Starwood European Real Estate Finance (SWEF)

30/03/2022

Results analysis from Kepler Trust Intelligence

Starwood European Real Estate Finance (SWEF) has reported a strong 11.1% share price total return for the year ending 31/12/2022. During the year SWEF paid dividends of 5.5p in four equal quarterly installments as targeted and the board states it expects to continue to pay at this level going forward.

SWEF lends against European real estate, and despite the uncertainties of the pandemic, SWEF has performed robustly and has reported no writedowns in the value of its loans. All loan interest and scheduled amortization payments were paid on time during the year, and the company expects this to continue.

Kepler View

SWEF's performance through the volatility of the pandemic has been rock solid. No interest payments have been missed and no covenants were breached, with managers recognising no impairments despite the severe impact of the pandemic on some of the tenants of the underlying properties, especially in the retail and leisure sectors. With the peak phase of the pandemic behind us and economies open, the managers report one of their strongest pipelines of potential opportunities in a dislocated market and have plenty of resources to take advantage.

The defensiveness demonstrated by the portfolio could be highly attractive in 2022 as the European economy struggles with the impact of inflationary pressures exacerbated by the war in Ukraine. Equity and bond markets have been volatile year-to-date, and the prospect of significant interest rate hikes as a response to inflation is another risk to bear in mind. This is particularly germane to bond investors, as fixed interest securities would see hit to their capital values with rising interest rates. However, 78% of SWEF's portfolio is in floating rate loans, meaning the majority of the income received will see a pass through from rate hikes and the duration is very low - in fact not being marked to market means there will be no negative impact from rising rates on the carrying values of the loans at all.

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