Starwood European Real Estate Finance Limited (SWEF), the listed real estate debt fund with almost £300m in investments, is seeking shareholder approval to increase its capacity to issue new ordinary shares which could see the fund raise up to £275m in net capital over the next 12 months.
The latest extraordinary general meeting of SWEF shareholders is to increase the fund’s current capacity to issue new ordinary shares by another 100m to 300m, the net proceeds of which could see the fund grow from its current £297.3m by another £275m.
If SWEF utilises the maximum capacity is seeking, the fund could nearly double within the next 12 months.
As part of SWEF’s proposals, outlined in a prospectus launched yesterday afternoon, the listed debt fund is seeking to raise a minimum £50m in gross proceeds – for which the share placing begins today – in under the next three weeks. Results of the initial share placing will be announced on Friday 25 September 2015.
The balance of the shares SWEF would be issued through a placing programme – valid for up to the next 12 months –allowing the real estate debt fund to undertake piecemeal tap issues to grow in line with its investment pipeline.
The placing programme’s size will depend on the scale of the initial placing, however, assuming the minimum £50m was raised, this would leave SWEF capacity to issue approximately another 227.6m new ordinary shares which – based on a 102.75 pence sale price – would amount to circa gross proceeds of an additional £233.8m.
SWEF current loan book is comprised of £297.3m of senior loans, subordinated loans and mezzanine loans, bridge loans, selected loan-on-loan ﬁnancings and CMBS notes. The fund comprised approximately £185.6m of loans in the UK, £24.0m in Finland, £67.0m across the Netherlands and Ireland, and £31.9m in Denmark, as at 31 August 2015.
Earlier this year, SWEF secured shareholder approval to issue a further 200m shares, which led to a tap issue in which £24.49m in gross proceeds were raised through the issuance of 23.78m on 20 July 2015.
SWEF has appointed Dexion to act as the sole sponsor and bookrunner to the initial placing and the placing programme.
SWEF’s current five largest shareholders are: Quilter Cheviot Investment Management, which owns 11.2%; Schroder Investment Management, which owns 8.3%; SG Private Banking, which owns 7.9%; Schroder & Co, London (PB), which owns 6.1%; and Thames River Capital, which owns 5.2%.
SWEF’s portfolio focuses on lending into commercial real estate sectors including ofﬁce, retail, logistics, light industrial, hospitality, student accommodation, residential for sale and multi-family rented residential.
SWEF invests in commercial real estate debt asset class through senior loans, subordinated loans and mezzanine loans, bridge loans, selected loan-on-loan ﬁnancings and other debt instruments.
By geography, UK exposure is expected to represent the majority of the portfolio. In addition, target markets include Germany, France, Italy, Spain, Scandinavia, Netherlands, Belgium, Poland, Switzerland, Ireland, Slovakia and the Czech Republic.
In its half year results, published at the end of August, SWEF reported: “The company is encouraged to note that market activity is growing, but is alert to the increased competition amongst lenders that improving conditions have stimulated.
“In the medium term the increased competition amongst lenders will lead to a choice of greater risk or an acceptance of slightly lower returns; the company would always favour a transaction with a slightly lower return than a higher risk, with a resulting impact on dividends.”
In the short term, SWEF continues to target a dividend at an annualised rate of 7.0 pence per ordinary share and has declared a dividend of 1.75 pence per ordinary share (7.0 pence annualised) for each of the first two quarters of 2015.
In its investment outlook, SWEF noted: “Going into the second half of the year the group’s investment pipeline remains robust. We continue to see a variety of opportunities which will allow the group to achieve good risk adjusted returns from whole loans as well as mezzanine loans.
“In the first half of the year we closed loans in Denmark and Ireland which are two new jurisdictions for the Group. There has been a significant investment of origination effort in Ireland in particular and as a result Ireland features strongly in the current pipeline.
“There has also continued to be a significant investment of time in Spain and Italy and we would expect to close our first loan in one of these countries in the second half of the year.
“Another growing theme for the group has been assisting borrowers whose loans are with lenders that have exited the lending market or lenders who have sold loan portfolios to private equity or hedge funds.
“Examples include a number of borrowers in Scandinavia with performing loans from international lenders who are unable to roll those loans due to these lenders pulling out of from the region to their home markets.
“There are also many opportunities arising from non-performing loan (NPL) books that banks have sold. The owners of these NPLs have often bought the NPL at a price that allows them to offer a significant discount to the borrower which allows the borrower to refinance at an appropriate level with a new lender.
“These situations are often complex and therefore can create opportunities for the Group to achieve good risk adjusted returns. Initially many of the NPL opportunities have been in the UK and Ireland, however we would expect that to widen if banks continue to divest loan portfolios in other jurisdictions.”