TIDMUSF TIDMUSFP
RNS Number : 4273I
US Solar Fund PLC
07 August 2023
7 August 2023
US SOLAR FUND PLC ("USF", or the "Company")
MARKET UPDATE
Ahead of the announcement of the Company's interim results for
the period to 30 June 2023 expected to be released in September,
the Board is pleased to provide the following market and
operational update.
Portfolio update and macroeconomic outlook
During the first half of 2023, the Company's underlying
portfolio performance has continued to improve over 2022 however
weather conditions have been challenging.
The portfolio's resilience in challenging macroeconomic
conditions can be attributed to:
-- High-quality generation assets . The portfolio's performance
demonstrates the lower operational volatility of solar generation
assets however weather conditions in the first half of 2023 have
been poor compared with 2022. Pleasingly, non-weather losses such
as outages and asset unavailability improved by approximately 20%
in the first half of 2023 compared with 2022. USF's portfolio is
geographically diverse and has not been affected by changes in
certain energy markets (such as Texas) where major weather-related
events have led to volatility in asset values.
-- Highly predictable revenues earned from long-term Power
Purchase Agreements (PPAs). Cashflows generated by the portfolio
are highly predictable. The electricity generated by USF's assets
is contracted under fixed-price PPAs for a weighted average term
remaining of 12.4 years from 30 June 2023. Over 95% of the revenues
forecast to be received over the next nine years are contracted
payments earned under fixed price PPAs.
-- Stabilising US risk free rates. US Treasuries have stabilised
during the period compared to prior periods and compared with UK
and European equivalent instruments. The net asset value (NAV) of
the portfolio is determined through an independent valuation which
uses, as a risk-free proxy, the equivalent term (20 year) US
Treasury rate which was 4.1% at 31 December 2022 and remained
unchanged at 30 June 2023.
-- Fully hedged debt facilities. The Company's amortising debt
facilities benefit from protections in relation to changes in base
rates. This is due to the underlying base interest rates having
been hedged for the full expected amortisation period. These
hedging arrangements are currently significantly in-the-money due
to the increased interest rate environment.
The Board is satisfied with the improving performance of the
portfolio and the continued stability of cashflows over this first
six months of 2023.
Outlook for NAV and dividend cover based on macroeconomic
forecasts and the outcome of the Strategic Review
The Company will publish its interim results in September which
will include a 30 June 2023 NAV. The following commentary on NAV is
therefore subject to conclusion of the customary half-year review
by USF's auditors which is currently underway.
Consistent with previous periods, the revised NAV will reflect
changes to the macroeconomic environment since 31 December
2022.
Importantly, the revised NAV will also reflect the outcome of
the recently concluded strategic review where USF's independent
valuer will take into account that the sales process initiated by
the Board in October 2022 did not result in receipt of any offers
considered to be in the best interests of shareholders. The
independent valuer will also compare the value of USF's projects to
the valuations implied by recent transactions in the US renewables
sector. Although risk-free rates have steadied, these
considerations are expected to result in higher asset risk premiums
for USF's portfolio assets, and place downward pressure on NAV. The
Board considers that the independent valuer's approach will
appropriately reflect the inherent value of the assets adjusted for
current market conditions.
Inflation, which generally has a positive impact on the
Company's NAV by increasing expectations for future energy prices,
is expected to negatively impact the Company's short to medium term
portfolio cashflows. This is a result of forecast increases in
insurance, wage and equipment costs which may materialise on expiry
of those related contracts versus the more stable revenue from
USF's long-term PPAs. Sustained high inflation should be expected
to increase NAV but reduce near term operational cashflows and
result in in reduced levels of dividend coverage.
The Company has delivered average annual dividend growth of 1.5%
in each consecutive year since the portfolio became fully
operational. Given the potential for operating cash shortfalls as
described above in the medium term, the Board will issue revised
guidance around any lower dividend targets, if necessary, in future
periods.
The Company continues to expect the 2023 dividend to be covered
with net operating cashflows (including the gain on the sale of
USF's 50% interest in MS2).
Strategy for managing the current share price discount to
NAV
The Board remains committed to the creation and delivery of
long-term shareholder value. It continues to believe the discount
to NAV at which the Company's shares are trading does not reflect
the value of the Company, even taking into account the above
factors. The key steps currently being taken by the Board to
proactively address this are consistent with the Company's
established approach and include:
-- Continuing to focus on efficient balance sheet management.
The Board confirms that it is currently not seeking new investment
opportunities given the substantial discount to NAV. The Company's
$40m revolving credit facility (RCF) is currently undrawn. Taken
together with unrestricted cash balances of approximately $45m, the
Company remains in a comfortable position in relation to its
short-term cash requirements; and
-- Realising value from existing investments where it is prudent
and possible to do so and utilising available proceeds to return
excess capital to Shareholders, improve the overall attractiveness
of the remaining portfolio to potential buyers and/or reduce
overall debt levels .
Investment management update
USF announced on 10 July 2023 it had mutually agreed with its
current investment manager, New Energy Solar Manager Pty Limited
(NESM), that USF's existing investment management agreement will
not extend beyond the expiry of the initial five-year term in April
2024.
USF is pleased to announce that it has granted a potential new
investment manager a period of exclusivity during which the parties
will seek to negotiate a new investment management agreement and
obtain the necessary regulatory and shareholder approvals required
for the potential new manager to replace NESM as USF's investment
manager.
Further details will be announced within the next two weeks.
For further information, please contact:
US Solar Fund
Whitney Voute +1 718 230 4329
Cenkos Securities plc
James King
Tunga Chigovanyika
Will Talkington +44 20 7397 8900
Jefferies International Limited
Stuart Klein
Gaudi Le Roux +44 20 7029 8000
KL Communications +44 20 3995 6699
Charles Gorman
Charlotte Francis
Amy Levingston Smith
About US Solar Fund plc
US Solar Fund plc, established in 2019, listed on the premium
segment of the London Stock Exchange in April 2019. The Company's
investment objective is to provide investors with attractive and
sustainable dividends with an element of capital growth by owning
and operating solar power assets in North America and other OECD
countries in the Americas.
The solar power assets that the Company acquires or constructs
are expected to have an asset life of at least 30 years and
generate stable and uncorrelated cash flows by selling electricity
to creditworthy off-takers under long-term PPAs. Following the sale
of the Company's 50% interest in Mount Signal 2, the Company's
portfolio currently consists of 41 operational solar projects with
a total capacity of 443MW(DC) , all located in the United
States.
Further information on the Company can be found on its website
at http://www.ussolarfund.co.uk .
About the Investment Manager
USF is managed by New Energy Solar Manager (NESM). NESM also
manages New Energy Solar Limited, a fund previously listed on the
Australian Securities Exchange (ASX). Combined, US Solar Fund and
New Energy Solar have committed approximately US$1.3 billion to 57
projects totaling 1.2GW(DC) .
NESM is owned by E&P Funds, the funds management division of
E&P Financial Group Limited, an ASX listed company (ASX: EP1)
with over A$20 billion of funds under advice.
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END
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