TIDMSWEF
RNS Number : 2986Q
Starwood European Real Estate Finan
11 September 2017
Starwood European Real Estate Finance Limited
Interim Financial Report and Unaudited Condensed Consolidated
Financial Statements
for the six month period from 1 January 2017 to 30 June 2017
Corporate Summary
PRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE
The investment objective of Starwood European Real Estate
Finance Limited (the "Company"), together with its subsidiaries
Starfin Public GP Limited (the "GP"), Starfin Public LP (the
"Partnership") and Starfin Lux S.à.r.l. ("Luxco") together (the
"Group") is to provide its shareholders with regular dividends and
an attractive total return while limiting downside risk, through
the origination, execution, acquisition and servicing of a
diversified portfolio of real estate debt investments (including
debt instruments) in the UK and the wider European Union's internal
market, focusing on Northern and Southern Europe. Whilst investment
opportunities in the secondary market are considered, the Group's
main focus is to originate direct primary real estate debt
investments.
The Group seeks to limit downside risk by focusing on secured
debt with both quality collateral and contractual protection. The
typical loan term is between three and seven years.
The Group aims to be appropriately diversified by geography,
real estate sector, loan type and counterparty. The Group pursues
investments across the commercial real estate debt asset class
through senior loans, subordinated loans and mezzanine loans,
bridge loans, selected loan-on-loan financings and other debt
instruments.
STRUCTURE
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008, as amended, on 9 November
2012 with registered number 55836, and has been authorised by the
Guernsey Financial Services Commission (the "GFSC") as a registered
closed-ended investment company. The Company's ordinary shares were
first admitted to the premium segment of the UK Listing Authority's
Official List and to trading on the Main Market of the London Stock
Exchange as part of its initial public offering which completed on
17 December 2012. Further issues took place in March 2013, April
2013, July 2015, September 2015 and August 2016. The issued capital
during the period comprises the Company's Ordinary Shares
denominated in Sterling.
The Company makes its investments through Luxco, an indirect
wholly-controlled subsidiary not subject to regulation in
Luxembourg or elsewhere. The Company's interest in Luxco is held
through a Guernsey limited partnership, Starfin Public LP of which
Starfin Public GP Limited is the General Partner. The GP is wholly
owned and controlled by the Company. Starfin Carry LP (the "Special
Limited Partner") is the only other Limited Partner of the
Partnership and is majority owned by the Starwood Capital Group
("Starwood") and has no control over the GP.
The Investment Manager is Starwood European Finance Partners
Limited (the "Investment Manager"), a company incorporated in
Guernsey with registered number 55819 and regulated by the GFSC.
The Investment Manager has appointed Starwood Capital Europe
Advisers, LLP (the "Investment Adviser"), an English limited
liability partnership authorised and regulated by the Financial
Conduct Authority, to provide investment advice, pursuant to an
Investment Advisory Agreement.
Chairman's Statement
INVESTMENT
The first half of 2017 was another strong six months for the
Group and a rewarding one for Shareholders. We continue to achieve
our dividend objectives and deliver on our investment strategy
through an increased volume of lending, notwithstanding significant
loan repayments in the period.
As at 30 June 2017, the Group was fully invested with
investments and commitments of GBP396.1 million, with GBP2.4
million of cash and GBP7.5 million drawn on the revolving credit
facility. The Group experienced substantial loan repayments in the
first half of the year, but despite this, the loan book increased
by GBP30.3 million due to new commitments. The table below shows
the commitments and repayments in the first half for the last three
years, which highlights this strengthening trend.
Commitments Repayments & Amortisation Net Increase in Investments plus Commitments
H1 2015 GBP31.3 m GBP21.9 m GBP9.4 m
H1 2016 GBP98.9 m GBP92.1 m GBP6.8 m
H1 2017 GBP115.5 m GBP85.2 m GBP30.3 m
In the last three years, repayments in the second half of the
year have tended to be lower than the first half of the year,
averaging between GBP20.0 - GBP45.0 million. Whilst it is difficult
to forecast potential repayments, we anticipate that the second
half of 2017 may see repayments at a similar level to the first
half of the year and the Group will seek to minimise cash drag from
potential repayments by utilising the revolving credit
facility.
REALISATION OFFER, REALISATION VOTE AND CHANGES TO INVESTMENT
MANAGEMENT AGREEMENT
At the time of the Initial Public Offering (the "IPO"), the
Company set out mechanisms to deal with discount control which
included the possibility of a Realisation Offer and, in certain
circumstances, a Realisation Vote to be held no later than 28
February 2018. If Shareholders voted in favour of such resolution,
then the Company would ensure that a Realisation Offer is put to
Shareholders. If Shareholders did not vote for the realisation then
the Company would continue in existence as currently
constituted.
As announced on 23 August 2017, the Company has proposed the
deferral of the Realisation Offer and Realisation Vote mechanisms
by five years and then subject to a five year rolling basis
thereafter. These proposals are summarised in detail in the
aforesaid announcement. A circular convening an extraordinary
general meeting to consider these changes was despatched on 7
September 2017.
The circular also contains details of certain other proposals
which require your approval, including amendments to the Investment
Management Agreement.
Again further details of these proposals were set out in the
announcement of 23 August 2017.
EQUITY ISSUANCE
The Company will be closely monitoring potential repayments and
will continue to evaluate the impact of these when considering
equity issuance in the second half of the year.
At the forthcoming EGM, and following the new EU Prospectus
Regulations which came into force on 20 July 2017, the Board
intends to seek approval for the authority to disapply pre-emption
rights on the allotment of equity securities to increase from 10
per cent to 20 per cent of the Ordinary Shares in issue. Shares
will only be issued at a premium to their last-published net asset
value.
This increased authority and added flexibility will enable the
Company to react effectively to opportunities to raise additional
equity without publishing a prospectus. This may arise in the
second half of the year, when origination activity is typically
stronger, whilst managing the expected repayments noted above. The
authority will supplement the authority obtained at the AGM which
permits the company to issue up to 300 million shares pursuant to a
placing programme (for which a prospectus will be required).
OUTLOOK
Since 30 June 2017, one loan has been repaid for EUR13.8 million
and the Company remains substantially fully invested. The
Investment Adviser has a number of opportunities currently under
review and the Company will continue to update Shareholders by way
of the quarterly fact sheets and investment updates when deals are
signed.
The Company continues to target a dividend at an annualised rate
of 6.5 pence per Ordinary Share and has declared a dividend of
1.625 pence per Ordinary Share (6.5 pence annualised) for each of
the first two quarters of 2017.
GOING CONCERN
Under the UK Corporate Governance Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Group is a going concern.
The Directors have undertaken a rigorous review of the Group's
ability to continue as a going concern including a review of the
on-going cash flows and the level of cash balances as of the
reporting date as well as forecasts of future cash flows. After
making enquiries of the Investment Manager and the Administrator
and having reassessed the principal risks, the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the Interim Financial Report and Unaudited Condensed
Consolidated Financial Statements.
Investment Manager's Report
INVESTMENT DEPLOYMENT
As at 30 June 2017, the Group had investments and commitments of
GBP396.1 million as shown in the table on the right:
Between 31 December 2016 to 30 June 2017, the following
significant investment activity occurred (included in the table on
the right):
New Loan - Industrial Portfolio, Hungary, Poland, Czech
Republic:
On 30 March 2017, the Group committed to provide a EUR68.5
million whole loan relating to the acquisition of a portfolio of
industrial assets located across Central and Eastern Europe. The
three year floating rate loan represented the opportunity to
further diversify geographically and support a strong sponsor with
a proven track record. EUR26.5 million of the loan was funded on 30
March 2017 with the remaining commitment funded on 31 May 2017.
