Results analysis from Kepler Trust Intelligence

RNS Number : 6399T

Starwood European Real Estate Finan

26 March 2021

 

Starwood European Real Estate Finance (SWEF)

26/03/2021

Results analysis from Kepler Trust Intelligence

· Starwood European Real Estate Finance (SWEF) has reported an NAV total return of 6.3% for the year ending 31/12/20 and a share price total return of -7.5%. Excluding dividends paid, the NAV per share rose 0.9% to 104.18p.

· Last year's (2020) targeted dividend of 6.5p per share was paid, covered 90% by income earned. As announced in July 2020 as a result of the falling interest rate environment and its effect on the yields achieved on loans, the target for 2021 is 5.5p per share, paid quarterly.  The premium over base rates remains high relative to recent history at these levels.

· No impairments were taken to the loan book, despite the impact of the pandemic. However, six loans, 35.3% of the portfolio, were classified as stage 2 last June, meaning credit risks were deemed to have increased significantly. These are predominantly in the retail and hospitality sectors.

· All loans have paid all scheduled interest and principal in full and on time.

Kepler View

The robust results from Starwood European Real Estate Finance (SWEF) after such a tumultuous year underline the potential benefits from investing in real estate via debt rather than equity. The majority of SWEF's loan book is in areas which have performed strongly from an income and valuation perspective. 

However, SWEF does have significant exposure to hospitality (35.7%) and retail (12.9%), two sectors of the real estate market which have been forced out of trading for much of the past 12 months.

Yet while the equity in these sectors has seen some declines, SWEF's investment manager, advised by Duncan MacPherson and Lorcain Egan as the investment adviser, has not seen fit to recognise any losses on the loans it has made in these sectors, estimating that while default risks may have increased, as shown by the six loans classified as stage two, there is no current expectation of losses on those loans.

Considering the near-term risks, we continue to believe that a double digit discount to NAV is attractive (it is 18.3% as of 25/03/21) particularly when the forward yield of 6.4% is compared to the average 4.4% yield available on the AIC UK Commercial Property sector.

In the analysis which follows we examine these results in more detail and explain their implications for shareholders and prospective shareholders in SWEF…

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