14 April
2016
UK MORTGAGES
LIMITED
(a closed-ended investment company incorporated in Guernsey
with registration number 60440) (a non-cellular company
limited by shares incorporated in the Island of Guernsey under the
Companies (Guernsey) Law 2008, as amended, with registered number
60440 and registered as a Registered Closed-ended Collective
Investment Scheme with the Guernsey Financial Services
Commission)
Investment Update
The Board of UK Mortgages Limited (the “Company”) and TwentyFour
Asset Management LLP (TwentyFour) are pleased to present an update
on progress with further investments.
The portfolio management team remain fully engaged on a number
of prospective opportunities with the aim of fully investing the
Company’s capital in as timely a manner as possible. As stated
previously, transactions are generally subject to non-disclosure
agreements, as full disclosure before final closing would lead to a
loss of competitive advantage. However, we have endeavoured to
provide as much detail as possible on deal progression.
1 – The Mortgage Lender (TML)
Since the last update the Company has signed a conditional asset
purchase agreement with TML and the expected timeframe
for closing the transaction in April remains on track, with
TML to begin originating immediately after closing. TwentyFour
continues to progress the ancillary requirements of such a
transaction and is negotiating with warehouse funding, hedging
and other service providers in order to ensure all elements
are in place when the transaction closes. As previously stated,
whilst it is difficult to predict accurately, origination volume
from TML in the first year is expected to be approximately £250
million. Furthermore, origination beyond that is expected to be
higher, as TML and their products become established in the market.
The future flow nature of this transaction will be particularly
beneficial to the Company as it should provide a natural growth
engine, and because the yield on this product would be higher
than that on the first portfolio of BTL mortgages acquired from
Coventry Building Society in November
2015, it is expected to generate an
incrementally positive contribution to the Company’s dividend
in future years.
2 – Vintage pools
In our previous update, we referred to a vintage pool
transaction which was in the early stages of discussion. This
transaction has not proved to be viable, however two further
vintage pool transactions are now under discussion. Both of these
pools were originated prior to the global financial
crisis, are different in nature and from different
originators. Neither sale is driven by asset performance, which is
strong in both cases. Both pools are more than large enough to
enable a public senior securitisation subsequent to initial
purchase.
3 – Buy to Let
As per the previous update TwentyFour continues to be in
discussions with a mainstream mortgage lender regarding a portfolio
of newly originated BTL loans, although timing expectations on this
are now likely to fall into Q3 2016.
4 – New Opportunities
TwentyFour is still engaged in discussions with an ongoing
originator of a broad range of mortgage products. Whilst
these remain at a relatively early stage, we have received the pool
data and credit and cashflow analysis is underway in order to
establish viability and to enable base-level economic discussions
to commence, which should occur in the coming days.
Furthermore TwentyFour is currently at an introductory stage of
a potentially promising project with the originator of a BTL
portfolio. Non-Disclosure Agreements are expected to be in place in
the coming days which would then allow loan analysis to commence,
and dialogue to become more detailed.
5 – Transaction Sizes and Use of Capital
All of the opportunities mentioned above are of suitable enough
size that should any one, and certainly two, prove viable then when
added to the estimated first year’s origination volume from
TML and the already completed BTL transaction, the
Company’s capital would be broadly fully invested and able to
generate a yield comfortably within the target return range.
It should be noted that these opportunities are complex
transactions to negotiate with many moving parts, and whilst they
are in the pipeline because the deals fit the Company’s risk
profile, there is no guarantee that these deals will complete. The
detailed work carried out on these transactions and the decision to
withdraw from unviable transactions is a reflection of our focus on
product suitability for this vehicle and the high quality of our
due diligence process.
6 – Term Funding
Whilst it is not possible to comment on market timing, we
continue work on the various documentation and structural
requirements in order to be able to complete the term funding, via
a securitisation, of the BTL pool purchased from Coventry Building
Society last year, in order that when market conditions are
opportune the securitisation can be launched in a timely
manner.
7 – Target Return*
The Company has today declared a first interim dividend of 1.5p
per share in respect of the period to 31
March 2016, which is payable on 29
April 2016. This dividend has substantially been funded from
the capital reserves, as the Company’s net income has been limited
at this stage of the deployment programme. The Board remains
confident that with the transaction pipeline that TwentyFour is
currently working on, as outlined above, the Company is progressing
to a position where dividends will be fully funded out of net
income and capital may be replenished from returns made in excess
of the dividend target.
For further information, please contact:
Numis Securities Limited:
Nathan
Brown
+44 (0)20 7260 1000
Hugh Jonathan
TwentyFour Income Fund Limited:
John
Magrath
+44 (0)20 7015 8900
Alistair Wilson
* Estimates of the Company’s potential total return are based on
certain scenarios and other assumptions. All references herein to
potential future returns or distributions are targets or estimates
and there can be no guarantee or assurance that they will be
achieved.