New Loan - Hotel, Barcelona, Spain:
On 31 March 2017, the Group advanced a EUR46.0 million four year
floating rate whole loan relating to the acquisition of a
four-star, 240 key hotel in central Barcelona's 22@ district. The
borrower is a partnership between institutional-quality investors
with track records of successful hotel acquisitions throughout
Europe. The hotel is well positioned to benefit from the sponsors'
active asset management strategy in a Barcelona market with
appealing hospitality performance metrics and high barriers to
entry. The transaction represented the Group's entry to the Spanish
market, a large market opportunity with attractive real estate
fundamentals and macroeconomic growth trends.
New Loan - School, Dublin, Ireland:
On 31 March 2017, the Group advanced a EUR18.85 million three
year floating rate whole loan to support the acquisition and
repositioning of a South Dublin office building. The building will
be converted for educational use with a new lease to a premium
global education company. The sponsor, Barry O'Callaghan, is a
highly regarded local investor with deep experience in the
education sector.
Sterling equivalent unfunded
Sterling equivalent principal balance (1) commitments (1)
Centre Point, London GBP45.0 m -
5 Star Hotel, London GBP13.0 m -
Industrial Portfolio, UK GBP25.5 m -
Hospitals, UK GBP25.0 m -
Hotel, Channel Islands GBP26.9 m -
Varde Partners mixed portfolio, UK GBP17.0 m -
Mixed use development, South East UK GBP8.5 m GBP5.4 m
Regional Budget Hotel, Portfolio, UK GBP75.0 m -
Total Sterling Loans GBP235.9 m GBP5.4 m
Office, Netherlands GBP12.2 m -
Residential Portfolio, Cork, Ireland GBP5.3 m -
Residential Portfolio, Dublin, Ireland GBP6.8 m -
Logistics, Dublin, Ireland GBP13.1 m -
Hotel, Barcelona, Spain GBP40.5 m -
School, Dublin, Ireland GBP16.6 m -
Industrial Portfolio, Hungary, Poland, Czech
Republic GBP60.3 m -
Total Euro Loans GBP154.8 m -
Total Portfolio GBP390.7 m GBP5.4 m
(1) Euro balances translated to sterling at 30 June 2017 exchange rates.
The transaction adds to the diversity of the Group's portfolio
with its first loan backed by an educational use.
Repayment - Industrial Portfolio, Denmark:
On 3 March 2017, the Group received full repayment of DKK302.3
million on the Industrial Portfolio, Denmark loan as a result of a
sale of the portfolio by the borrower. A number of loans in the
Group's portfolio benefit from prepayment protection in their early
years, providing the Group with a level of income protection should
such loans repay whilst in that protected period. The Danish loan
was originated in June 2015 and benefited from such provisions,
meaning that the Group experienced no cash drag on the repayment of
the loan for a number of months after repayment.
Repayment - Industrial Portfolio, Netherlands:
On 16 March 2017, the Group received full repayment of EUR26.1
million on the Industrial Portfolio, Netherlands loan as a result
of a sale of the portfolio by the borrower.
Repayment - Retail & Residential Portfolio, Ireland:
On 6 June 2017, the Group received a final repayment of EUR2.5
million on the Retail & Residential Portfolio, Ireland
following completion of the execution of the borrower's business
plan.
Repayment - Center Parcs bonds, UK:
On 15 June 2017, the Group received full repayment of GBP9.5
million (notional) in relation to the Center Parcs bonds at a
redemption price of 104.8% following a refinancing. The repayment
premium is equivalent to approximately eight months of make whole
interest.
Repayment - Other loans:
During the period the Group continued to receive smaller amounts
of amortisation on other loans as borrowers continue to execute
their business plans, in particular the Varde Partners mixed
portfolio and the Industrial Portfolio, UK loans.
The following activity occurred after 30 June 2017:
Repayment - Office, Netherlands:
On 18 July 2017, the Group received full repayment of EUR13.8
million on the office, Netherlands loan following a refinancing by
the borrower. The funds were used to repay the GBP7.5 million
balance outstanding on the revolving credit facility at that
time.
Following this activity, and further small amounts of
amortisation received on other loans in the period, the Group
remains substantially fully invested with cash of GBP10.6 million
and no amounts drawn on the revolving credit facility as at 31
August 2017.
NAV and Share price performance
As at 30 June 2017, the Net Asset Value (the "NAV") was 101.88
pence per Ordinary Share and the share price was 108.25 pence.
Portfolio Statistics
As at 30 June 2017, the portfolio was invested in line with the
Group's investment policy and this is summarised below.
Number of investments 15
Percentage of currently invested
portfolio in floating rate loans
(1) 73.2%
Invested Loan Portfolio annualised
total return (2) 7.9%
Weighted average portfolio LTV
- to Group first GBP (3) 17.8%
Weighted average portfolio LTV
- to Group last GBP (3) 63.9%
Average loan term (stated maturity 4.4
at inception) years
3.1
Average remaining loan term years
Net Asset Value GBP382.1m
Amount drawn under Revolving
Credit Facility (excluding accrued
interest) (GBP7.5m)
Portfolio value (including accrued
income) GBP393.4m
Cash GBP2.4m
Other net assets / (liabilities)
(including hedges) (GBP6.2m)
(1) Calculated on loans drawn at the reporting date using the
exchange rates applicable when the loans were funded.
(2) Calculated on amounts outstanding at the reporting date,
excluding undrawn commitments, and assuming all drawn loans are
outstanding for the full contractual term. Twelve of the loans are
floating rate (partially or in whole and some with floors) and
returns are based on an assumed profile for future interbank rates
but the actual rate received may be higher or lower. Calculated
only on amounts funded at the reporting date and excluding
committed amounts and cash un-invested. The calculation excludes
the origination fee payable to the Investment Manager.
(3) LTV to Group last GBP means the percentage which the total
loan commitment less any amortisation received to date (when
aggregated with any other indebtedness ranking alongside and/or
senior to it) bears to the market value determined by the last
formal lender valuation received by the reporting date. LTV to
first Group GBP means the starting point of the loan to value range
of the loan commitments (when aggregated with any other
indebtedness ranking senior to it). For Centre Point, the Irish
School, Dublin and the mixed use development, south east UK, the
calculation includes the total facility available and is calculated
against the assumed market value on completion of the project.
As discussed in the Chairman's Statement, the Group once again
experienced substantial loan repayments in the first half of the
year. These came to GBP85.2 million of repayments and amortisation.
Notwithstanding this, the Group has remained fully invested
throughout due to another strong first half of origination
activity. A number of loans repaid in the first half also benefited
from make-whole protection, which further enhanced the earnings for
the first half of the year and provided protection against
potential cash drag.
In the last three years, the Group's loan repayments in the last
six months of the year have tended to be in the range of GBP20.0 -
GBP45.0 million, as shown in the table below.
Repayments
GBP44.9
H2 2014 m
GBP21.5
H2 2015 m
GBP37.2
H2 2016 m
It can be difficult to forecast the timing of any potential
repayments, as this often depends on many factors including but not
limited to the execution of the underlying borrower's business
plan. However, we currently anticipate that the second half of 2017
may see repayments at a similar level to the first half of the year
and we will continue to seek to minimise cash drag from any
potential repayments by utilising the revolving credit facility
where appropriate.
