GCP Asset Backed Income hurt by Co-living loan writedown

High-yielding lending fund insists there is no 'read-across' to its socially sustainable loans after writing off half a £32m debt to a property developer hit by the pandemic.

GCP Asset Backed Income (GABI ) remains upbeat about the prospects for socially sustainable investments within property development despite being forced to write down its loan to a company trying to solve the housing crisis.

The £440m secured lending fund has taken a hit from its loan to Co-living Group, which repurposes spaces into co-living developments in which individuals have a private home but also access to communal activities.

Co-living offered a solution to urban loneliness and a shortage of affordable accommodation, but while its socially-aware goals may be laudable GABI has been forced to write off half the value of its £32.1m loan this year after the business put itself up for sale in response to the Covid-19 pandemic hitting buyer demand.

GABI, which holds 54 loans in a portfolio spread across social infrastructure, property, energy and asset finance, had already cut the value of the loan in the summer on the basis of the bids Co-living received. 

However, bid levels and the status of the loan had worsened since then requiring a further 3.69p to be cut from net asset value, reducing it to 99.02p at 30 June.

The Jersey investment company reassured shareholders that, despite the write-down, Gravis fund manager David Conlon said the target quarterly dividends supporting its 6.3% yield would be maintained for the current financial year and covered by cashflows from its investments.

GABI was a small player in a syndicate of lenders to Co-living, leading Liberum analyst Conor Finn to say it illustrated ‘some of the risks in minority lending investments, particularly the lack of control in distressed situations.’ 

‘The scale of the writedown is significant given the LTV [loan to value] of the position was less than 65% at March 2021,’ Finn said, meaning there was a healthy cushion of equity to protect the lender.

Stifel analyst Iain Scouller cut his ‘positive’ rating to ‘negative’ saying there was a risk the shares, which were hit last year by a dividend cut, could drop to a discount to NAV. 

‘We are disappointed to see this write-down especially given what had been the improving backdrop and comments from the company regarding its high risk loans. While no portfolio is immune to problems, the size of the write-down - around 54% as the loan was 6.8% of the portfolio as at 30/06/21 - is significant and means that something has clearly changed quite materially in the third quarter,’ Scouller said.

Shares in GABI have dropped from 104.5p to 101p since the announcement on Monday, but remain on a small premium to the reduced NAV following Conlon’s insistence that no ‘read-across should be made as a result of the write-down in the value of the Co-living Group loan to the rest of the company’s portfolio which continues to perform as expected.’ 

Speaking at an Association of Investment Companies event yesterday, Gravis associate director Joanne Fisk, who works with Conlon on GAVI, said the fund remained committed to funding sustainable borrowers.

‘Core to the sustainable theme is looking for assets that meet a structural demand in society or serve a purpose as we think that underpins the value of the investment we are making,’ she said.

While the Co-living loan has been painful, GABI remains keen on housing, lending £5m earlier this year to Apex Airspace, whose modular pods on top of flat-roof buildings are designed to solving the property shortage.

Fisk said Apex had ‘a borrower track record’ and is working on an affordable homes project with the Greater London Authority and local councils.

‘It is improving and building on existing housing stock providing affordable homes in London,’ she said.

Within social infrastructure, GABI is also lender to four care homes. Fisk hoped to add to the exposure in ‘areas of undersupply when there is a need for elderly and vulnerable care’.

‘These assets have seen really strong growth in valuations,’ she said.

Fisk said the managers of the four homes ‘impressed through Covid-19 by taking steps early on, maintaining occupation, and gaining new contracts’ despite the sector being hit hard by the pandemic.

‘This is an area we are interested in and we are looking at other projects and are hoping to close soon,’ said Fisk.


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