A London-listed property investment company is to take a 50 per cent write-down on a loan tied to offices in Dublin off the back of what it called “challenging market dynamics” here.
Starwood European Real Estate Finance Ltd committed to a €35.2 million mezzanine loan in January 2020 on a portfolio of 12 properties in central Dublin, an investment that equated to 7 per cent of net asset value as of December 31st, 2019.
The successful sale of some assets in 2021 and 2022 reduced the balance of the loan and as of September 30th this year the remaining balance, including accrued interest, was €25.9 million secured against a remaining portfolio of seven properties. On August 31st, the loan represented about 10.6 per cent of the company’s net asset value.
In a stock exchange announcement, the group said the buildings are “well tenanted”, but that some were expected to require capital expenditure to upgrade to Grade-A quality to “retain existing tenants upon future lease expiry”.
“The loan remains in compliance of its third-party senior loan facility and the group’s mezzanine loan facility,” the statement added.
“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.”
Since then, the company said, the sponsor of the loan has provided new operational updates and the board has evaluated various business plan scenarios and the uncertainty related to those scenarios.
As a consequence, combined with the “challenging local office market dynamics”, the board has determined to provide for a 50 per cent impairment of the company’s loan, equivalent to €12.9 million.
Nevertheless, the company said the board and the investment adviser consider 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.
The investment adviser will be “actively managing” the position to maximise the opportunity for value recovery. “The company looks forward to providing further updates as appropriate and when practically available,” the group said.
As of August 31st, the company’s net asset value was £203.7 million (€244.4 million) and net asset value per share was 105.02 pence.
After adjusting for the impairment of the office portfolio loan, the adjusted net asset value is £192.8 million and adjusted net asset value per share is 99.43 pence as of August 31st.
The company is currently finalising its third quarter portfolio update, which is expected to be published later this month. To date, the company has returned £210 million to shareholders.
Starwood European Real Estate Finance Ltd is an investment company listed on the main market of the London Stock Exchange. Its assets are managed by Starwood European Finance Partners Ltd, an indirect wholly-owned subsidiary of the Starwood Capital Group.
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