Starwood European Real Estate Finance Ltd (SWEF)
SWEF: September 2019 Factsheet
23-Oct-2019 / 07:00 GMT/BST
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23 October 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 third quarter ended on 30 September 2019 is available
at:
www.starwoodeuropeanfinance.com [1]
Extracted text of the commentary is set out below:
Investment Portfolio at 30 September 2019
As at 30 September 2019, the Group had 18 investments and commitments of
GBP479.1 million as follows:
Sterling equivalent Sterling equivalent
balance (1) unfunded commitment
(1)
Hospitals, UK GBP25.0m -
Mixed use development, GBP2.4m GBP1.1m
South East UK
Regional Hotel GBP45.9m -
Portfolio, UK
Credit Linked Notes, UK GBP21.8m -
real estate
Hotel & Residential, UK GBP39.9m -
Office, Scotland GBP4.4m GBP0.6m
Office, London GBP12.5m GBP8.1m
Residential, London GBP45.2m GBP11,6m
Total Sterling Loans GBP197.1m GBP21.4m
Logistics, Dublin, GBP12.6m -
Ireland
Three Shopping Centres, GBP33.5m GBP5.7m
Spain
Shopping Centre, Spain GBP15.1m -
Hotel, Dublin, Ireland GBP53.3m -
Residential, Dublin, GBP1.9m -
Ireland
Office, Paris, France GBP14.2m -
Hotel, Spain GBP26.4m GBP21.7m
Office & Hotel, Madrid GBP16.4m GBP0.9m
Mixed Portfolio, Europe GBP45.8m -
Mixed Use, Dublin - GBP13.1m
Total Euro Loans GBP219.2m GBP41.4m
Total Portfolio GBP416.3m GBP62.8m
1) Euro balances translated to sterling at period end exchange rates.
Third Quarter Portfolio Activity
The following portfolio activity occurred in the third quarter of 2019:
Loan repayment: Mixed Use Development UK: The Group received GBP8.1 million
amortization following the sale of one of the properties in line with the
business plan. GBP2.4 million remains on the loan.
Loan repayment: Industrial Europe: The Group received EUR26.3 million
amortization following the sale of some properties in July 2019 and final
repayment of EUR15.0 million in September 2019 as the borrower completed the
execution of their business plan.
Loan repayment: Hotel, Barcelona, Spain - the Group received full repayment
of EUR46 million following the sale of the hotel.
New Loan: Office, London: In July 2019 the Group committed to fund a GBP20.5
million floating rate whole loan to support an office redevelopment in
London. GBP12.5 million was drawn on 26th July and the balance will be drawn
over the life of the development. The term of the loan is approximately 3
years.
New Loan: Residential, London: On 19th September 2019 the Group committed to
fund a GBP56.8 million floating rate whole loan to support a residential
scheme in London. The financing has been primarily provided in the form of
an initial advance along with a smaller capex facility to support the
sponsor's completion of the scheme. The loan term is 2 years.
New Loan: Mixed use Dublin: On 30th September 2019 the Group committed to
fund a EUR14.7 million fixed rate whole loan to support a mixed use
development in Dublin. The loan is currently undrawn and is expected to draw
down gradually over the next 2.5 years.
Third Quarter Portfolio Activity - commentary
During the quarter we had a large volume of unexpected repayments in July,
most of which was due to an unsolicited offer on a property which concluded
and resulted in repayment very quickly. Additionally, as noted above,
significant new loan drawdowns occurred towards the end of the quarter in
late September 2019. Following this portfolio activity, the Group remained
substantially fully invested at 30 September 2019 with net cash of
approximately GBP7 million and GBP62.8 million of unfunded commitments.
In light of the unexpected repayments, and drawdowns towards the end of the
quarter, the Group has experienced some cash drag during the quarter. Taken
together these events have resulted in the portfolio's income generation
being below expectations in the quarter. The Investment Adviser has a number
of transactions under review and, absent any material unexpected repayments,
should these transactions all occur we would expect the income run rate to
normalise in early 2020. The Company has sufficient dividend reserves
available to maintain the dividend during periods where cash drag continues
for longer than anticipated.
The Group's pipeline continues to be of a consistent geography and asset
class, with a further loan in Spain currently under exclusivity and Irish
and UK investments also featuring in the fourth quarter potential pipeline.
The main concentration of new loans in the pipeline is currently in the
office and hospitality sectors.
Dividend
On 22 October 2019 the Directors declared a dividend in respect of the third
quarter of 1.625 pence per Ordinary Share payable on 22 November 2019 to
shareholders on the register at 1 November 2019.
Market Commentary
Interest rates, especially in Europe continue to be at very low levels, with
negative yields on fixed income becoming increasingly pervasive. The global
stock of negative yielding bonds hit $17 trillion at its peak earlier this
year. In the corporate bond space Siemens has issued at negative rates and
in October even Greece issued 3 month paper at a negative rate. On the real
estate corporate bond side we have seen corporate bonds trading tighter,
with Vonovia's 2022 maturity bond trading at a 0% yield. In Europe the
interest rate curve continues to be flat with 3 month Libor at negative 42
bps and 5 year swaps at negative 40 bps as at October 14th. For bank
lending, Libor / Euribor has historically typically been floored at zero
however, depending on the source of funding, some lenders are now able to
take the floor out. By way of example some Pfandbrief (covered bond) issuers
have issued bonds at negative rates and hence are able to pass the benefits
of below zero funding rates to borrowers.
UK commercial real estate financing activity has remained active through
continued Brexit uncertainties. We have seen a number of significantly sized
financings close since the end of the summer break, including bank,
insurance and CMBS loans. Notable transactions include two of the largest
financings of the year to refinance Brookfield's 100 Bishopsgate and
Blackstone and Telereal's Arches portfolio. AIG, Royal Bank of Canada and
Rothesay Life provided GBP850 million of debt to refinance the Arches
portfolio with a 50% loan to value and a 12 year maturity and, according to
Debtwire, the c. GBP900 million 100 Bishopsgate financing was provided by a
club of banks that includes ING, Bank of China and Standard Chartered Bank.
This loan replaces a GBP500 million construction financing with a significant
excess and has a reported to loan-to-value ratio of 65%. The strength of
appetite for this financing is supported by brand new high quality space in
a top city location, with a blue chip tenant profile.
We have also seen a good level of UK CMBS issuance. Bank of America Merrill
Lynch executed the first post summer CMBS which was an equity out refi for
Blackstone's existing "Sunflower" CMBS which priced at the wider end of
indicative range with AAAs at 120bps and BBBs at 295bps over Libor
respectively. Subsequently, Deutsche Bank brought a two tranche CMBS to the
market backed by the Intu Derby shopping centre which they had financed with
a low 40s% loan to value as part of a 50% interest sale by Intu to Cale
Street. The AAAs priced at 190bps over Libor reflecting a significantly
higher coupon required to other CMBS reflecting investors' attitudes to
retail collateral. Most recently Bank of America Merrill Lynch priced a
GBP232.2 million CMBS backed by UK student housing for Brookfield. Despite
pricing in October amongst a high point for Brexit uncertainty, the AAA
tranche came in at the tight end of expectations at Libor + 110bps and the
BBBs at Libor + 255bps, both ahead of the Sunflower CMBS pricing.
The real estate corporate bond market has been very active across Europe
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