct-2021 / 07:00 GMT/BST Dissemination of a
Regulatory Announcement that contains inside information according
to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The
issuer is solely responsible for the content of this
announcement.
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22 October 2021
Starwood European Real Estate Finance Limited
Quarterly Portfolio Update
5.8 per cent Share Price Total Return During Q3; Resilient
Performance from Robust Portfolio
Annual dividend yield of 5.6 per cent, paid quarterly
Starwood European Real Estate Finance Limited ("SWEF" or "the
Group"), a leading investor originating, executing and managing a
diverse portfolio of high quality senior and mezzanine real estate
debt in the UK and Europe, is pleased to announce a portfolio
update for the quarter ended on 30 September 2021.
Highlights
-- Income stability - all loan interest and scheduled
amortisation payments paid in full and on time
-- Strong cash generation - the portfolio as a whole continues
to support annual dividend payments of 5.5pence, paid quarterly,
and generates an annual dividend yield of 5.6 per cent on the share
price as at 30 September2021
-- Portfolio robust - despite pandemic-related disruption, the
portfolio continues to perform in line withexpectations
-- Borrowers remain adequately capitalised and are expected to
continue to pay loan interest and capitalrepayments in line with
contractual obligations
-- On 21 July 2021 the Group announced that it had closed a
GBP13.5 million floating rate whole loan securedby a mixed use
hotel and office property in Northern Ireland
-- In August 2021 the Group announced that during July 2021 it
received the full and final repayment of itsEUR54.2 million loan on
a resort hotel in Spain
-- 5.8 per cent - Share price total return during quarter ended
30 September 2021
-- 54.9 per cent - Share price total return since inception in
December 2012
-- The Investment Manager believes the current investment
pipeline is the strongest since the Company wasestablished
Quote from the Chair, Stephen Smith
"We are pleased with the Company's performance during the
quarter which remains in line with expectations and is derived from
an exceptionally robust portfolio of real estate loans that
continue to deliver attractive income for our shareholders.
Notably, the outlook for new loans origination remains very strong
as the investment manager has seen significant activity across the
hospitality and retail sectors and in office spaces as the UK and
Europe starts to return to pre-pandemic activity levels. While the
Board is encouraged with the progress achieved in narrowing the
share price discount to NAV since the Company's last quarterly
update, the Board remains of the opinion that the current discount
does not reflect the outstanding risk adjusted income represented
by the quality of the portfolio which has not experienced any
payment defaults, including since the onset of Covid-19."
The factsheet for the period is available at:
www.starwoodeuropeanfinance.com
Share Price / NAV at 30 September 2021
Share price (p) 98.0
NAV (p) 103.5
Discount 5.4%
Dividend yield 5.6%
Market cap GBP401m
Key Portfolio Statistics at 30 September 2021
Number of investments 18
Percentage of currently invested portfolio in floating rate loans 76.7%
Invested Loan Portfolio unlevered annualised total return (1) 6.7%
Portfolio levered annualised total return (2) 6.7%
Weighted average portfolio LTV - to Group first GBP (3) 18.7%
Weighted average portfolio LTV - to Group last GBP (3) 64.2%
Average loan term (based on current contractual maturity) 4.6 years
Average remaining loan term 2.0 years
Net Asset Value GBP423.4m
Amount drawn under Revolving Credit Facilities (including accrued interest) GBP0.0m
Loans advanced (including accrued interest) GBP393.5m
Cash GBP20.2m
Other net assets (including hedges) GBP9.7m
Remaining years to contractual maturity* Value of loans (GBPm) % of invested portfolio
0 to 1 years 112.0 28.7%
1 to 2 years 88.5 22.6%
2 to 3 years 42.9 11.0%
3 to 5 years 147.5 37.7%
*excludes any permitted extensions. Note that borrowers may
elect to repay loans before contractual maturity.
Country % of invested assets
UK 51.8%
Republic of Ireland 21.4%
Spain 19.3%
Netherlands 3.6%
Germany 2.8%
Finland 1.1%
Sector % of invested assets
Hospitality 35.1%
Office 24.9%
Retail 13.5%
Residential 12.0%
Healthcare 6.4%
Life Sciences 5.0%
Light Industrial 1.4%
Logistics 1.4%
Other 0.3%
Loan type % of invested assets
Whole loans 60.5%
Mezzanine 39.5%
Currency % of invested assets*
Sterling 51.9%
Euro 48.1%
*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. 15 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 payable to the
Investment Manager.