The maturity profile of investments as at 30 June 2017 is shown
on the next page. This illustrates that GBP51.1 million or 13.1 per
cent of the portfolio had contractual maturity in 0 to 1 years, and
we expect most of this repayment to occur in the second half of
2017. The Office, Netherlands loan, which repaid on 18 July 2017,
is included in 1 to 2 remaining years in the table opposite.
Remaining years to contractual maturity(1) Principal value of loans % of invested portfolio
0 to 1 years GBP51.1 m 13.1%
1 to 2 years GBP37.7 m 9.6%
2 to 3 years GBP121.4 m 31.1%
3 to 5 years GBP155.5 m 39.8%
5 to 10 years GBP25.0 m 6.4%
1 Excludes any permitted extensions. Note that borrowers may
elect to repay loans before contractual maturity.
The Group continues to achieve good portfolio
diversification.
The Board considers that the Group is engaged in a single
segment of business, being the provision of a diversified portfolio
of real estate backed loans. The analysis presented in this report
is presented to demonstrate the level of diversification achieved
within that single segment. The Board does not believe that the
Group's investments constitute separate operating segments.
MARKET SUMMARY AND INVESTMENT OUTLOOK
A number of property finance research pieces focussed on the UK
were released during the quarter. These include the De Montfort
University lending survey, Savills Financing Property 2017
presentation, Laxfield Capital's 8th Property Finance Barometer and
a new piece of research: Capita's inaugural Real Estate Finance
Market Trend Analysis.
The De Montfort University lending survey is the leading
commercial property financing research piece on the UK market. The
semi-annual report provides insights into the opaque lending market
with hard data sourced from many market participants including the
Group. The year end 2016 survey was released at the beginning of
May and reports that total year end 2016 debt secured by commercial
real estate in the UK is relatively unchanged at GBP208.7 billion,
down 1.5 per cent year on year. The Brexit effect can be seen in a
number of the outputs, with average loan-to-values ("LTVs") down,
and average margins up slightly; but the largest effect has been a
reduced acquisition financing volume as transaction numbers fell.
Average LTVs for prime office lending are down 5 per cent, margins
are up 15 basis points between year end 2015 and year end 2016 and
new loan origination is down 17 per cent to GBP44.5 billion. A
larger proportion of activity, at 61 per cent of the total is
refinancing compared to 44 per cent in 2015.
The proportion of loans made by UK Banks was higher at 47 per
cent this year versus 34 per cent last year. This is likely related
to the larger proportion of refinancings versus new acquisitions,
where incumbent UK banks benefit from existing relationships within
the lending book. Syndications are down from GBP18 billion to GBP14
billion, reflecting a lack of paper rather than a lack of appetite.
Lending volumes continue to be dominated by a small number of
players - 62 per cent of new loan origination by volume came from
only 12 institutions (six UK banks, two German banks, one North
American bank, one insurance company and two other international
banks). Only UK banks and non-bank lenders reported larger balance
sheets at year end 2016 than 2015. In particular origination volume
by US banks fell 56 per cent and insurance companies fell 46 per
cent (reflecting reduced larger transaction activity). Non-bank
lenders continue to take a market share of around 10 per cent of
the market. 76 per cent of mezzanine / junior debt is held by
non-bank lenders with a further 18 per cent held by insurance
companies and only 6 per cent held by banks.
The Savills' report repeats many of the findings from the De
Montfort Survey, which was published a month earlier, adding some
further observations in their Financing Property 2017 report.
Savills write that "Property has rarely been so financeable"
comparing the UK All Property Equivalent Yield and average all in
cost of money and showing the all in cost of real estate debt is at
historical lows and the spread between property yield and financing
cost being at historical highs. Savills also note that development
finance is not growing significantly and is at less than half the
levels of 2007 and 2008. This theme is in line with what we are
seeing in the market but we also see a risk that as an increasing
amount of development financing is being provided by alternative
lenders (especially on the larger tickets), this could be missed
from survey data, as these lenders are less likely to report their
lending to the survey.
Both Savills' and Capita's reports highlight the general desire
of the lending community to do new business. Savills quote 81 per
cent of lenders expressing a desire to increase their lending while
Capita say that 52 per cent of lenders are looking to grow their
lending teams and 71 per cent are looking to grow their lending
book over the next year. Both highlight the variety of different
lender types in the market and there is such a diversity that
Capita divide lenders into twelve separate categories.
Capita's report was released after the general election:
interestingly they see very little macro nervousness among lenders
despite uncertainties from Brexit and the recent general election.
Evidence of the market shrugging off Brexit uncertainties for prime
London properties can be seen in lower margins being achieved on
recent larger London financings. For example, according to Debtwire
the "Cheesegrater" (122 Leadenhall Street) financing for CC Land
was priced at Libor+ 150bps and, also according to Debtwire, London
and Regional have refinanced 55 Baker Street at 175bps over Libor
for the 60 per cent LTV senior loan and 450bps over Libor for the
60-70 per cent LTV junior loan. This represents some of the lowest
post global financial crisis mezzanine pricing we have seen in the
UK.
The challenge to obtain UK development financing can be seen in
the results of the Laxfield survey which shows that borrowers'
development loan margin expectations are up 21 per cent in the six
month period ending 31 March 2017 versus the previous six month
period. This appears to be an issue which is affecting the UK
specifically and we continue to see much stronger availability of
development financing in most other countries around Europe.
Laxfield report the six months ending 31 March 2017 was the second
slowest by volume after the preceding six months, with volumes of
UK commercial property financing requests down by 20 per cent on
the same period last year from GBP11.8 billion to GBP9.5 billion.
At the same time the number of financings reported was up from 162
to 173 so we are seeing a higher number of smaller deals making up
a lower overall volume. The De Montfort data backs this up: average
loan size fell considerably between 2015 and 2016 with over 50 per
cent of loans being in the GBP100-500 million range in 2015 and
just 8 per cent in 2016. Laxfield also report borrower expectations
on margin for most LTV points were up in this period.
In terms of pipeline, we continue to see similar themes to those
seen over the last few quarters. Geographically we continue to
focus on the UK and Spain in particular. We are being patient with
development financing opportunities. While these loans offer good
risk adjusted return opportunities, they also consume larger
amounts of time and resources to underwrite, execute and manage
post-closing. We are also finding that development financing
processes are taking longer to progress from the initial borrower's
financing requests to execution and are often subject to
significant scope changes during the process leading to less
execution certainty. We expect to see continuing acquisition
activity in alternative real estate asset classes which should
yield opportunities with early stage hospitality, student
accommodation and leisure asset financings currently on our target
pipeline.
RELATED PARTY TRANSACTIONS
Related party disclosures in the first six months of the
financial year are given in note 13 to the Unaudited Condensed
Consolidated Financial Statements. There were no changes in the
related parties transactions described in the Annual Report and
Audited Consolidated Financial Statements for the year ended 31
December 2016 that could have a material effect on the financial
position or performance of the Group in the first six months of the
current financial year.
FORWARD LOOKING STATEMENTS
Certain statements in this interim report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to have been correct.
As these statements involve risks and uncertainties, actual results
may differ materially from those expressed or implied by these
forward-looking statements.
