TIDMHONY
RNS Number : 1405X
Honeycomb Investment Trust PLC
30 April 2021
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30 April 2021
Honeycomb Investment Trust plc
Honeycomb Investment Trust plc (the "Company" or "Honeycomb")
announces that the Investment Manager's monthly factsheet for 31
March 2021 is now available on its website at
http://www.honeycombplc.com .
Net Asset Value per Share
The Company announces that its unaudited Net Asset Value ("NAV")
per share as at 31 March 2021 on a cum-income basis was 1,014.1
pence, based on a NAV of GBP357.6 million, and on an ex-income
basis was 1,017.8 pence, based on a NAV of GBP358.9 million. The
NAVs have been calculated by Apex Fund Services (UK) Ltd.
Honeycomb Investment Trust plc (the "Company" or "Honeycomb")
delivered a NAV return of 0.75% for the month of March, or 8.9%
annualised. Strong returns in the month were driven by high
underlying credit asset returns of 9.8%, facilitated by increased
origination in the period.
This brings NAV returns to 8.4% annualised for Q1, with
consistent month-on-month growth signifying positive momentum as
the portfolio has grown.
Portfolio Performance
Strong underlying credit asset performance has been observed
across asset classes, with high deployment levels bolstering
returns.
Net Investment Assets increased by GBP23m to GBP617m in the
month, driven by drawdowns on existing consumer and property-backed
senior facilities and the extension of a senior-secured facility to
an existing partner.
Net Debt to Equity increased from 64.9% in February to 72.8% in
the month. The debt facilities, with maturities in Q4 2022, Q3 2023
and Q1 2027, provide liquidity over the medium to long term and
provide a natural hedge against interest rate risk as the floating
rate assets are broadly equivalent in size to the floating rate
debt facilities.
Despite a low additional impairment charge for March of GBP10k,
the portfolio continues to be well provisioned at 64% coverage on
Stage 3 assets, as additional provisions are largely offset by
impairment releases due to borrowers recommencing payment after
2020 forbearance.
This completes a strong quarter of performance for Honeycomb, as
a high underlying asset yield of 9.6% annualised coupled with
impairment held broadly stable (0.1% release) helped to support
robust NAV returns of 8.4%.
The pipeline remains strong and growing, with GBP1bn+ of
opportunities. Approx 30% of these pertain to property investment,
as market changes drive increased opportunities for non-bank
lenders in the space, as outlined below.
Market Insights: structural and regulatory change creating new
opportunities in UK property markets
A sustained shortfall in housing supply has generated
significant opportunity in specialist lending markets to provide
bridging and development loans to mid-size borrowers (typically
loan sizes of GBP5-25m). This shortfall has been driven both by
declining supply and increased demand for housing since the 2008
financial crisis, with the funding gap continuing to grow.
The supply constraint is driven by steady declines in
traditional bank and building society finance (38% reduction from
GBP23.9bn in 2008 to GBP14bn in H1 2019(1) ) as regulatory and
capital requirements grow and the experience required no longer
exists within the universal banks. Despite this falling supply,
demand for housing has continued to grow as the UK government
projects >300,000 new homes per year are required to keep up
with the rising UK population(2) . This liquidity shortfall is
particularly evident in the mid-size lending space as the cost and
expertise required to underwrite more granular loans within a bank
or building society no longer fits their business models. This
market gap has been successfully addressed by non-bank lenders, as
product specialists with expert underwriting models and efficient
cost structures that enable healthy returns in the market, while
mitigating downside risks through stringent underwriting processes
and prudent loan-to-value ratios.
Looking forward, the opportunity in bridging and development
markets remains strong with headroom to grow as pandemic driven
disruption has exacerbated the structural issues banks have been
facing, bolstering the pipeline of above hurdle real estate
opportunities. This momentum is expected to be further underpinned
by key structural and regulatory changes as society shifts to "the
new normal", with key drivers expected to be:
-- Government initiatives such as Help to Buy, the Mortgage
Guarantee Scheme, the relaxation of planning regulation and the
Stamp Duty holiday supporting demand for house building, increasing
the scope of residential development opportunities
-- Multi-layered demand for starter and family homes in suburban
and more rural locations as buyer appetite retreats from urban
areas, leading to increased rural development opportunities
-- Scope to convert commercial properties to residential
dwellings as demand for residential properties expected to outstrip
demand for office space, generating an opportunity to provide
refurbishment bridge loans
The opportunity is large and fragmented, with Honeycomb
successfully accessing the market through selective long-standing
partnerships with several non-bank lenders. This provides the
two-fold benefit of a more diversified loan book and further
downside protection as lending partners typically provide first
loss equity. Furthermore, control over underwriting is typically
fully retained by the Manager through strict eligibility criteria,
secondary underwriting and an intensive monitoring programme.
Providing affordable housing and promoting green initiatives is
central to the opportunity, with all lending partners aligned to
our goal of generating positive social and environmental impact.
The lack of affordable housing has become a prominent issue for
society as house price growth has outstripped wage growth,
preventing a significant proportion of the population from owning
their own home. Through the development of new housing,
particularly with a social housing component, specialty finance can
help to correct this market inefficiency and meet societal needs.
Furthermore, new homes are on average 60+% more energy efficient(3)
and so the development of new housing, particularly of those with
sustainable build qualities, has the potential to accelerate the
UK's transition towards becoming carbon neutral in line with the
Net Zero 2050 Initiatives.
(1) Cass Business School - UK Commercial Real Estate Lending
Report, December 2018;
(2) Data from the Ministry of Housing, Communities & Local
Government 2018
(3) Department for Communities & Local Government (DCLG)
2020
ESG Update
We are delighted to share that Capital Finance International
magazine (CFI.co) has named Pollen Street Capital Best Responsible
Alternative Investment Team UK 2021, recognising the team's
progress in "responsible portfolio development" and an approach to
investing which prioritises "lasting impact". Furthermore, the team
has played an integral role in launching the Invest in Women Hub ,
the latest Council for Investing in Female Entrepreneurs (CIFE)
initiative to accelerate female entrepreneurship and support female
founders.
We welcomed the British Business Bank Small Business Finance
Market Reports 20/21 released on 10th March 2021. The report
referenced the significant role Alternative Finance providers are
playing in traditional finance markets and in some cases creating
new markets altogether. In addition, the report notes that for
small businesses, the role of alternative finance providers has not
only increased the options of finance available, but has also
increased the accessibility and suitability of that finance.
We believe there is certainly scope for more and are excited to
see the opportunities in the non-bank lending sector continue to
evolve in a way that can generate positive impact for investors,
people, partners and wider society. Alongside our aim to provide
consistent, compelling returns for investors is our commitment to
positive impact. Through our investment and lending philosophy we
aim to have a long term sustainable positive impact for the UK
economy.
For further information about this announcement please
contact:
Pollen Street Capital - Investment Manager
Matthew Potter / Julian Dale: +44 (0)20 3728 6750
Liberum Capital Limited - Joint Broker
Chris Clarke / Louis Davies: +44 (0)20 3100 2000
Cenkos Securities plc - Joint Broker
Justin Zawoda-Martin / Tunga Chigovanyika: +44 (0)20 7397
8900
Link Company Matters Limited - Corporate Secretary
Paul Johnston: +44 (0)20 7954 9552
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