Despite the UK having been one of the countries hardest hit by the COVID-19 pandemic, its vaccination success has set up a steady route to ease lockdown. In England, since March 8 schools have returned and since April 12 self-catering holidays, non-essential retail and outdoor hospitality have reopened. The third step is expected to happen on May 17 when indoor mixing will be allowed up to groups of six people and pubs and restaurants will be allowed to open indoors. Hotels, cinemas and other indoor venues will also reopen at this point (with the rule of six still in place). Sports stadiums will be allowed to reopen to fans, with the largest stadiums allowed to have 10,000 people in at once. It is also expected that short haul international tourism will be possible during the third quarter.

Since these steps were announced in February the plan has remained stable and the outlook for domestic tourism in the UK is very strong. Between March 2020 and January 2021 UK consumers accumulated GBP160 billion in savings and UK consumer confidence measured by GfK in March 2021 rose to the highest level since the start of lockdowns and the difference in the reading versus the previous level was the largest monthly increase in almost a decade. As such the short term operational outlook for the UK hotels that represent the largest part of the Group's hotel exposure is particularly strong.

The capital markets are reflecting the outlook for hotels. Marriot is the largest global public hotel company and its stock touched USD152 in March 2021 matching its previous high from December 2019. After a year of subdued transaction activity, investor interest in hospitality on the equity and the debt side in the private markets has come back strongly across Europe in 2021. As is typical when activity ramps up, single asset transactions are leading with portfolio transactions following. A landmark transaction that closed in March 2021 was Blackstone's GBP3.2 billion acquisition of Butlin's and Haven owner Bourne Leisure.

On the office side, future trends in occupational requirements continue to benefit from fresh thinking about how occupiers will use office space over the longer term. It was a default last year for large corporate occupiers to announce office requirement reviews as lockdowns changed the way they had to work. We do expect in some cases structural changes are likely to take place. Shareholders are keen to see cost cutting initiatives in difficult times and banks in particular have sent some clear messages to the market about efficiency possibilities in global real estate requirements. There will definitely be potential for reform and rationalisation of office use for some roles but there is doubt that the scale of reductions mentioned by some banks will be practical. Considerations around supervision, compliance, culture, morale, collaboration, creative interaction, training, workplace health and safety, the availability of employee home office space and the costs of investing in the home working environment are some of the considerations that will need to be taken into account. Outside of the banking sector we have seen some change in sentiment as occupiers plan for the return to office. According to a survey by KPMG most major global companies no longer plan to reduce their use of office space after the coronavirus pandemic. In the most recent survey just 17 per cent of chief executives say they plan to cut back on offices, down from 69 per cent in the last survey in August 2020. The survey covered 500 firms with sales of over USD500 million based in 11 countries including the United States, China, Japan, Germany and Britain, and took place between 29 January 2021 and 4 March 2021.

Investor sentiment towards the office space is varied but there is no shortage of supply of capital with real estate being an attractive investment in a low yield environment and providing for an element of inflation hedge. According to global real estate company CBRE, as much as GBP45 billion of global capital is targeting the London office market - the largest volume since the company started tracking investment in 2012, and representing far more than the amount of available stock.

Capital markets more generally have continued a positive trajectory. The FTSE 100, FTSE 250 and the iShares UK Property ETF are up 3.9 per cent, 5.0 per cent and 2.8 per cent respectively during the first quarter of 2021. While CMBS had initially lagged the recovery in some other areas of asset backed financing at the end of 2020, the European CMBS market is now fully reopened and rerated with Bank of America reporting six primary transactions totalling EUR2.1bn sold in the first quarter of 2021, compared to seven deals totalling EUR2.8bn in all of 2020, and with spreads having tightened to be near or at pre-pandemic levels at all points in the capital structure. The European leveraged finance market which has led the CMBS market continues to perform strongly with yields now approaching all-time lows across the credit spectrum. The market has set several new records in 2021 already with the busiest quarter ever across EMEA high yield bond and leverage loan issuance, the largest ever GBP high yield bond and the tightest CCC bond ever all happening in the first quarter of 2021.

In the private lending market we continue to see an increased share of non-bank lenders in the market in Europe. A prime recent example was for the financing of the acquisition financing for Bourne Leisure mentioned above. Starwood Capital Group led the execution of the deal as Mandated Lead Arranger with Starwood Capital Group affiliates, Starwood Property Trust and Starwood Real Estate Income Trust providing GBP720 million of the GBP1.8 billion acquisition loan and the remainder of the debt also being provided by non-bank lenders. Starwood has benefitted from being an early mover in the non-bank commercial property lending space and the total loan book managed by Starwood in Europe is now in excess of GBP3 billion. The Investment Adviser has an attractive pipeline of further opportunities and is well positioned to support further growth in European lending for the Group and the other funds it advises.

Share Price / NAV at 31 March 2021 


Share price (p)  84.6 
NAV (p)          103.6 
Discount         (18.3%) 
Dividend yield   6.5% 
Market cap       GBP346m

Key Portfolio Statistics at 31 March 2021 


Number of investments                                                       18 
Percentage of currently invested portfolio in floating rate loans           77.5% 
Invested Loan Portfolio unlevered annualised total return (1)               6.7% 
Portfolio levered annualised total return (2)                               7.1% 
Weighted average portfolio LTV - to Group first GBP (3)                       18.8% 
Weighted average portfolio LTV - to Group last GBP (3)                        62.1% 
Average loan term (based on current contractual maturity)                   4.7 years 
Average remaining loan term                                                 2.3 years 
Net Asset Value                                                             GBP423.5m 
Amount drawn under Revolving Credit Facilities (including accrued interest) (GBP8.5m) 
Loans advanced (including accrued interest)                                 GBP405.7m 
Cash                                                                        GBP10.0m 
Other net assets (including hedges)                                         GBP16.3m 
Origination Fees - current quarter                                          GBP0.0m 
Origination Fees - last 12 months                                           GBP0.1m 
Management Fees - current quarter                                           GBP0.8m 
Management Fees - last 12 months                                            GBP3.2m

(1) The unlevered annualised total return is calculated on amounts outstanding at the reporting date, excluding undrawn commitments, and assuming all drawn loans are outstanding for the full contractual term. 15 of the loans are floating rate (partially or in whole and all with floors) and returns are based on an assumed profile for future interbank rates but the actual rate received may be higher or lower. Calculated only on amounts funded at the reporting date and excluding committed amounts (but including commitment fees) and excluding cash uninvested. The calculation also excludes the origination fee payable to the Investment Manager.

(2)The levered annualised total return is calculated as per the unlevered return but takes into account the amount of net leverage in the Group and the cost of that leverage at current LIBOR/EURIBOR.

(3) LTV to Group last GBP means the percentage which the total loan drawn less any deductible lender controlled cash reserves and less any amortisation received to date (when aggregated with any other indebtedness ranking alongside and/ or senior to it) bears to the market value determined by the last formal lender valuation received by the reporting date. LTV to first Group GBP means the starting point of the loan to value range of the loans drawn (when aggregated with any other indebtedness ranking senior to it). For development projects the calculation includes the total facility available and is calculated against the assumed market value on completion of the relevant project. 


Remaining years to contractual maturity* Value of loans (GBPm) % of invested portfolio 
0 to 1 years                             52.5                13.9% 
1 to 2 years                             190.4               47.2% 
2 to 3 years                             43.3                10.7% 
3 to 5 years                             117.3               29.1%

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April 23, 2021 02:00 ET (06:00 GMT)