The Group undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
PRINCIPAL RISKS FOR THE REMAINING SIX MONTHS OF THE YEAR TO 31
DECEMBER 2017
The principal risks assessed by the Board relating to the Group
were disclosed in the Annual Report and Audited Consolidated
Financial Statements for the year ended 31 December 2016. The Board
and Investment Manager have reassessed the principal risks and do
not consider these risks to have changed. Therefore, the following
are the principal risks assessed by the Board and the Investment
Manager as relating to the Group for the remaining six months of
the year to 31 December 2017:
-- The Group's targeted returns are based on estimates and
assumptions that are inherently subject to significant business and
economic uncertainties and contingencies, and the actual rate of
return may be materially lower than the targeted returns. In
addition, the pace of investment has in the past and may in the
future be slower than expected, or principal may be repaid earlier
than anticipated, causing the return on affected investments to be
less than expected. In addition, if repayments are not promptly
re-invested this may result in cash drag which may lower portfolio
returns. As a result, the level of dividends to be paid by the
Company may fluctuate and there is no guarantee that any such
dividends will be paid. As a consequence, the shares may trade at a
discount to NAV per share and Shareholders may be unable to realise
their investments through the secondary market at NAV per
share;
-- The Group is subject to the risk that the loan income and
income from the cash and cash equivalents will fluctuate due to
movements in interbank rates;
-- The Group's investments are comprised principally of debt
investments in the UK, and the wider European Union's internal
market and it is therefore exposed to economic movements and
changes in these markets. Any deterioration in the global, UK or
European economy could have a significant adverse effect on the
activities of the Group and may result in significant loan defaults
or impairments. In the event of a default the Group is generally
entitled to enforce security, but the process may be expensive and
lengthy and the outcome is dependent on sufficient capital being
available to meet the borrower's obligations. Some of the
investments made would rank behind senior debt tranches for
repayment in the event that a borrower defaults, with the
consequence of greater risk of partial or total loss. In addition,
repayment of loans could be subject to the availability of
refinancing options, including the availability of senior and
subordinated debt and is also subject to the underlying value of
the real estate collateral at the date of maturity;
-- The Group has investments in Euros and may make investments
in other non-Sterling currencies. The Group is subject to the risk
that the exchange rates move unfavourably and that a) foreign
exchange losses on the loan principal are incurred and b) that
interest payments received are lower than anticipated when
converted back to Sterling and therefore returns are lower than the
underwritten returns.
-- The Group is subject to the risk that a borrower could be
unable or unwilling to meet a commitment that it has entered into
with the Group as outlined above. As a consequence of this, the
Group could breach the covenants of its revolving credit facility,
and fall into default.
Board of Directors
STEPHEN SMITH | non-executive Chairman - Chairman of the
Board
Stephen is currently Chairman of The PRS REIT and the AEW Long
Lease REIT, both of which recently listed on the London Stock
Exchange. Stephen is also a Director of Gatehouse Bank Plc.
Previously, he was the Chief Investment Officer of British Land
Company PLC, the FTSE 100 real estate investment trust from January
2010 to March 2013 with responsibility for the group's property and
investment strategy. He was formerly Global Head of Asset
Management and Transactions at AXA Real Estate Investment Managers,
where he was responsible for the asset management of a portfolio of
more than EUR40 billion on behalf of life funds, listed property
vehicles, unit linked and closed ended funds. Prior to joining AXA
in 1999 he was Managing Director at Sun Life Properties for five
years. Stephen is a UK resident.
JONATHAN BRIDEL | non-executive Director - Management Engagement
Committee Chairman
Jonathan is currently a non-executive Chairman or Director of
listed and unlisted companies comprised mainly of investment funds
and investment managers. These include The Renewables
Infrastructure Group Limited (FTSE 250), Alcentra European Floating
Rate Income Fund Limited, Sequoia Economic Infrastructure Income
Fund Limited and Funding Circle SME Income Fund Limited which are
listed on the main market of the London Stock Exchange and DP
Aircraft I Limited and Fair Oaks Income Limited. He was previously
Managing Director of Royal Bank of Canada's investment business in
the Channel Islands. Prior to this, after working at Price
Waterhouse Corporate Finance in London, Jonathan served in senior
management positions in the British Isles and Australia in banking,
specialising in credit and in private businesses as Chief Financial
Officer. Graduating from the University of Durham with a degree of
Master of Business Administration in 1988, Jonathan also holds
qualifications from the Institute of Chartered Accountants in
England and Wales where he is a Fellow, the Chartered Institute of
Marketing and the Australian Institute of Company Directors.
Jonathan is a Chartered Marketer and a member of the Chartered
Institute of Marketing, the Institute of Directors and a Chartered
Fellow of the Chartered Institute for Securities and Investment.
Jonathan is a resident of Guernsey.
JOHN WHITTLE | non-executive Director - Audit Committee
Chairman
John is a Fellow of the Institute of Chartered Accountants in
England and Wales and holds the Institute of Directors Diploma in
Company Direction. He is a non-executive Chairman or Director of
listed and unlisted companies comprised mainly of investment funds
and investment managers. These include International Public
Partnerships Limited (FTSE 250), India Capital Growth Fund Limited,
Globalworth Real Estate Investments Limited, GLI Finance and
Aberdeen Frontier Markets Investment Company Limited (all listed on
AIM), Toro Limited (listed on SFS), and also acts as non-executive
Director to several other Guernsey investment funds. He was
previously Finance Director of Close Fund Services, a large
independent fund administrator, where he successfully initiated a
restructuring of client financial reporting services and was a key
member of the business transition team. Prior to moving to Guernsey
he was at Price Waterhouse in London before embarking on a career
in business services, predominantly telecoms. He co-led the
business turnaround of Talkland International (now Vodafone Retail)
and was directly responsible for the strategic shift into retail
distribution and its subsequent implementation; he subsequently
worked on the GBP20 million private equity acquisition of Ora
Telecom. John is also a resident of Guernsey.
Statement of Directors' Responsibilities
To the best of their knowledge, the Directors of Starwood
European Real Estate Finance Limited confirm that:
1. The Unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with IAS 34, "Interim Financial
Reporting" as adopted by the European Union; and
2. The Interim Financial Report, comprising of the Chairman's
Statement and the Investment Manager's Report, meets the
requirements of an interim management report and includes a fair
review of information required by DTR 4.2.4 R:
(i) DTR 4.2.7R of the UK Disclosure and Transparency Rules,
being an indication of important events that have occurred during
the first six months and their impact on the Unaudited Condensed
Consolidated Financial Statements, and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(ii) DTR 4.2.8R of the UK Disclosure and Transparency Rules,
being related party transactions that have taken place in the first
six months and that have materially affected the financial position
or performance of the Company during that period, and any material
changes in the related party transactions disclosed in the last
Annual Report.
Independent Review Report to Starwood European Real Estate
Finance Limited
OUR CONCLUSION
We have reviewed the accompanying condensed consolidated interim
financial information of Starwood European Real Estate Finance
Limited (the "Company") and its subsidiaries (together the "Group")
as of 30 June 2017. Based on our review, nothing has come to our
attention that causes us to believe that the accompanying condensed
consolidated interim financial information is not prepared, in all
material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
WHAT WE HAVE REVIEWED
The accompanying condensed consolidated interim financial
information comprise:
-- the condensed consolidated interim statement of financial position as of 30 June 2017;
-- the condensed consolidated statement of comprehensive income
for the six-month period then ended;
-- the condensed consolidated statement of changes in equity for
the six-month period then ended;
-- the condensed consolidated statement of cash flows for the
six-month period then ended; and
-- the notes, comprising a summary of significant accounting
policies and other explanatory information.
The condensed consolidated interim financial information has
been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
The Directors are responsible for the preparation and
presentation of this condensed consolidated interim financial
information in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on this condensed
consolidated interim financial information based on our review.
This report, including the conclusion, has been prepared for and
only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
SCOPE OF REVIEW
We conducted our review in accordance with International
Standard on Review Engagements 2410, 'Review of interim financial
information performed by the independent auditor of the entity'
issued by the International Auditing and Assurance Standards Board.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers CI LLP
(a) The maintenance and integrity of the Starwood European Real
Estate Finance Limited website is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the
website.
