ICG-Longbow has outlined its proposals for a revised investment strategy for its listed UK senior real estate debt fund, which “better reflects” current market conditions.
The firm said last October that it was planning to change the strategy of ICG-Longbow Senior Secured UK Property Debt Investments (SSUP), which was launched in February 2013, in the face of lower returns achievable for UK senior property debt.
As part of the proposals, the fund plans to place up to 40 million of new shares over a 12-month period to fund continued investment. It has a current value of £112 million. The share capital could be increased by almost 37 percent under the proposals.
ICG-Longbow said that the objective of the new strategy is to enable it to access a “significantly wider” CRE debt market opportunity through exposure to senior and whole loans, as well as investments in private funds run by its investment advisor, Intermediate Capital Managers Limited.
The firm said that it sees increasing opportunities for funding small-to-medium sized acquisition or refinancing deals in the UK. The proposals would allow the firm to target senior loans up to 85 percent loan-to-value (LTV), with an aggregate leverage of 75 percent LTV across the portfolio. Up to now, the firm has provided finance to a 65 percent LTV.
In addition, the fund would be able to write loans of up to ten years’ duration, up from four to six years previously.
The new policy will stipulate a 30 percent maximum exposure to any UK economic region, with the maximum exposure to Greater London set at 60 percent of gross assets. Invest in subordinated or mezzanine loans, bridge loans, development loans or loan-on-loan financings will not be permitted.
Under the existing policy, the fund provides quarterly dividends of circa 6 percent, with an underlying target portfolio IRR of 8 percent per year. “The board believes that the revised investment policy will enable the company to maintain its current dividend policy for the foreseeable future, together with the prospect of some continued modest capital uplift over time,” commented SSUP chairman Jack Perry.
“This market segment should benefit from strong underlying property fundamentals, underpinned by occupational demand created by record employment, low levels of property development and steady economic growth over recent years, despite the uncertainties caused by the result of the UK’s referendum on Brexit,” Perry added.
An EGM will be held March 1 seeking shareholder approval for the proposals.