(2) The levered annualised total return is calculated as per the
unlevered return but takes into account the amount of net leverage
in the Group and the cost of that leverage at current
LIBOR/EURIBOR.
(3) LTV to Group last GBP 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 GBP 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.
Portfolio changes during the quarter ended 30 September 2021
In July 2021 the Group announced that it had closed a GBP13.5
million floating rate whole loan secured by a mixed use hotel and
office property. The financing has been provided in the form of an
acquisition loan. The loan term is 3 years, and the Group expects
to earn an attractive risk-adjusted return in line with its stated
investment strategy.
In August 2021 the Group announced that during July 2021 it
received the full and final repayment of its EUR54.2 million loan
on a resort hotel in Spain.
Dividend
On 22 October 2021, the Directors declared a dividend in respect
of the third quarter of 1.375 pence per Ordinary Share, equating to
an annualised 5.5 pence per annum. The Board is targeting a
dividend of 5.5 pence per annum (payable quarterly) which it
considers to be a sustainable level of dividend. As a result of the
early repayment of the Company's large position in the Hotel, Spain
it is anticipated that current year earnings will not fully cover
the target dividend (the per cent shortfall is forecast to be in
single digits) but the Group has a modest dividend reserve for this
purpose which will be utilised to ensure that the target dividend
is met. Given the extremely attractive environment for the Group's
investment strategy it is anticipated that the dividend will
swiftly return to full coverage from earnings during the course of
2022 with any excess cash generated being used to replenish
dividend reserves.
Portfolio Update
All loan interest and scheduled amortisation payments up to the
date of this factsheet have been paid in full and on time in line
with expectations. The pandemic impacted sectors such as
hospitality and retail assets are now back open and trading, with
positive initial recovery indicators in relation to average rate on
hotel bookings and retail footfall. Additionally, office
pre-leasing activity for portfolio assets under construction or
heavy refurbishment is also showing positive indicators. The Group
is monitoring supply chain dynamics in relation to building
supplies and inflationary pressures particularly in relation to
utilities, food and staff costs. We note that all loan positions
remain well capitalised and typically sponsor's underwritten
business models include hedging of key contracts such as gas,
electricity and food, which are therefore expected to reduce the
impact of the current price trends on margins.
Key updates in relation to pandemic impacted sectors are
outlined below:
Hospitality (35 per cent of funded investment portfolio)
-- As announced in August 2021, the Group's exposure to
hospitality reduced to 35.1 per cent of theinvestment portfolio as
a result of the repayment of the largest hotel exposure, the
"Hotel, Spain". This followedthe very successful execution of the
Sponsor's business plan of refurbishing the hotel to a high
standard and thenrefinancing the Group's capex loan.
-- Of the remaining hospitality exposure, 69 per cent is located
in the UK, with the majority of thiscomprising three hotels (Hotel
Oxford, Hotel Scotland and Hotel North Berwick). These assets have
been undergoingcomprehensive refurbishment projects, with all three
hotels now open and trading under new brands. In line with
theGroup's underwritten expectations, the average room rates being
achieved for the repositioned hotels issignificantly higher than
the pre-refurbished product and all three hotels are expected to
trade very well in thefuture given the high quality of the new
product and strong domestic demand for leisure breaks.
-- The Hotel Dublin comprises the majority of the remaining
hospitality exposure accounting for 31 per cent.This asset is
planning to re-open fully during Q1 2022 following the expected
conclusion of a very successfulcontract in place throughout the
pandemic with the Irish health service. The position remains well
capitalised andis expected to benefit from pent up demand for
conference, events and leisure breaks once re-opened.
Retail (14 per cent of funded investment portfolio)
-- The Group's exposure to retail is predominantly comprised of
the "Three Shopping Centres, Spain" and"Shopping Centre, Spain"
loans. These are the only stand-alone retail loans in the portfolio
and comprise 12 percent of the Group's total funded investment
portfolio and 87 per cent of total retail exposure. All other
retailexposure is contained in a limited number of mixed use
portfolios.
-- As previously reported, with restrictions being eased over
the second and third quarters of 2021 inEurope, along with high
vaccination rates, retail footfall traffic has continued to recover
to over 70 per cent ofthe comparable period in 2019. This is
expected to continue to increase over the coming months
particularly oncecinemas recover further. Cinemas have suffered to
a greater extent with a slower recovery than other retailoutlets,
however autumn 2021 new blockbuster releases are expected to drive
greater footfalls.
-- The sponsor continues active asset management of the centres,
with occupancy remaining robust and thepositions adequately
capitalised.
