25th Jul 2016 16:17
Starwood European Real Estate Finance Ltd (SWEF)Quarterly Factsheet Publication 25-Jul-2016 / 16:17 GMT/BSTDissemination of a Regulatory Announcement, transmitted by EQS Group AG.The issuer is solely responsible for the content of this announcement. --------------------------------------------------------------------------- 25 July 2016 NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, DIRECTLYOR INDIRECTLY, TO U.S. PERSONS OR IN, INTO OR FROM THE UNITED STATES,AUSTRALIA, CANADA, SOUTH AFRICA, JAPAN, NEW ZEALAND OR ANY JURISDICTIONWHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS ORREGULATIONS OF SUCH JURISDICTION Starwood European Real Estate Finance Limited: Quarterly FactsheetPublication Starwood European Real Estate Finance Limited (the 'Company') announcesthat the factsheet for the second quarter ended on 30 June 2016 isavailable at: www.starwoodeuropeanfinance.com Extracted text of the commentary is set out below: 'Investment Portfolio at 30 June 2016As at 30 June 2016, the Group had 16 investments and commitments of £323.7million as follows: Transaction Sterling equivalent Sterling equivalent balance (1) unfunded commitment (1)Centre Point, London £45.0m -5 Star Hotel, London £13.0m -Center Parcs Bonds, UK £9.5m -Industrial Portfolio, UK £31.8m -Hospitals, UK £25.0m -Hotel, Channel Islands £27.0m -Varde Partners mixed £35.1m -portfolio, UKMixed use development, £6.5m £8.5mSouth East UKTotal Sterling Loans £192.9m £8.5mIndustrial Portfolio, £21.4m -NetherlandsOffice, Netherlands £11.5m -W Hotel, Netherlands £19.3m £1.3mRetail & Residential £4.6m -Portfolio, IrelandResidential Portfolio, £5.0m -Cork, IrelandResidential Portfolio, £6.5m -Dublin, IrelandLogistics, Dublin, £14.4m £3.6mIrelandTotal Euro Loans £82.7m £4.9mIndustrial Portfolio, £34.8m -Denmark,Total Danish Krona Loans £34.8m -Total Portfolio £310.4m £13.4m (1) Euro and Danish Krona balances translated to sterling at 30 June 2016 exchange rates. Portfolio ActivityThe following significant activity occurred since the publication of thelast factsheet on 27 April 2016 up to 30 June 2016. Varde Portfolio: on 16 May 2016, the Group arranged a 3 year £158.1million floating rate facility for certain affiliated companies of VardePartners to refinance a portfolio of 141 retail, office and industrialassets located throughout the UK. With 393 tenants the portfolio reflectsvery strong diversification in terms of tenant, geography and sector. TheGroup worked closely with a major investment bank which provided theborrower with a £123 million senior loan facility, leaving the Group toadvance a £35.1 million mezzanine facility on which it expects to earn anattractive risk-adjusted return in line with its stated investmentstrategy. Mixed Use development, South East UK: On 2 June 2016, the Group, togetherwith other Starwood affiliates, committed to a £75 million whole loan inrelation to three mixed use development projects in the south east ofEngland. In total the Group will fund a £15 million participation in thewhole loan with an initial drawdown of £6.5 million. The borrower's aim isto deliver strong mixed use schemes in the centre of high growth commuterlocations providing PRS, private residential for sale, retail, office,hotel and serviced apartments. These markets are demonstrating consistent,moderate growth given the long term structural shortages of much needed newreal estate supply. A large element of the schemes had already beenpresold to institutional investors ensuring the Group has a lower exposureon a debt per square foot basis. The floating rate facility has term of 3years with a single extension option of one year and the Group expects toearn an attractive risk-adjusted return in line with its stated investmentstrategy. Logistics, Dublin, Ireland: The Group committed to a EUR31.2 million fiveyear floating whole loan to support the acquisition of a portfolio of fullylet prime logistics assets in Dublin. Much of the portfolio is let on along term basis to a strong covenant which uses the assets as its nationalheadquarters. The loan had an initial drawdown of EUR17.6 million in Junewith a further drawdown of EUR4.4 million on 8 July 2016. Post-closing theadditional loan uses have proved to be unnecessary and the remainingcommitment will consequently not be drawn and has been cancelled. Inaddition, a prepayment of EUR7 million was received after 30 June 2016,leaving a net position remaining of EUR15 million. DividendOn 25 July 2016 the Directors declared a dividend of 1.625 pence perOrdinary Share (annualised 6.5 pence per Ordinary Share) in relation to thesecond quarter of 2016. Repayments, Reinvestment and Capital RaisingAs has been discussed previously, the Group experienced substantial loanrepayments in the first half of the year. These came to £92.1 million inrepayments and amortisation, in addition to £37.7 million received in thelast quarter of 2015. It is worth noting, however, that, notwithstanding a repayment of 42% ofthe portfolio in such a short period, the Group has managed to remainsubstantially fully invested throughout and has continued to be able to paythe dividend at target levels. The Group has achieved this throughutilising the £60 million revolving credit facility efficiently and beingcautious on when to raise additional equity. Origination in the first half of 2016 has been stronger than the first halfof any previous year with total commitments of approximately £100 millionbeing made compared to an average of £35 - £40 million in the prior twoyears. The impact of this