(b) Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Unaudited Condensed Consolidated Statement of Comprehensive
Income
for the period ended 30 June 2017
1 January 2017 to 1 January 2016 to 1 January 2016 to
30 June 2017 30 June 2016 31 December 2016
Notes GBP GBP GBP
(unaudited) (unaudited) (audited)
Income
Income from loans advanced 6 15,838,604 14,055,008 27,826,368
Income from cash and cash equivalents 1 12,948 17,195
Other income - 577 577
Total income from investments 15,838,605 14,068,533 27,844,140
Expenses
Investment management fees 13 1,412,930 1,140,459 2,527,199
Revolving credit facility commitment fees 147,363 132,950 324,040
Administration fees 138,110 136,759 271,587
Other expenses 121,623 49,036 124,113
Legal and professional fees 91,392 96,028 239,158
Auditor's fees 87,570 68,644 130,970
Revolving credit facility amortisation of fees 69,983 114,005 221,002
Directors' fees and travel expenses 13 62,707 62,756 124,807
Revolving credit facility interest 48,684 290,533 308,523
Broker's fees and expenses 44,709 950 950
Net foreign exchange losses / (gains) 298,878 204,691 (1,679,501)
Total operating expenses 2,523,949 2,296,811 2,592,848
Operating profit for the period / year before tax 13,314,656 11,771,722 25,251,292
Taxation 12 3,310 2,661 3,022
Operating profit for the period / year and total
comprehensive income 13,311,346 11,769,061 25,248,270
Weighted average number of shares in issue 3 375,019,398 304,180,000 332,051,239
Basic and diluted earnings per Ordinary Share (pence) 3 3.55 3.87 7.60
Unaudited Condensed Consolidated Statement of Financial
Position
as at 30 June 2017
As at As at As at
30 June 30 June 31 December
2017 2016 2016
Notes GBP GBP GBP
(unaudited) (unaudited) (audited)
Assets
Cash and cash equivalents 4 2,351,730 7,932,190 31,018,181
Other receivables and
prepayments 13,162 17,794 53,381
Revolving credit facility
capitalised cost 5 123,863 98,344 28,846
Loans advanced 6 393,387,738 315,010,353 359,876,862
Total assets 395,876,493 323,058,681 390,977,270
Liabilities
Financial liabilities
at fair value through
profit or loss 7 5,351,376 7,183,140 9,156,088
Revolving credit facility 8 7,502,072 8,039,241 -
Trade and other payables 948,803 865,270 870,156
Total liabilities 13,802,251 16,087,651 10,026,244
Net assets 382,074,242 306,971,030 380,951,026
Capital and reserves
Share capital 371,929,982 300,392,205 371,929,982
Retained earnings 10,144,260 6,578,825 9,021,044
Total equity 382,074,242 306,971,030 380,951,026
Number of Ordinary Shares
in issue 375,019,398 304,180,000 375,019,398
Net asset value per
Ordinary Share (pence) 101.88 100.92 101.58
These Unaudited Condensed Consolidated Financial Statements on
pages 15 to 32 were approved and authorised for issue by the Board
of Directors on 8 September 2017, and signed on its behalf by:
Unaudited Condensed Consolidated Statement of Changes in
Equity
as at 30 June 2017
Retained
Share capital earnings Total equity
Period ended 30 June 2017 GBP GBP GBP
(unaudited) (unaudited) (unaudited)
Balance at 1 January 2017 371,929,982 9,021,044 380,951,026
Dividends paid - (12,188,130) (12,188,130)
Operating profit and total
comprehensive income - 13,311,346 13,311,346
Balance at 30 June 2017 371,929,982 10,144,260 382,074,242
Retained
Share capital earnings Total equity
Period ended 30 June 2016 GBP GBP GBP
(unaudited) (unaudited) (unaudited)
Balance at 1 January 2016 300,397,205 5,075,839 305,473,044
Cost of issues (5,000) - (5,000)
Dividends paid - (10,266,075) (10,266,075)
Operating profit and total
comprehensive income - 11,769,061 11,769,061
Balance at 30 June 2016 300,392,205 6,578,825 306,971,030
Retained
Share capital earnings Total equity
Year ended 31 December 2016 GBP GBP GBP
(audited) (audited) (audited)
Balance at 1 January 2016 300,397,205 5,075,839 305,473,044
Issue of share capital 73,000,000 - 73,000,000
Cost of issues (1,467,223) - (1,467,223)
Dividends paid - (21,303,065) (21,303,065)
Operating profit and total
comprehensive income - 25,248,270 25,248,270
Balance at 31 December 2016 371,929,982 9,021,044 380,951,026
Unaudited Condensed Consolidated Statement of Cash Flows
for the period ended 30 June 2017
1 January 1 January 1 January
2017 to 2016 to 2016 to
30 June 30 June 31 December
2017 2016 2016
GBP GBP GBP
(unaudited) (unaudited) (audited)
Operating activities:
Operating profit for the period
/ year and total comprehensive
income 13,311,346 11,769,061 25,248,270
Adjustments
Net interest income (15,838,604) (14,055,008) (27,826,368)
Interest income on cash and
cash equivalents (1) (12,948) (17,195)
Decrease in prepayments and
receivables 40,219 77,890 42,303
Increase / (decrease) in trade
and other payables 85,793 (61,027) 54,704
Net (gains) / loss on financial
instruments held at fair value
through profit and loss (3,804,712) 13,101,255 15,074,203
Net foreign exchange gains (3,439,978) (13,248,630) (18,256,954)
Revolving credit facility
interest 48,684 290,533 308,523
Revolving credit facility
amortisation of fees 69,983 114,005 221,002
Revolving credit facility
commitment fees 147,363 132,950 324,040
(9,379,907) (1,891,919) (4,827,472)
Loans advanced (1) (114,243,795) (88,743,585) (168,567,654)
Loans repaid 85,227,730 92,105,742 129,269,039
Arrangement fees received 478,690 - -
Origination fees paid (864,281) (697,828) (1,316,353)
Origination expenses paid - (30,057) -
Interest, commitment and exit
fee income from loans 14,978,119 17,062,139 33,855,722
Net cash (outflow) / inflow
from operating activities (23,803,444) 17,804,492 (11,586,718)
Cash flows from investing
activities
Interest income from cash
and cash equivalents 1 12,948 17,195
Net cash inflow from investing
activities 1 12,948 17,195
Cash flows from financing
activities
Net share issue proceeds received
(2) - - 71,532,777
Cost of share issues - (5,000) -
Revolving credit facility
expenses paid (165,000) - (37,500)
Revolving credit facility
utilised / (repaid) 7,500,000 (116,742) (8,155,816)
Revolving credit facility
interest paid (46,612) (296,955) (315,112)
Revolving credit facility
commitment fees paid (154,509) (129,075) (314,671)
Dividends paid (12,188,130) (10,266,075) (21,303,065)
Net cash (outflow) / inflow
from financing activities (5,054,251) (10,813,847) 41,406,613
Net (decrease) / increase
in cash and cash equivalents (28,857,694) 7,003,593 29,837,090
Cash and cash equivalents
at the start of the period
/ year 31,018,181 520,558 520,558
Net foreign exchange gains
on cash and cash equivalents 191,243 408,039 660,533
Cash and cash equivalents
at the end of the period /
year 2,351,730 7,932,190 31,018,181
(1) Net of arrangement fees of GBP1,607,763 (30 June 2016:
GBP1,503,322; 31 December 2016: GBP2,212,322) withheld.