Construction & heavy refurbishment (18 per cent of funded
investment portfolio)
-- The Group's construction and heavy refurbishment exposure has
reduced down to 18 per cent from 25 percent following the
completion of the Hotel Scotland heavy refurbishment project in the
third quarter of 2021. Over90 per cent of the Group's construction
and heavy refurbishment funded loans are located in the UK. Despite
supplychain headwinds, all projects are progressing satisfactorily
and no unfunded cost overruns have occurred. Ground upconstruction
and heavy refurbishment projects underwritten by the Group
typically have fixed price design and buildconstruction contracts
in place with established contracting firms who have managed their
supply chain andsub-contractors well.
Market commentary and outlook
Stock markets have moved mostly sideways over the last quarter
but have been increasingly concerned around the risk of persistent
inflation. As economies have opened up and the world moves back
towards a normal level of activity we can see inflation everywhere
in our everyday lives. There is clear inflation when eating and
drinking out, buying groceries, paying utility bills and filling up
at the petrol pump. Commodities, global shipping costs and some
labour costs are increasing at rates significantly higher than the
headline inflation rates. The general market opinion had been that
this inflation is a short term effect connected to the rapid
changes from reopening economies and is likely to normalise as a
new equilibrium is reached. However, the trend has been continuing,
the reported inflation numbers keep on rising and the markets have
become jittery on concerns as to whether inflation will continue at
elevated levels for the longer term. The FTSE All-Share and the
iShares UK Property ETF have moved by 1.10 per cent and 4.28 per
cent over the quarter respectively. This in line with the markets
generally exhibiting some volatility but not much over all movement
over the quarter. In addition to these choppier market conditions
we have now begun to see some impact with meaningful moves in the
UK ten year Gilt and US ten year treasury which are now yielding
1.02 per cent and 1.49 per cent at the end of September versus 0.58
per cent and 1.28 per cent at the end of August 2021 respectively.
So far this has not made a material impact on 3 month Euribor or
Sterling Libor which are relatively steady at their historical low
levels (as at September 2021) of negative 0.55 per cent and
positive 0.082 per cent respectively. If inflationary pressures do
drive central banks to take action to increase base rates and Libor
and Euribor rates follow, then the portfolio will benefit as 76.7
per cent of the portfolio has floating interest rates. In the case
of Sterling loans the impact will be immediate, for Euro loans
which have floors at zero, Euribor would have to exceed zero for
the benefit to start.
As the world continues progress back to more conventional work
patterns we are also seeing the early signs of business travel
picking up. The Investment Advisor's teams have already been
travelling extensively for international investment and lending
opportunities but over the last few weeks they have seen other
firms and banks doing more travel as well. The Advisor has also
started to see non-essential travel picking up with relationship
managers on trips for client meetings to re-kindle connections and
relationships and to try to develop new ones. In the last week of
September we saw a huge increase in bankers traveling from the
United States. Networking drinks and dinners are back and last week
there was an invite for one for every night including three
separate events on the Monday. The Americans we met all noticed how
far ahead London was in returning to normal compared to US cities.
We can see from our offices that the West End of London is buzzing
with activity. Pubs and restaurants are full, the streets are busy
and at lunchtime there are regular queues at sandwich shops. The
Bloomberg Pret Index backs our experience up with data from Pret
sales. The index reports the West End is now right back where it
was pre-pandemic. Consistent with the anecdotes from the Americans,
Bloomberg comment that compared with New York, London's bankers
have been much faster to return to trading floors in the City of
London and Canary Wharf financial districts with these areas at 80
per cent of pre-pandemic sales versus 50 per cent for Wall
Street.
In the office transaction market the most recent London office
investment volume statistics from CBRE are already available for
the third quarter. The third quarter figures brought year-to-date
investment to GBP6.4 billion which is a 95 per cent increase on the
same period last year, when only GBP3.3 billion of investment was
recorded. Core transactions dominated the London investment market,
accounting for 60 per cent of total volumes. It is particularly
notable that Asian investment, which usually comprises a
significant portion of London investment volume only accounted for
15 per cent of year-to-date investment volumes as many Asian
investors are unable to travel and that when those Asian investors
return and can freely deploy capital, we are likely to see
increased competition and volume. Buyers are focused on the best
buildings with superior ESG credentials which will be essential for
buildings to appeal to investors, tenants and lenders. New ESG
regulations will also require significant investment over the
coming years. Colliers report one tenth of London offices could
become unusable in two years unless landlords invest heavily to
bring them up to new environmental standards. They estimate 20
million square feet of London workspace falls short of minimum
energy efficiency standards that will be introduced in England and
Wales in 2023. Under the new standards it will be an offence to
lease an office with an energy performance certificate rated lower
than E. In addition, Colliers report that almost two-thirds of
London's stock is rated D to G and that the government is
consulting on legislation that will mean only A or B rated
commercial buildings can be leased by 2030.
