John Whittle, Chairman of SEREF, said:
We remain pleased with the continued strong ongoing robust performance of the Group’s portfolio with loans performing robustly leading to an enduringly strong valuation of the underlying collateral and all interest and scheduled amortisations being received as expected. The Group’s overall LTV remains highly comfortable at 58.3 per cent.
As a result of this strong performance over the year ended December 2022, partly as a result of the high floating rate element of the portfolio (currently 77 per cent), the Group was not only able to meet its dividend target of
5.5 pence per share but also declared a special dividend of 2.0 pence per share in March leading to a total dividend distribution of 7.5 pence per share for 2022. In our view, a highly attractive income proposition.
It is also pleasing to report positive realisation progress on the Group’s portfolio with £35.9m repaid during the quarter and used to repay the Group’s outstanding bank debt. We look forward to updating shareholders with further realisation progress and the first anticipated distribution to shareholders in due course.
ORDERLY REALISATION AND RETURN OF CAPITAL
On 31 October 2022, the Board announced the Company’s Proposed Orderly Realisation and Return of Capital to Shareholders. A Circular relating the Proposed Orderly Realisation, containing a Notice of Extraordinary General Meeting (EGM) was published on 28 December 2022. The proposals were approved by Shareholders at the EGM in January 2023 and the Company is now seeking to return cash to Shareholders in an orderly manner as soon as reasonably practicable following the repayment of loans, while retaining sufficient working capital for ongoing operations and the funding of committed but currently unfunded loan commitments.
DIVIDEND
On 21 April 2023, the Directors declared a dividend, to be paid in May, in respect of the first quarter of 2023 of 1.375 pence per Ordinary Share, equating to an annualised income of 5.5 pence per annum. This is in addition to the additional 2022 special dividend declared on 23 March 2023 of 2.0 pence per Ordinary Share, which will be paid in April.
PORTFOLIO UPDATE
The portfolio continues to perform robustly and in line with expectations. All interest and scheduled amortisation has been paid in line with contractual obligations. Borrowers are also continuing to make progress on underwritten business plans including executing strategic asset sales and paying down the loans. None of the Company’s borrowers had direct exposure to Silicon Valley Bank or Credit Suisse in relation to either bank accounts or counterparty risk (for example interest rate hedging) in relation to any of the cash
or assets secured to the Company under the loans. There are existing minimum credit rating requirements for all counterparty banks in the loan agreements and the status of counterparties are monitored to ensure ongoing compliance.
During Q1 2023, a total of £35.9 million, equivalent to almost 8.5 per cent of the December 2022 total closing loan balance outstanding, has been repaid across seven investments. 79 per cent of these repayments (£28.5 million) relate to the full repayment of two loans with the remainder following strategic underlying property sales, regular quarterly loan amortisation or borrowers electing to voluntarily pay down loan balances with surplus cash.
The Group’s exposure to development and heavy refurbishment projects continues to decrease as current developments reach completion. As at 31 March 2023, the portfolio includes only one construction project of a residential plus hotel development, with a loan commitment of £49.9 million or 11 per cent of total loan commitments. Residential units are completing one-by-one over the second quarter of 2023, with the hotel set to be the final completion at the end of the quarter. The majority of the residential for-sale units have been pre-sold and we forecast the loan to be fully repaid during 2023 from the proceeds of these unit completions.
The Group continues to closely monitor its loan exposures. Asset classes representing more than 10 per cent of total investments include Hospitality (35 per cent), Office (21 per cent), Retail (12 per cent) and Residential (11 per cent).
The Hospitality exposure is diversified across six different loan investments. Two benefit from State/Government licences in place at accretive rents with structural amortisation set to reduce these by a minimum of £4 million (8.5 per cent of these two commitments) over the remainder of 2023. The other trading hotel exposures have either been recently refurbished or will be on a rolling basis from mid-2023. All trading assets outperformed the Group’s underwritten ADR (Average Daily Rate) assumptions in 2022, demonstrating ability to push rates despite wider inflationary pressures. This has assisted in mitigating margin erosion from cost inflation.
Office exposure (21 per cent) is spread across seven loan investments. Occupancy across the leased office portfolio has held up well, with the vast majority of the underlying tenants renewing leases and staying in occupation. We also continue to see prospective new tenants being attracted particularly to newly refurbished, high quality buildings such as the Office, London exposure which will reach formal completion in April 2023 and was fully pre-let 11 per cent ahead of the Group’s underwrite.