(2) Net of share issue cost of GBPnil (30 June 2016 GBPnil; 31
December 2016: GBP1,467,223) withheld.
Notes to the Unaudited Condensed Consolidated Financial
Statements
for the period ended 30 June 2017
1. GENERAL INFORMATION
The Company is a close-ended investment company incorporated in
Guernsey. The Unaudited Condensed Consolidated Financial Statements
comprise the Financial Statements of the Company, the GP, the
Partnership and the Luxco (together the "Group") as at 30 June
2017.
2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
The Company has prepared these Unaudited Condensed Consolidated
Financial Statements on a going concern basis in accordance with
the Disclosure and Transparency Rules of the United Kingdom
Financial Conduct Authority and IAS 34 Interim Financial Reporting
as adopted by the European Union. This interim Financial Report
does not comprise statutory Financial Statements within the meaning
of the Companies (Guernsey) Law, 2008, and should be read in
conjunction with the Consolidated Financial Statements of the Group
as at and for the year ended 31 December 2016, which have been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union. The statutory Financial
Statements for the year ended 31 December 2016 were approved by the
Board of Directors on 17 March 2017. The opinion of the Auditor on
those Financial Statements was unqualified and did not contain an
emphasis of matter. The accounting policies adopted in this Interim
Financial Report are unchanged since 31 December 2016. A review has
been performed on the Unaudited Condensed Consolidated Financial
Statements for the period ended 30 June 2017 in the Interim
Financial Report.
Standards and Interpretations in issue and not yet
effective:
New standards Effective date
IFRS 9 Financial Instruments - Classifications 1 January 2018
and Measurement
IFRS 15 Financial Instruments - Revenue 1 January 2018
from Contracts from Customers
The Group is continuing its assessment of the effect of IFRS 9
on its financial statements. However, at this stage we do not
anticipate that it will have a material impact on the financial
statements of the Group for the following reasons:
-- It is expected that the Group's investments will continue to
be recognised at amortised cost as they are financial assets with
terms that give rise to interest and principal cash flows only and
they are held in a business model whose objective is to hold
financial assets to collect their cash flow.
-- The Group does not currently apply hedge accounting. Foreign
exchange derivatives are measured at "fair value through profit or
loss" and this treatment is expected to continue under IFRS 9.
-- Due to the detailed underwriting process, strong security
packages in place and significant loan-to-value headroom on each of
our loans, in most circumstances we do not expect to recognise
expected credit losses on our portfolio, either at initial
recognition or during the life of the loan.
The preparation of the Unaudited Condensed Consolidated
Financial Statements requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income
and expenses. Actual results may differ from these estimates.
In preparing these Unaudited Condensed Consolidated Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Annual Consolidated Financial Statements for the year ended 31
December 2016.
3. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
The calculation of basic earnings per Ordinary Share is based on
the operating profit of GBP13,311,346 (30 June 2016: GBP11,769,061)
and on the weighted average number of Ordinary Shares in issue
during the period of 375,019,398 (30 June 2016: 304,180,000)
Ordinary Shares.
The calculation of NAV per Ordinary Share is based on a NAV of
GBP382,074,242 (31 December 2016: GBP380,951,026) and the actual
number of Ordinary Shares in issue at 30 June 2017 of 375,019,398
(31 December 2016: 375,019,398).
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
30 June 2017 30 June 2016 31 December
2016
GBP GBP GBP
Cash at bank 2,351,730 7,932,190 31,018,181
2,351,730 7,932,190 31,018,181
Cash and cash equivalents comprises cash and short term deposits
held with various banking institutions with original maturities of
three months or less. The carrying amount of these assets
approximates their fair value.
5. REVOLVING CREDIT FACILITY CAPITALISED COSTS
The revolving credit facility capitalised costs are directly
attributable costs incurred in relation to the extension of the
GBP50 million loan facility.
6. LOANS ADVANCED
30 June 2017 30 June 2016 31 December
2016
GBP GBP GBP
UK
Centre Point, London 45,640,251 45,546,532 45,599,157
5 Star Hotel, London 12,974,698 12,950,308 12,962,754
Center Parcs Bonds, UK - 9,802,192 9,796,319
Industrial Portfolio, UK 25,733,736 32,435,918 32,177,066
Hospitals, UK 25,349,324 25,347,652 25,354,320
Hotel, Channel Islands 27,103,241 27,534,512 27,096,842
Varde Partners mixed portfolio,
UK 16,901,213 35,363,902 25,037,555
Mixed use development, South
East UK 8,699,236 6,358,950 8,063,336
Regional Budget Hotel Portfolio,
UK 75,255,311 - 74,998,597
Netherlands
Office 12,332,827 11,542,901 12,058,598
Industrial - 21,686,660 22,624,425
W Hotel - 19,636,978 -
Denmark
Industrial Portfolio - 35,073,315 35,692,414
Ireland
Retail and Residential Portfolio - 4,773,536 3,687,359
Residential Portfolio, Cork 5,386,202 5,090,452 5,263,215
Residential Portfolio, Dublin 6,953,044 6,535,793 6,750,309
Logistics, Dublin 12,996,965 15,330,752 12,714,596
School, Dublin 16,866,624 - -
Spain
Hotel, Barcelona 40,838,645 - -
Europe
Industrial Portfolio, Hungary,
Poland, Czech Republic 60,356,421 - -
393,387,738 315,010,353 359,876,862
No element of loans advanced are past due or impaired. For
further information and the associated risks see the Investment
Manager's Report on page 6.
The table below reconciles the movement of the carrying value of
loans advanced in the period / year:
30 June 2017 30 June 2016 31 December
2016
GBP GBP GBP
Loans advanced at the start
of the period / year 359,876,862 307,694,827 307,694,827
Loans advanced 115,851,558 90,337,277 170,779,976
Loans repaid (85,227,730) (92,105,742) (129,269,039)
Arrangement fees earned (2,086,453) (1,503,322) (2,212,322)
Commitment fees earned (58,630) (36,875) (112,404)
Accrued interest purchased
on loan acquisition - (474,589) (474,589)
Exit fees earned (967,369) (2,515,759) (2,624,796)
Origination fees paid 864,281 723,796 1,316,353
Origination expenses paid - 30,057 -
Effective interest income
earned 15,838,604 14,055,008 27,826,368
Interest payments received
/ accrued (13,952,120) (14,034,916) (30,643,933)
Foreign exchange losses
(realised and unrealised) 3,248,735 12,840,591 17,596,421
Loans advanced at the end
of the period / year 393,387,738 315,010,353 359,876,862
Loans advanced at fair value 411,988,743 328,088,808 382,064,552
For further information on the fair value of loans advanced,
refer to note 11.
