Starwood European Real Estate Finance Ltd (SWEF)
25 April 2019
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Starwood European Real Estate Finance Limited: Quarterly Factsheet Publication
Starwood European Real Estate Finance Limited (the "Company") announces that the factsheet for the first quarter ended on 31 March 2019 is available at:
Extracted text of the commentary is set out below:
Investment Portfolio at 31 March 2019
As at 31 March 2019, the Group had 16 investments and commitments of £448 million as follows:
(1) Euro balances translated to sterling at period end exchange rates.
On 24 April 2019 the Directors declared a dividend in respect of the fourth quarter of 1.625 pence per Ordinary Share payable on 24 May 2019 to shareholders on the register at 3 May 2019.
First Quarter Portfolio Activity
The following portfolio activity occurred in the first quarter of 2019:
- Repayment: Varde Partners mixed portfolio: The remaining balance of £1.0 million was repaid at the January 2019 interest payment date following completion of the borrower's business plan.
- Repayment: Student Accommodation: The loan of EUR10.6 million was repaid on 01 March 2019 following successful completion of the borrower's business plan.
Following this portfolio activity the Group remains substantially fully invested with drawings of £37.2 million (net of cash) on its £114 million credit facilities and £31.6 million of unfunded commitments.
As we have reported in previous years, the first quarter is frequently quiet in the market and we have only tended to see high levels activity in the first quarter when deals which are under execution have not completed over the Christmas period. This year no deals have rolled over from 2018 and the first quarter has been relatively subdued. Similarly, we have received minimal repayments in the quarter. The Group continues to see strong opportunities to deploy capital in our target markets. The Investment Adviser has a number of transactions under review, which present solid risk adjusted returns, some of which are shortly moving into the execution phase and we expect to announce further loans originated during the course of the second quarter.
With the current state of Brexit, and Q1 typically being a quieter quarter it is unsurprising that the London office market saw mixed data this quarter. According to CBRE take-up fell by 34 per cent in Q1 2019 versus 2018 to 2.7 million square feet but with availability reaching its lowest level since Q3 2016. There was mixed reporting by different brokers on transaction volume but a big fall due to Brexit uncertainty has not been seen. CBRE reported volume down by 14 per cent to £2.4 billion in Q1 2019 but Savills reported £3.2 billion in the first quarter of 2019, being a 28 per cent increase on the £2.5 billion invested in Q1 2018. What is clear from both is the high proportion of transactions involving international capital with 70 per cent of purchases being by overseas buyers according to CBRE. One clear trend we have seen was a pause on many UK situations where people had been watching how Brexit would play out. Sentiment has quickly changed since the longer extension to the 31st October and we have seen a restarting of momentum on transactions as a result.
Headlines on the UK retail market remain gloomy. More recently we have been seeing the operational performance and yield sentiment for retail feeding through and more visibly impacting lenders. For example in March, Property Week reported on two troubled retail loans. The first example was RDI REIT experiencing an LTV breach on its Aviva facility secured by a portfolio of four UK shopping centres where a revaluation has resulted in the lender's loan to value hitting 89.4 per cent and exceeding the 85 per cent loan to value (LTV) covenant. The second was in relation to a portfolio of seven shopping centres, acquired by Lone Star for £260 million in 2014 and financed with a £200 million loan from Citi. Following a fall in value of the portfolio it is reported that the borrower has handed the keys to the senior mezzanine lender in a capital structure that included senior, senior mezzanine and junior mezzanine debt.
On the occupational side Debenhams, which is the largest occupier of non-food retail space in the UK, has been put into administration, there are reports of William Hill demanding 50 per cent rent decreases from landlords and Holland and Barrett unilaterally changing terms to paying monthly (rather than quarterly in advance which is typical for UK leases). We expect the pace of negative headlines to remain high and the drivers to be a combination of real occupational performance impacts but also of sentiment.
This volume of headlines does tend to drown out all other news in the sector but dynamics for prime city centre retail and retail warehouses are markedly different to those for shopping centres and regional high streets. Headlines in newspapers do not cover news such as the number of new international retailers opening debut stores in Central London. This figure increased significantly in 2018, reaching 33 individual openings (an increase of 26.9 per cent compared to 2017 levels). We continue to monitor the sector cautiously for potential opportunities.
Link Asset Services released their third Market Trend Analysis report for UK commercial real estate lending. Key take-aways included that lenders are less bullish on both expansion of their teams and their lending books than in the previous survey. However, of the participants surveyed 43 per cent are still looking to increase the team size and 54 per cent are looking to expand their lending books. Brexit and political risks dominate the lenders' concerns about the market: many see a potential softening in the real estate market, generally, but expect that loan terms will remain broadly stable.
Of the eight loans made by the Company in 2018, seven were in our three main focus markets for new origination of the UK, Spain and Ireland. While the market dynamics continually shift, particularly at the moment in the UK, we expect to continue to see a similar geographical pattern in 2019.
Share Price / NAV at 31 March 2019
Key Portfolio Statistics at 31 March 2019
(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. 13 of the loans are floating rate (partially or in whole and some 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 un-invested. 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 £ means the percentage which the total loan drawn 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.
*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.
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited - 01481 735879
Starwood Capital - 020 7016 3655
Stifel Nicolaus Europe Limited - 020 7710 7600
Gaudi Le Roux
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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