Starwood European Real Estate Finance (SWEF) has announced a 50% impairment on its “office portfolio, Ireland” loan, equivalent to €12.9 million. This decision follows operational updates from the sponsor of the portfolio, prompting SWEF’s Board to reassess various business plans in light of ongoing uncertainty and challenging conditions in the local office market.
The board, alongside its investment advisor, has evaluated different potential recovery outcomes for the loan. These outcomes remain uncertain and could result in either higher or lower recovery levels depending on the evolution of future business plans.
Impact on Company’s Financials
As of 31 August 2024, SWEF’s net asset value (NAV) was £203.7 million, with a NAV per share of 105.02 pence. After accounting for the impairment, the adjusted NAV stands at £192.8 million, reducing NAV per share to 99.43 pence.
The company is expected to release its Quarterly Portfolio Update for Q3 later this month. Thus far, SWEF has returned £210 million to shareholders through Compulsory Redemptions, representing 50.8% of NAV as of 31 January 2023. These actions align with its orderly realisation strategy adopted in January 2023.
Background of the Ireland Office Portfolio Loan
The “office portfolio, Ireland” loan was originally initiated on 2 January 2020, when SWEF committed to a €35.2 million mezzanine loan. The loan was secured against 12 properties in central Dublin, accounting for 7% of SWEF’s NAV as of 31 December 2019.
Following the sale of some assets in 2021 and 2022, the loan balance was reduced to €25.9 million (including accrued interest) as of 30 September 2024. This remaining balance is now secured against a portfolio of seven properties, and the loan currently accounts for 10.6% of SWEF’s NAV.
Although the loan remains compliant with its covenants, it was reclassified as a Stage-2 loan—indicating a significant increase in credit risk—in early 2023.
Previous Updates on the Loan
In its Q2 2024 Quarterly Portfolio Update, released on 24 July 2024, SWEF provided additional details on the loan:
“The remaining assets include seven prime city-center properties located in European CBDs. These buildings are well-tenanted, but certain assets will require capital expenditure to upgrade to Grade-A standards to retain tenants as leases expire. The loan remains compliant with both the third-party senior loan facility and SWEF’s mezzanine loan facility. However, due to the ongoing challenging market conditions, SWEF is working closely with the sponsor, a leading institutional asset manager, and a global valuation firm to assess future capital expenditure, exit values, and the overall business strategy.”
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