7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
Financial assets at fair value through profit and loss comprise
currency forward contracts which represent contractual obligations
to purchase one currency and sell another currency on a future date
at a specified price. The underlying instruments become favourable
(assets) or unfavourable (liabilities) as a result of fluctuations
of foreign exchange rates relative to their terms. The aggregate
contractual or notional amount of derivative financial instruments,
the extent to which instruments are favourable or unfavourable, and
thus the aggregate fair values of derivative financial assets and
liabilities, can fluctuate significantly from time to time. The
fair value of derivative instruments held are set out below:
Goldman Sachs:
Notional Fair values
contract
amount
(1)
30 June 2017 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 13,107,924 - (369,226) (369,226)
Total 13,107,924 - (369,226) (369,226)
Lloyds Bank plc:
Notional Fair values
contract
amount
(1)
30 June 2017 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 155,551,488 - (4,982,150) (4,982,150)
Total 155,551,488 - (4,982,150) (4,982,150)
Total:
Notional Fair values
contract
amount
(1)
30 June 2017 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 168,659,412 - (5,351,376) (5,351,376)
Total 168,659,412 - (5,351,376) (5,351,376)
(1) Euro amounts are translated at the period / year end exchange rate
Goldman Sachs:
Notional Fair values
contract
amount
(1)
31 December 2016 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 16,225,478 - (721,672) (721,672)
Total 16,225,478 - (721,672) (721,672)
Lloyds Bank plc:
Notional Fair values
contract
amount
(1)
31 December 2016 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 89,622,755 99,549 (8,533,965) (8,434,416)
Total 89,622,755 99,549 (8,533,965) (8,434,416)
Total:
Notional Fair values
contract
amount
(1)
31 December 2016 Assets Liabilities Total
GBP GBP GBP GBP
Foreign exchange derivatives
- currency forwards 105,848,233 99,549 (9,255,637) (9,156,088)
Total 105,848,233 99,549 (9,255,637) (9,156,088)
(1) Euro amounts are translated at the period / year end exchange rate
8. REVOLVING CREDIT FACILITY
Under the Company's investment policy, the Company is limited to
aggregate short and long term borrowings at the time of the
relevant drawdown of an amount equivalent to a maximum of 30 per
cent of NAV but longer term borrowings will be limited to 20 per
cent of NAV in any event. In calculating the Company's borrowings
for this purpose, any liabilities incurred under the Company's
foreign exchange hedging arrangements shall be disregarded. The
interest rate payable is LIBOR plus 2.30 per cent per annum. The
facility is secured by a pledge over the bank accounts of the
Company, its interests in Starfin Public LP and the intercompany
funding provided by the Company to Starfin Public LP. Starfin
Public LP also acts as guarantor of the facility and has pledged
its bank accounts as collateral. The undertakings and events of
default are customary for a transaction of this nature. As at 30
June 2017 an amount of GBP7,500,000 (31 December 2016: GBPnil) was
drawn and interest of GBP2,072 (31 December 2016: GBPnil) was
payable.
9. DIVIDS
Dividends will be declared by the Directors and paid in
compliance with the solvency test prescribed by Guernsey law. Under
Guernsey law, companies can pay dividends in excess of accounting
profit provided they satisfy the solvency test prescribed by the
Companies (Guernsey) Law, 2008. The solvency test considers whether
a company is able to pay its debts when they fall due, and whether
the value of a company's assets is greater than its liabilities.
The Company passed the solvency test for each dividend paid.
Subject to market conditions, the financial position of the
Company and the investment outlook, it is the Directors' intention
to continue to pay quarterly dividends to Shareholders (for more
information see Chairman's Statement).
The Company paid the following dividends in respect of the
period to 30 June 2017:
Period to: Dividend rate per Net dividend Payment date
Share (pence) paid (GBP)
31 March 2017 1.625 6,094,065 16 May 2017
After the end of the period, the Directors declared a dividend
in respect of the financial period ended 30 June 2017 of 1.625
pence per share which was paid on 25 August 2017 to Shareholders on
the register on 4 August 2017.
The Company paid the following dividends in respect of the year
to 31 December 2016:
Period to: Dividend rate per Net dividend Payment date
Share (pence) paid (GBP)
31 March 2016 1.625 4,942,925 19 May 2016
25 August
30 June 2016 1.625 4,942,925 2016
4 November
30 September 2016 1.625 6,094,065 2016
17 February
31 December 2016 1.625 6,094,065 2017
10. RISK MANAGEMENT POLICIES AND PROCEDURES
The Group through its investment in whole loans, subordinated
loans, mezzanine loans, bridge loans, loan-on-loan financings and
other debt instruments is exposed to a variety of financial risks,
including market risk (including currency risk and interest rate
risk), credit risk and liquidity risk. The Group's overall risk
management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
Group's financial performance.
The Directors monitor and measure the overall risk bearing
capacity in relation to the aggregate risk exposure across all risk
types and activities. Even though the risks detailed in the Annual
Report and Financial Statements for the year ended 31 December 2016
still remain appropriate, further information regarding these risk
policies are outlined below:
I) MARKET RISK
Market risk includes market price risk, currency risk and
interest rate risk. If a borrower defaults on a loan and the real
estate market enters a downturn it could materially and adversely
affect the value of the collateral over which loans are secured.
However, this risk is considered by the Board to constitute credit
risk as it relates to the borrower defaulting on the loan and not
directly to any movements in the real estate market. As such the
Directors do not consider that the Group is subject to market price
risk. The Investment Manager moderates market risk through a
careful selection of loans within specified limits. The Group's
overall market position is monitored by the Investment Manager and
is reviewed by the Board of Directors on an on-going basis.
a) Currency risk
The Group, via the subsidiaries, operates across Europe and
invests in loans that are denominated in currencies other than the
functional currency of the Company. Consequently the Group is
exposed to risks arising from foreign exchange rate fluctuations in
respect of these loans and other assets and liabilities which
relate to currency flows from revenues and expenses. Exposure to
foreign currency risk is hedged and monitored by the Investment
Manager on an on-going basis and is reported to the Board
accordingly.
b) Interest rate risk
Interest rate risk is the risk that the value of financial
instruments and related income from loans advanced and cash and
cash equivalents will fluctuate due to changes in market interest
rates.
The majority of the Group's financial assets are loans advanced,
receivables and cash and cash equivalents. The Group's investments
have some exposure to interest rate risk but this is limited to
interest earned on cash deposits and floating interbank rate
exposure for investments designated as loans advanced. Loans
advanced have been structured to include a combination of fixed and
floating interest rates and at 30 June 2017 73.2% of investments
designed as loans advanced have a floating interbank interest rate.
The interest rate risk is mitigated by the inclusion of interbank
rate floors on floating rate loans, preventing interest rates from
falling below certain levels.
II) CREDIT RISK
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. The Group's main credit risk exposure
is in the loan portfolio, shown as loans advanced, where the Group
invests in whole loans and also subordinated and mezzanine debt
which rank behind senior debt for repayment in the event that a
borrower defaults. There is also credit risk in respect of other
financial assets as a portion of the Group's assets are cash and
cash equivalents or accrued interest. The banks used to hold cash
and cash equivalents have been diversified to spread the credit
risk to which the Group is exposed. The Group also has credit risk
exposure in its financial assets through profit and loss which is
diversified between hedge providers in order to spread credit risk
to which the Group is exposed. The total exposure to credit risk
arises from default of the counterparty and the carrying amounts of
financial assets best represent the maximum credit risk exposure at
the year end date. As at 30 June 2017, the maximum credit risk
exposure was GBP395,726,306 (31 December 2016: GBP390,910,293).
The Investment Manager has adopted procedures to reduce credit
risk exposure by conducting credit analysis of the counterparties,
their business and reputation which is monitored on an on-going
basis. After the advancing of a loan a dedicated debt asset manager
employed by the Investment Adviser monitors on-going credit risk
and reports to the Investment Manager, with quarterly updates also
provided to the Board. The debt asset manager routinely stresses
and analyses the profile of the Group's underlying risk in terms of
exposure to significant tenants, performance of asset management
teams and property managers against specific milestones that are
typically agreed at the time of the original loan underwriting,
forecasting headroom against covenants, reviewing market data and
forecast economic trends to benchmark borrower performance and to
assist in identifying potential future stress points. Periodic
physical inspections of assets that form part of the Group's
security are also completed in addition to monitoring the
identified capital expenditure requirements against actual borrower
investment.
