Starwood European Real Estate Finance (SWEF) says that, following new operational updates from the sponsor of its “office portfolio, Ireland” loan, SWEF’s board has evaluated various business plan scenarios, and the uncertainty related to these scenarios, and, as a consequence of this new information, combined with the challenging local office market dynamics, SWEF’s board has determined to provide for a 50 per cent impairment of the company’s loan, equivalent to €12.9m. In an update issued regarding the loan, SWEF says that its board and the investment adviser consider that there are a wide range of possible outcomes whereby the loan may have a lesser or greater degree of recovery due to the ongoing uncertainty related to the various business plan scenarios.
As of 31 August 2024, the company’s NAV was £203.7m and NAV per share was 105.02 pence. After adjusting for the impairment of the office portfolio, Ireland loan, the adjusted NAV is £192.8m and adjusted NAV per share is 99.43 pence as of 31 August 2024. The company is currently finalising its third quarter quarterly portfolio update, which is expected to be published later this month. To date, the company has returned £210m to shareholders in compulsory redemptions in accordance with its orderly realisation strategy adopted on 27 January 2023. This is equivalent to 50.8 per cent of NAV as of 31 January 2023.
History of the office portfolio, Ireland loan
On 2 January 2020 SWEF committed to a €35.2m mezzanine loan secured on a portfolio of 12 properties in Central Dublin, an investment which equated to 7.0 per cent of NAV as of 31 December 2019. The successful sale of some assets in 2021 and 2022 reduced the balance of the loan and as of 30 September 2024 the remaining balance (including accrued interest) is €25.9m secured against a remaining portfolio of seven properties. As at 31 August 2024, the loan represented approximately 10.6% of the SWEF’s net asset value (NAV). SWEF says that the loan has remained in compliance with its covenants but was re-classified as a Stage-2 loan (significant increase in credit risk since initial recognition) in the first half of 2023.
In the Q2 2024 quarterly portfolio update, released on 24 July 2024, the company provided the following update on the loan:
“The underlying assets comprise seven well located European city centre CBD buildings and are well tenanted, albeit certain assets are expected to require capital expenditure to upgrade to Grade-A quality to retain existing tenants upon future lease expiry events. The loan remains in compliance of its third-party senior loan facility and the Group’s mezzanine loan facility, however given the persisting challenging market dynamics, the Group is working closely with the sponsor, a very large institutional asset manager, and a leading global valuation and advisory firm to identify future capital expenditure needs, funding sources, exit values and the business plan to exit”.
