UK Mortgages has published its first set of figures, covering he period from its incorporation to the end of December 2015. The net asset value at the end of the period was 97.82p.
In early November that the manager had completed the first purchase of a £310m pool of high quality buy-to-let mortgages from the Coventry Building Society, after an extensive due diligence process. The pool comprised 1,722 non-member mortgages with an average balance of £178,822, with the Coventry Building Society remaining in place as the servicer of the mortgages. The portfolio consisted of a combination of recently originated mortgage loans which have a fixed interest rate for 2 or 5 years depending on the terms of each mortgage loan.
To supplement the Group’s funding for this transaction, and for ongoing financing purposes, they established a loan financing facility with Bank of America Merrill Lynch International Limited, available for up to 2 years, providing flexibility on the timing of subsequent securitisation of the first pool. It is expected that the long-run capital usage from this first deal will be around £51m upon securitisation, so releasing approximately 80% of the group’s net assets for deployment into new assets. In line with the company’s investment objectives, a balance guaranteed interest rate swap was entered into with BNP Paribas, for the purpose of exchanging the fixed rate interest coupons on the mortgage loans to a floating rate linked to Libor, in order to fund the interest payments on the floating rate borrowing facility.
They have a number of other portfolio purchases under consideration but think these could take three to four months to complete. In the meantime the company is incurring costs. The effect of this timing mismatch on the group’s NAV was more pronounced prior to the first transaction given the lack of income being generated and is evident in this report, where income flows from the first mortgage pool began only in November. However, this will be offset to a degree on future transactions as existing revenue streams from completed transactions offset such ongoing operating costs.
While the first transaction is expected to provide a yield at the lower end of the group’s target, further transactions under consideration will help provide a blended yield within the range targeted prior to the IPO and we hope to be
able to provide details of these in the near future.
UKML : UK Mortgages working on more transactions