In addition to most market participants being firmly back in the
office, we are beginning to see conference activity pick up in our
industry. This October a small group from the Starwood team will be
in Munich for Expo Real, the largest real estate industry event in
Europe. In 2019 prior to COVID Expo Real drew 46,747 participants
from 76 countries. We expect there to be far smaller numbers this
year and with many restrictions still in place. However, the
ability to see many contacts that the Investment Advisor has not
met in person for almost two years and from many countries in one
place will be incredibly valuable.
The steady recovery of the hotel operational markets continues.
The Group's largest exposure to hotels is in regional UK markets
where occupancy has continued to trend stronger since domestic
restrictions lifted in May, with many tourists choosing to travel
domestically whilst restrictions remained in place on international
travel, particularly in Europe. For UK and Europe as a whole, while
occupancies still need to catch up, the average rate paid per room
per night across the industry as a whole achieved in August 2021
has now recovered to pre-pandemic levels.
On the hotel transactions side we mentioned in previous
factsheets that we expected numerous hotel transactions to come
through later in the year. Since this time last year Starwood's own
equity funds in Europe have acquired or committed to four new hotel
purchases in the UK, Spain and Denmark including two in the third
quarter of 2021. In the US at the beginning of the summer funds
managed by Starwood and Blackstone completed the acquisition of
Extended Stay America in a transaction valued at approximately USD6
billion. We had previously commented that markets tended to open
first with smaller single asset transactions and then migrate to
larger transactions and portfolios as markets settled. We are now
seeing that trend in the market with larger portfolios transacting
which boost the overall transaction volume. One example this month
in the UK is Henderson Park have acquired a portfolio of twelve
Hilton hotels with more than 2,400 rooms in a transaction reported
to be worth GBP555 million. We are aware of a number of similar
sized transactions in the market now that will likely close late
2021 or early in 2022. The investment market is very healthy and
liquid for hotel assets across Europe.
Looking forward to the fourth quarter and beyond we anticipate a
strong level of transactional activity to continue. The strength
and potential of "beds, meds and sheds" have been strong themes and
we continue to see interesting value add lending opportunities in
these sectors and others for the Company.
Expected Credit Losses
All loans within the portfolio are classified and measured at
amortised cost less impairment. The Group closely monitors the
loans in the portfolio for deterioration in credit risk. There are
some loans for which credit risk has increased since initial
recognition. However, we have considered a number of scenarios and
do not currently expect to realise a loss in the event of a
default. Therefore, no credit losses have been recognised.
This assessment has been made, despite the continued pressure on
the hospitality and retail markets from Covid-19, on the basis of
information in our possession at the date of reporting, our
assessment of the risks of each loan and certain estimates and
judgements around future performance of the assets. The position on
any potential ECLs on the Spanish retail assets in particular
continues to be closely monitored and analysed, and we have sought
input, analysis and commentary from Spanish market advisers in this
regard, to supplement our own information. We have received
independent, external valuations of the underlying assets secured
against the Spanish loans during the current year. This information
did not change our analysis on the Spanish loans and we note that
valuation headroom remains on these loans. The updated valuations
are reflected in the sector and portfolio LTV tables presented in
this factsheet.