new origination is also reflected in the maturityprofile of investments as at 30 June 2016 : Remaining years to Value of loans % of invested portfoliocontractual maturity*0 to 1 years £19.3m 6.2%1 to 2 years £51.0m 16.4%2 to 3 years £113.9m 36.7%3 to 5 years £101.2m 32.6%5 to 10 years £25.0m 8.1% *excludes any permitted extensions. Note that borrowers may elect to repayloans before contractual maturity. The second half of any given year has also historically been stronger forthe Group with between 65-100% of origination activity occurring in thisperiod. Considering the maturity profile of the remaining loans, the Groupis, therefore, optimistic about the need to raise further equity in thesecond half of this year. Market CommentaryBrexit and the macro implications of Brexit have been thoroughly discussedthroughout all media forms and so we will look to avoid repetition here. The Group continues to monitor the unfolding situation to assess theimpacts upon it. Prior to Brexit, two annual information updates occurred, being the SavillsUK 'Financing Property' briefing and the publication of the previous year'sDe Montfort University UK lending study. The tone of both reviews of the UKlending and real estate market was a healthy but not overheated one albeitthat they were issued prior to the EU referendum. Savills nicknamed 2015 asthe 'Goldilocks Period': not too hot nor too cold. Given the impact of oiland China shocks, 2016 was already reflecting slight margin increases andLTVs softening. Key points from the Savills and De Montfort reports were asfollows: - 2007 was another life - 64% of lenders in 2007 thought that 80% LTV was 'no risk' and senior bank LTVs were typically 70-80% LTV compared with 2016 where they were more typically 55-65%. - The all in cost of finance remains at generational lows. Although margins are consistently higher than previous cycles, LIBOR has never been this low. 5 year swap rates were 12.5% in Q4 1989, 5.4% in April 1999 and 1% in May 2016. - With the UK All Property Equivalent Yield at just under 7%, the spread with the cost of money remains extremely wide. - 2015 UK lending was £53.7 billion, being a 19% increase from 2014. This is the first time since 2007 net lending was close to positive but still not quite. - Estimated total outstanding UK real estate finance of £211.6 billion at 2015 year-end held 45% by UK banks/building societies, 16% by international banks, 15% by insurance companies, 11% by German banks, 6% by north American lenders and 7% by alternative lenders. - In 2015, the average max LTV levels for mezzanine decreased from 84% to 80% - this is still high relatively compared to the Group's own typical advance rates. - The limitations on UK banks are considerable today. These range from regulatory capital treatment issues to ring fencing which has led to a material reduction in their market share. In 2007, UK banks accounted for perhaps 60%+ of new lending whereas now it is c30%. - Alternative lenders (of which the Group is one) are seen favourably by borrowers who identify their speed, skills and flexibility as key attributes. - Key bubble signs not evident - limited speculative development finance, low lending complexity, thoughtful lending policies, strong due diligence and no extravagant broker parties. Brexit subsequently followed the issuance of the Savills and De Montfortreports and it is simply too early to tell the full impact on the marketsin which the Group is active but the above suggests that the credit marketsare, on an overall basis, reasonably well placed to face any futurevolatility and uncertainty. The media frequently identify the property sector for analysis of some kindfollowing Brexit and seeks to use the data to identify future trends.Property data tends to lag the rest of the business world and it willprobably be some months before we can extract meaningful analysis,especially as the summer has definitely descended early on the propertyworld given recent events. With the uncertainty of the future post-Brexit,it is not helpful to add further macroeconomic views but we can imaginethere will be a modest recessionary environment until further clarity as tohow the UK will leave the EU is provided. The UK's short to long term fatewill then divide depending on whether the so called soft (single marketaccess) or hard (no single market access) Brexit occurs. In such a shortterm environment, the Group could foresee investment and leasing softeningand a 10-15% value decline has been talked about especially in the officeand perhaps retail sectors. Such a value decline has been reflected andmagnified (by gearing) in the recent UK listed property stock performanceand the very public open ended fund 'gating' as a result of an insufficientdiscount penalty that led to a liquidity run. It is also worth highlighting a specific aspect of property lending beingthe Loan to Value ('LTV') covenant clause. LTV clauses exist as earlywarning devices - to allow the lender(s) to react to a changing situationwith sufficient time and value headroom by triggering protections if theproperty value declines to a specified level. Today there is often a twotier covenant structure in place - namely that a very modest value declinewill lead to a loan cash sweep (whereby available cash flow is applied todebt repayment or trapped for a period of time to enhance collateral) andthen following a further modest decline an LTV default that allows for theloan to be accelerated for repayment. In the recent market, such covenantshave typically been set only 5-10% away