III) LIQUIDITY RISK
Liquidity risk is the risk that the Group will not have
sufficient resources available to meet its liabilities as they fall
due. The Group's loans advanced are illiquid and may be difficult
or impossible to realise for cash at short notice.
The Group manages its liquidity risk through short term and long
term cash flow forecasts to ensure it is able to meet its
obligations. In addition, the Company is permitted to borrow up to
30 per cent of NAV and has entered into a revolving credit facility
of GBP50 million of which GBP7,502,072 (including accrued interest)
was drawn on 30 June 2017 (31 December 2016: GBPnil).
As at 30 June 2017, the Group had GBP2,351,730 (31 December
2016: GBP31,018,181) available in cash and GBP948,803 (31 December
2016: GBP870,156) trade payables. The Directors considered this to
be sufficient cash available, together with the undrawn facilities
on the revolving credit facility, to meets the Group's
liabilities.
11. FAIR VALUE MEASUREMENT
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1);
(ii) Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices
including interest rates, yield curves, volatilities, prepayment
speeds, credit risks and default rates) or other market
corroborated inputs (level 2); and
(iii) Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
30 June 2017 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Liabilities
Derivative liabilities - (5,351,376) - (5,351,376)
Total - (5,351,376) - (5,351,376)
31 December 2016 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Liabilities
Derivative liabilities - (9,156,088) - (9,156,088)
Total - (9,156,088) - (9,156,088)
There have been no transfers between levels for the period ended
30 June 2017 (31 December 2016: nil).
The following table summarises within the fair value hierarchy
the Group's assets and liabilities (by class) not measured at fair
value at 30 June 2017 but for which fair value is disclosed:
Total
Level Level Level Total carrying
1 2 3 fair values amount
GBP GBP GBP GBP GBP
Assets
Cash and cash equivalents - 2,351,730 - 2,351,730 2,351,730
Other receivables
and prepayments - 13,162 - 13,162 13,162
Loans advanced - - 411,988,743 411,988,743 393,387,738
Total - 2,364,892 411,988,743 414,353,635 395,752,630
Total
Level Level Level Total carrying
1 2 3 fair values amount
GBP GBP GBP GBP GBP
Liabilities
Trade and other payables - 948,803 - 948,803 948,803
Revolving credit
facility - 7,502,072 - 7,502,072 7,502,072
Total - 8,450,875 - 8,450,875 8,450,875
The following table summarises within the fair value hierarchy
the Group's assets and liabilities (by class) not measured at fair
value at 31 December 2016 but for which fair value is
disclosed:
Total
Level Level Level Total carrying
1 2 3 fair values amount
GBP GBP GBP GBP GBP
Assets
Cash and cash equivalents - 31,018,181 - 31,018,181 31,018,181
Other receivables
and prepayments - 53,381 - 53,381 53,381
Loans advanced - - 382,064,552 382,064,552 359,876,862
Total - 31,071,562 382,064,552 413,136,114 390,948,424
Total
Level Level Level Total carrying
1 2 3 fair values amount
GBP GBP GBP GBP GBP
Liabilities
Trade and other payables - 870,156 - 870,156 870,156
Total - 870,156 - 870,156 870,156
The carrying values of the assets and liabilities included in
the above table are considered to approximate their fair values,
except for loans advanced. The fair value of loans advanced has
been determined by discounting the expected cash flows using a
discounted cash flow model. For the avoidance of doubt, the Group
carries its loans advanced at amortised cost in the Financial
Statements.
Cash and cash equivalents include cash at hand and fixed
deposits held with banks. Other receivables and prepayments include
the contractual amounts and obligations due to the Group and
consideration for advance payments made by the Group. Trade and
other payables represent the contractual amounts and obligations
due by the Group for contractual payments.
12. TAXATION
The Company is exempt from Guernsey taxation under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989 for which it pays an
annual fee of GBP1,200.
The Luxembourg indirect subsidiary of the Company, Luxco, is
subject to the applicable tax regulations in Luxembourg, as it is
incorporated under the Securitization Law of 22 March 2004.
13. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
Fees, expenses and other payments
Outstanding
Outstanding For the at For the
at 30 June period ended 31 December period ended
2017 30 June 2017 2016 30 June 2016
GBP GBP GBP GBP
Directors' fees
and expenses paid
Stephen Smith - 23,750 - 23,750
John Whittle - 20,000 - 20,000
Jonathan Bridel - 17,500 - 17,500
Expenses paid - 1,457 - 1,506
Investment Manager
Investment management
fees earned 710,023 1,412,930 716,308 1,140,459
Origination fees
earned - 864,281 - 723,796
Expenses - 7,591 15,250 5,706
Shareholdings and dividends paid
Dividends Dividends
paid for paid for
the period As at 30 the period As at
ended June 2017 ended 31 December
30 June Number of 30 June 2016 Number
2017 shares 2016 of shares
GBP GBP
Starwood Property
Trust Inc 297,050 9,140,000 309,825 9,140,000
SCG Starfin Investor
LP 74,262 2,285,000 77,119 2,285,000
Stephen Smith 2,565 78,929 2,664 78,929
John Whittle 386 11,866 400 11,866
Jonathan Bridel 386 11,866 400 11,866
OTHER
The Group continues to participate in a number of loans in which
Starwood Property Trust, Inc. ("STWD") and Starfin European Debt
TC, L.P. ("Starfin TC") acted as a co--lender. The details of these
loans are shown in the table below.
Loan Related party
co-lenders
Centre Point, London STWD, Starfin
TC
5 Star Hotel, London Starfin TC
Mixed use development, South East UK STWD
14. EVENTS AFTER THE REPORTING PERIOD
Additional drawdowns of GBP1,216,116 have been made on the Mixed
use development, South East UK loan.
The following loan amortisation (both scheduled and unscheduled)
has been received since the period end, up to the date of
publication of this report:
Local currency
Varde Partners mixed portfolio, UK GBP4,950,155
Office, Netherlands EUR35,750
Residential Portfolio, Dublin, Ireland EUR50,856
Logistics, Dublin, Ireland EUR38,967
Residential Portfolio, Cork, Ireland EUR39,789
The following loans have been repaid in full since the period
end, up to the date of publication of this
Local currency
Office, Netherlands EUR13,799,500
On 25 July 2017 the Company declared a dividend of 1.625 pence
per Ordinary share payable to shareholders on the register on 4
August 2017.
Corporate Information
Directors
Stephen Smith (Non-executive Chairman)
Jonathan Bridel (Non-executive Director)
John Whittle (Non-executive Director)
(all care of the registered office)
Investment Manager
Starwood European Finance
Partners Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Solicitors to the Company (as to English law and U.S. securities
law)
Norton Rose LLP
3 More London Riverside
London
United Kingdom
SE1 2AQ
Registrar
Computershare Investor Services (Guernsey) Limited
3rd Floor
Natwest House
Le Truchot
St Peter Port
Guernsey
GY1 1WD
Sole Broker
Fidante Capital
1 Tudor Street
London
United Kingdom
EC4Y 0AH
Administrator, Designated Manager
and Company Secretary
Ipes (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Registered Office
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser
Starwood Capital Europe Advisers, LLP
2nd Floor
One Eagle Place
St. James's
London
United Kingdom
SW1Y 6AF
Advocates to the Company (as to Guernsey law)
Mourant Ozannes
1 Le Marchant Street
St Peter Port
Guernsey
GY1 4HP
Independent Auditor
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Private Clients International Limited
PO Box 41
Le Marchant House
St Peter Port
Guernsey
GY1 3BE
Website:
www.starwoodeuropeanfinance.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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