Investment Portfolio at 30 September 2021
As at 30 September 2021, the Group had 18 investments and
commitments of GBP419.1 million as follows:
Sterling equivalent Sterling equivalent unfunded Sterling Total (Drawn and
balance (1) commitment (1) Unfunded)
Hospitals, UK GBP25.0 m GBP25.0 m
Hotel & Residential, UK GBP49.9 m GBP49.9 m
Office, Scotland GBP5.0 m GBP5.0 m
Office, London GBP13.7 m GBP6.8 m GBP20.5 m
Hotel, Oxford GBP20.1 m GBP2.9 m GBP23.0 m
Hotel, Scotland GBP41.4 m GBP1.2 m GBP42.6 m
Hotel, Berwick GBP14.1 m GBP0.9 m GBP15.0 m
Life Science, UK GBP19.5 m GBP7.1 m GBP26.6 m
Hotel and Office, Northern GBP13.5 m GBP13.5 m
Ireland
Logistics Portfolio, UK (2) GBP0.6 m GBP0.6 m
Total Sterling Loans GBP202.8 m GBP18.9 m GBP221.7 m
Three Shopping Centres, GBP31.0 m GBP31.0 m
Spain
Shopping Centre , Spain GBP14.7 m GBP14.7 m
Hotel, Dublin GBP51.8 m GBP51.8 m
Office, Madrid, Spain GBP16.0 m GBP0.9 m GBP16.9 m
Mixed Portfolio, Europe GBP24.1 m GBP24.1 m
Mixed Use, Dublin GBP4.6 m GBP8.2 m GBP12.8 m
Office Portfolio, Spain GBP13.4 m GBP0.2 m GBP13.6 m
Office Portfolio, Ireland GBP27.4 m GBP27.4 m
Logistics Portfolio, Germany GBP5.1 m GBP5.1 m
(2)
Total Euro Loans GBP188.1 m GBP9.3 m GBP197.4 m
Total Portfolio GBP390.9 m GBP28.2 m GBP419.1 m 1. Euro balances translated to sterling at period end exchange rate. 2. Logistics Portfolio, UK and Logistics Portfolio, Germany is one single loan agreement with sterling andEuro tranches.
Loan to Value
On the basis of the methodology and valuation processes
previously disclosed (see 30 June 2020 factsheet) and including new
valuations received, at 30 September 2021 the Group has an average
last GBP LTV of 64.2 per cent (30 June 2021: 63.5 per cent).
The table below shows the sensitivity of the loan to value
calculation for movements in the underlying property valuation and
demonstrates that the Group has considerable headroom within the
currently reported last LTVs.
Change in Valuation Hospitality Retail Residential Other Total
-25% 84.2% 100.5% 79.5% 79.3% 84.1%
-20% 78.9% 94.2% 74.6% 78.3% 80.2%
-15% 74.3% 88.6% 70.2% 73.7% 75.5%
-10% 70.1% 83.7% 66.3% 69.6% 71.3%
-5% 66.4% 79.3% 62.8% 65.9% 67.6%
0% 63.1% 75.3% 59.7% 62.6% 64.2%
5% 60.1% 71.8% 56.8% 59.7% 61.1%
10% 57.4% 68.5% 54.2% 57.0% 58.3%
15% 54.9% 65.5% 51.9% 54.5% 55.8%
Share Price performance
During the third quarter of 2021, the Company's shares performed
well, returning 5.8 per cent on a total return basis with the share
price trading between 92.8 pence and 99.4 pence and ending the
quarter at 98.0 pence. As at 30 September 2021, the discount to NAV
stood at 5.4% per cent, with an average discount to NAV of 7.0% per
cent over the quarter, a significant improvement from the discount
to NAV of 12.1 % per cent on average in the previous quarter. The
Board, the Investment Manager and Adviser continue to believe that
the shares represent attractive value at this level.
Note: the 30 September 2021 discount to NAV is based off the
current 30 September NAV as reported in this factsheet. All average
discounts to NAV are calculated as the latest cum-dividend NAV
available in the market on a given day, adjusted for any dividend
payments from the ex-dividend date onwards
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited as Company
Secretary
+44 (0) 203 5303 661
Magdala Mullegadoo
Starwood Capital
Duncan MacPherson +44 (0) 20 7016 3655
Jefferies International Limited
Stuart Klein
Neil Winward
+44 (0) 20 7029 8000
Gaudi Le Roux
Buchanan +44 (0) 20 7466 5000
Helen Tarbet +44 (0) 07788 528143
Henry Wilson
Hannah Ratcliff
Notes:
Starwood European Real Estate Finance Limited is an investment
company listed on the premium segment of the main market of the
London Stock Exchange with an investment objective to provide
Shareholders with regular dividends and an attractive total return
while limiting downside risk, through the origination, execution,
acquisition and servicing of a diversified portfolio of real estate
debt investments in the UK and the wider European Union's internal
market. www.starwoodeuropeanfinance.com.
The Company is the largest London-listed vehicle to provide
investors with pure play exposure to real estate lending.
The Group's assets are managed by Starwood European Finance
Partners Limited, an indirect wholly-owned subsidiary of the
Starwood Capital Group.
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ISIN: GG00B79WC100
Category Code: MSCM
TIDM: SWEF
LEI Code: 5493004YMVUQ9Z7JGZ50
Sequence No.: 124950
EQS News ID: 1242678
End of Announcement EQS News Service
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