GCP Asset Backed Income (GABI) has published its annual results for the year ended 31 December 2022. The year saw continued challenges for GABI, with the headwinds in the UK economy, and the availability of a broader range of income producing investments arising from increased interest rates. While these factors have contributed to GABI trading at a persistent discount to NAV, its chairman, Alex Ohlsson, says that the shifts in the market have presented exciting new opportunities and he believes that the fund is well placed to adapt to the new macro-economic environment. During the year, the Group advanced £102.0m in the form of 32 investments: 8 new and 24 follow-on transactions.
Key highlights from the report are as follows:
- Dividends of 6.325 pence per share declared in respect of the year, in line with the dividend target for the year and continuing its stated aim of growing the dividend year-on-year.
- Total shareholder return of -7.3%, total NAV return of 1.9% (31 December 2021: 13.2% and 3.4%) and an annualised total shareholder return since IPO of 3.5%.
- Profit for the year of £7.7m (31 December 2021: £15.0m). The decrease year-on-year reflects net unrealised valuation losses on the portfolio and a reduction in fee income (discussed further below).
- NAV per ordinary share of 94.90 pence at 31 December 2022, a decrease from 99.29 pence in the prior year, primarily due to the write-down taken against the Co-living group loan of 3.3 pence per share and discount rate adjustments made by the Valuation Agent in respect of UK property exposure.
- Exposure to a diversified, partially inflation and/or interest rate-protected portfolio of 59 asset backed loans with a third party valuation of £431.05m at 31 December 2022.
- Loans of £102.0m (new and follow-on) advanced by the Group during the year, secured against 32 projects with a further £13.9m secured against four projects, advanced post year end.
- Repayments of £95.6m during the year generating repayment fees of £0.8m, with a further £12.5m of repayments received post year end.
Four loans experienced challenges
Across GABI’s loan portfolio, four loans experienced challenges during the year. These are the Co-living group loan, where the impact of the ongoing resolution has resulted in further write-downs, two loans to multi-use community facilities and a loan for which a small number of the underlying supported living assets have been impacted by issues at the registered provider. In total, impacted assets across these four loans represent 4% of the total portfolio by value at year end.
However, GABI says that, elsewhere in the portfolio, borrowers have continued to perform well with a number expanding their operations into new sites and geographies over the year. Within the student accommodation sector, occupancy on assets in the UK and Ireland achieve an average of 98.5% albeit with slower recovery being seen on assets in Australia.
Operational assets are seeing cost inflation, but GABI says that it has seen good demand on care home assets achieving an average occupancy of 90% and stabilised nurseries (operating for more than 18 months) at 93%.
Buybacks to target persistent discount
GABI traded at a persistent discount during the year, which is consistent with experience seen across the market in the face of the higher interest rate environment. GABI’s Board has undertaken a buyback programme to demonstrate support for the NAV, which has been NAV accretive for remaining shareholders. The Board stepped in to initiate a similar programme of support in 2020 in response to the Covid-19 pandemic and says that it remains supportive of taking strategic action where this represents value to GABI and its shareholders.
Attractive pipeline of new investments at higher rates
GABI’s manager says that it has an attractive pipeline of new investments in well-understood sectors and is working with existing borrowers to understand their future funding requirements. Both new and follow-on investments are being made at higher rates of return to reflect the shift in rates seen across the lending market in 2022. Repayments in the year on existing loans were at an average interest rate of 7.7% against new investments made during the year at an average interest rate of 8.6%.
During the year ended 31 December 2022, GABI’s portfolio generated total income of £14.4m with profit for the period of £7.7m, decreasing from £15.0m in the prior year reflecting net unrealised valuation losses on the portfolio and a reduction in fee income.
At the year end, the net assets of the Company were £412.0m. The NAV per share decreased from 99.29 pence at 31 December 2021 to 94.90 pence at the year end. The valuation of investments decreased during the year to £435.1m from £447.0m at 31 December 2021, with the largest single asset exposure comprising 3.7% of total portfolio by value.
The decrease in NAV per share is primarily as a result of the write-down taken against the Co-living group loan, which represents 3.3 pence per share, and discount rate adjustments made by the Valuation Agent in respect of UK property exposure. These are reflected through net unrealised valuation movements in accordance with IFRS.
GABI has been utilising its RCF to efficiently deploy available capital and take advantage of increases in prevailing market rates. Utilisation over the last year has averaged 11% and at the year end, £32.1m of the RCF was utilised, representing 7.2% of total assets.
The £50.0m RCF with RBSI includes an optional extension (with lender approval) in August 2023, which will allow for an additional term of one year. The Company, through the Investment Manager, has commenced a review of its financing arrangements with the intention of extending the RCF in advance of the date of expiry, as well as exploring alternatives should the RCF not be renewed. As such, the Board is satisfied that the Company can continue to meet its liabilities as they fall due over the next twelve months.