The effective interest rate ("EIR") - i.e. the discount rate at which future cash flows equal the amortised cost, is 6.8 per cent. We have sensitised the cash flows at EIR intervals of 0.5 per cent up to +/- 2.0 per cent. The table reflects how a change in market interest rates or credit risk premiums may impact the fair value of the portfolio versus the amortised cost. Further, the Group considers the EIR of 6.8 per cent to be conservative as many of these loans were part of a business plan which involved transformation and many of these business plans are advanced in the execution and therefore significantly de-risked from the original underwriting and pricing (for example the Hotel, Spain). The volatility of the fair value to movements in discount rates is low due to the low remaining duration of most loans.

Loan to Value

Please refer to the 30 September 2020 factsheet for details on the methodology for calculating LTV and the valuation processes. No assets have received updated valuations during the current quarter. Updated valuations have been instructed but not yet received for the Spanish retail assets but these valuations will be subject to material uncertainty clauses in the current environment.

On the basis of the methodology previously outlined, at 31 December 2020 the Group has an average last LTV of 61.8 per cent (30 September 2020: 62.6 per cent).

The table below shows the sensitivity of the loan to value calculation for movements in the underlying property valuation and demonstrates that the Group has considerable headroom within the currently reported last LTVs. 


Change in Valuation  Hospitality Retail Residential Other Total 
-25%                 80.9%       89.2%  76.9%       83.9% 82.3% 
-20%                 75.8%       83.6%  72.1%       78.6% 77.2% 
-15%                 71.4%       78.7%  67.8%       74.0% 72.6% 
-10%                 67.4%       74.3%  64.1%       69.9% 68.6% 
-5%                  63.9%       70.4%  60.7%       66.2% 65.0% 
0%                   60.7%       66.9%  57.7%       62.9% 61.8% 
5%                   57.8%       63.7%  54.9%       59.9% 58.8% 
10%                  55.1%       60.8%  52.4%       57.2% 56.1% 
15%                  52.7%       58.2%  50.1%       54.7% 53.7%

Share Buy Backs and share price performance

The Company received authority at the most recent AGM to purchase up to 14.99 per cent of the Ordinary Shares in issue on 8 June 2020 and since then, in August 2020, the Board engaged Jefferies International Limited as buy-back agent to effect share buy backs on behalf of the Company. During the third and fourth quarters the Company bought back 3,648,125 shares at an average cost per share of 86.9 pence per share and these shares are held in treasury. Share buy backs are subject to available cash.

During the fourth quarter, the Company's shares returned 7.6 per cent on a total return basis. Despite market dislocation and volatility, the share price has been less volatile than in the first half of the year, trading in the range between 84.8 pence and 94.0 pence, ending the period at 90.0 pence. This price stability has been supported by the share buy-back programme which commenced at the end of the second quarter.

Over the three months ended 31 December, the share price traded at an average discount to the cum-div NAV of 15 per cent which has improved from the 17 per cent average seen in the previous quarter. The Board and the Investment Adviser continue to believe that the shares represent very attractive value at this level.

Market Commentary and Outlook

Many people are happy to wave good-bye to 2020's troubles as we enter the New Year, but we should not be surprised if 2021 delivers its own shocks. There have been many significant world events since our last quarterly factsheet. Some news has spurred markets, with better than expected vaccine timing and efficacy, a clear result in the US Presidential election and finally the agreement of a Brexit deal. On the other hand, the new faster spreading mutant of Covid-19 and the resulting rise in cases, hospitalisations and deaths, a new lockdown and unrest on the streets of Washington have created new uncertainties. Markets are signalling that taken altogether the outlook is better than a quarter ago. Following news of the first vaccine the iShares UK Property ETF jumped 10 per cent in a few days at the beginning of November and it has remained stable at similar levels since. The US Presidential election result and more recently the Democrats' wins in Georgia have spurred equities further with the expectation of a more substantial fiscal stimulus in the U.S. as a result. The UK FTSE 100 has further been buoyed by the conclusion of the Brexit deal with the FTSE 100 closing 15 per cent higher at the time of writing than at the last factsheet.

Uncertainties remain, including how fast the new variant of Covid-19 will spread and the toll it will take, whether it will mutate further and if the vaccines will be effective against further mutations. While there are some voices criticising a slow pace, the UK is ahead of most countries with one in four over eighty year olds already vaccinated in early January and an ambitious vaccination plan is cause for optimism. If the UK is successful in the target of having 13 million people vaccinated by mid-February a very large proportion of the higher risk older population will have been covered which will enormously reduce hospitalisations and deaths from the virus.

Brexit so far has played out along the common rules of EU history. It has taken longer than expected, the deal was delivered at the last minute, there are some uncomfortable compromises and there are tricky levels of details involved in the final agreement. The end of the transition period and the agreement of the trade deal with Europe is a landmark in the Brexit process which does deliver some elements of certainty but it will take longer to understand the full impacts of the UK leaving the EU. In particular details around financial services have been delayed. While equivalence arrangements are likely to simplify matters significantly, the devil is often in the detail. Tariff free trade appears to be a success in principle but it also remains to be seen whether the red-tape introduced for trade between Europe and the UK creates its own barriers.

In the real estate markets, big box and last mile logistics and residential have been the clear winners of 2020. Office and student accommodation have been subject to more nuanced case by case effects and hospitality and retail have faced the biggest challenges. The struggle is not over for hospitality with a particularly tricky outlook over the remainder of the winter season with lockdowns in place. The recovery will be uneven with a pent up leisure demand arriving first. Unspent holiday and leisure budgets mean people keen to go on holidays, concerts and events will have the savings to pay. This demand will likely first focus domestically and then internationally as practicalities allow. Corporate and conference business are likely to take longer to resume. While the 2020 sector themes are likely to continue in 2021, taking the longer view there are likely to be opportunities for the right assets with well thought out and well capitalised business plans in all sectors.

Interest rates remain as they have for some quarters practically unchanged since the previous factsheet with Sterling Libor at 0.03 per cent and the curve remaining extremely flat with the Sterling 5-year swap rate at only 0.11 per cent. With rates so low investors are keen to find yield which has supported record European issuance in both investment grade and non-investment grade credit in 2020. Yields in the high yield market are near all-time lows with spreads having recovered to pre-Covid-19 levels and strong new issuance in the first week of 2021 from real estate names with final pricing significantly inside of initial price talk.

In real estate lending while the data is not yet available, volumes will be down significantly in 2020. As we move in to 2021 we expect market conditions to become somewhat more liquid as the market adjusts to the Covid-19 and post Covid-19 environments. Some of that adjustment has already taken place and in particular the investment bank inventory of loans originated in the fourth quarter of 2019 and first quarter of 2020 which had weighed on new business during 2020 has largely been cleared during the second half of 2020 and with little incentives provided. While we expect dislocations to remain in the market during 2021, we are seeing willingness from the market to engage on all asset classes and more recently also including hotels and retail again. The lending appetite is coming from diverse sources reflecting an increasingly fragmented market. There continues to be a significantly lower participation from balance sheet bank lenders particularly for development financing and for financing other non-vanilla business plans and asset classes. We expect this pattern to continue as a long term theme that will support the Group's strategy of sourcing attractive new investment opportunities in 2021 and beyond.

Share Price / NAV at 31 December 2020 


Share price (p)  90.0 
NAV (p)          104.18 
Discount         13.6% 
Dividend yield   7.2% 
Market cap       GBP369m

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January 22, 2021 02:00 ET (07:00 GMT)