from the initial starting point. Inpost Brexit UK, one could imagine that value declines could well impact theLTV covenants of loans in the market. In itself it is unlikely that thiswill lead to material market impairments or losses, however what it mightengender is greater credit committee oversight and increased new lendingcaution from mainstream capital providers. This situation also highlightsthe obvious but nevertheless vital distinction between the probability ofdefault and probability of loss. Good property lending often seeks balancedbut nevertheless rapid default in volatile markets. These triggers maywell not imply any actual impairment or loss but, rather, provide thelender(s) with stronger levels of control going forwards when the situationarises. Whilst there is of course good reason for caution, for heightened scrutinyand focus on the existing loan book, there is also reason to be optimisticthat the Group can look to again extract outsized returns for moderate riskin the UK market. The rest of Europe may not be immune to heightenedvolatility given the number of national elections and referendums in thecoming months and the ongoing financial market fragility. This argues thatenhanced lending vigilance should also be applied across the continentwhilst reiterating the optimistic sentiment that good lending opportunitiesshould arise. With the vast majority of near term loan repayments havingoccurred in recent months the Group is well placed to further grow with aloan maturity profile now well spread out over the coming 5 years. Key Portfolio Statistics at 30 June 2016 Number of investments 16Percentage of currently invested 63.0%portfolio in floating rate loans (1)Invested Loan Portfolio annualised 8.2%total return (2)Weighted average portfolio LTV - to 18.4%Group first £ (3)Weighted average portfolio LTV - to 65.8%Group last £ (3)Average loan term (stated maturity at 4.4 yearsinception)Average remaining loan term 3.3 yearsNet Asset Value £307.0mAmount drawn under Revolving Credit -£8.0mFacility (excluding accrued interest)Portfolio value (including accrued £315.0mincome)Cash £7.9mOther net assets/ (liabilities) -£7.9m(including hedges) (1) Calculated on loans currently drawn using the exchange rates applicablewhen the loans were funded.(2) Calculated on amounts currently outstanding, excluding undrawncommitments, and assuming all currently drawn loans are outstanding for thefull contractual term. Twelve of the loans are floating rate (partially orin whole and some with floors) and returns are based on an assumed profilefor future interbank rates but the actual rate received may be higher orlower. Calculated only on amounts funded to date and excluding committedamounts and cash un-invested. The calculation excludes the origination feepayable to the Investment Manager.(3) LTV to Group last £ means the percentage which the total loancommitment less any amortisation received to date (when aggregated with anyother indebtedness ranking alongside and/or senior to it) bears to themarket value determined by the last formal lender valuation received by thedate of publication of this factsheet. LTV to first Group £ means thestarting point of the loan to value range of the loan commitments (whenaggregated with any other indebtedness ranking senior to it). For W Hotel,Centre Point and the mixed use development, south east UK, the calculationincludes the total facility available and is calculated against the marketvalue on completion of the project. Country % of invested assetsUK - Regional England 37.4UK - Central London 17.0Netherlands 16.5Ireland 10.3Denmark 9.9Channel Islands 8.9 Sector % of invested assetsLight Industrial 29.3Hospitality 22.5Residential for sale 13.2Retail 9.8Healthcare 8.2Office 6.5Residential for rent 5.2Logistics 5.0Other 0.3 Loan type % of invested assetsWhole loans 61.4Mezzanine 38.6 Loan type % of invested assetsSterling 63.2Euro 26.9Danish Krona 9.9' For further information, please contact: Robert PeelFidante CapitalT: +44 20 7832 0900 Peter DentonStarwood CapitalT: +44 20 7832 0900 Notes: Starwood European Real Estate Finance Limited is an investment companylisted on the main market of the London Stock Exchange with an investmentobjective to provide Shareholders with regular dividends and an attractivetotal return while limiting downside risk, through the origination,execution, acquisition and servicing of a diversified portfolio of realestate debt investments in the UK and the wider European Union's internalmarket. www.starwoodeuropeanfinance.com. The Group is the largest London-listed vehicle to provide investors withpure play exposure to real estate lending. The Group's assets are managed by Starwood European Finance PartnersLimited, an indirect wholly-owned subsidiary of the Starwood Capital Group. --------------------------------------------------------------------------- Dissemination of a Regulatory Announcement, transmitted by EQS Group AG.The issuer is solely responsible for the content of this announcement. --------------------------------------------------------------------------- Language: English ISIN: GG00B79WC100 Category Code: MSCM TIDM: SWEF Sequence Number: 3271 Time of Receipt: 25-Jul-2016 / 16:17 GMT/BST End of Announcement EQS News Service --------------------------------------------------------------------------- 485645 25-Jul-2016UK-Regulatory-announcement transmitted by DGAP - a service of EQS Group AG.The issuer is solely responsible for the content of this announcement.
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