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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Starwood European Real Estate Finance Limited | LSE:SWEF | London | Ordinary Share | GG00BRC3R375 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 92.00 | 91.80 | 93.00 | 93.80 | 91.80 | 93.80 | 87,429 | 16:35:16 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 34.96M | 25.25M | 0.0638 | 14.39 | 363.15M |
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Starwood European Real Estate Finance Ltd (SWEF)
SWEF: Half Yearly Report 30 June 2018
11-Sep-2018 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
Starwood European Real Estate Finance Limited
Interim Financial Report and Unaudited Condensed Consolidated Financial
Statements
for the six month period from 1 January 2018 to 30 June 2018
Corporate Summary
PRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE
The investment objective of Starwood European Real Estate Finance Limited
(the "Company"), together with its wholly owned subsidiaries Starfin Public
Holdco 1 Limited, Starfin Public Holdco 2 Limited, Starfin Lux S.à.r.l,
Starfin Lux 3 S.à.r.l and Starfin Lux 4 S.à.r.l (collectively 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 ("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 Starfin Lux S.à.r.l (indirectly
wholly-owned via a 100% shareholding in Starfin Public Holdco 1 Limited),
Starfin Lux 3 S.à.r.l and Starfin Lux 4 S.à.r.l (both indirectly
wholly-owned via a 100% shareholding in Starfin Public Holdco 2 Limited).
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
Dear Shareholder,
I am delighted to present the Interim Financial Report and Unaudited
Condensed Consolidated Financial Statements of Starwood European Real Estate
Finance Limited and its subsidiaries (the "Group") for the period from 1
January 2018 to 30 June 2018.
POSITIVE INVESTMENT MOMENTUM
The first half of 2018 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.
As at 30 June 2018, the Group was fully invested with investments and
commitments of GBP472.1 million, with GBP8.7 million of cash and GBP54.0 million
drawn on the Group's GBP114 million revolving credit facilities.
The Group made a record level of new commitments in the first half of 2018
with GBP147.5 million of new commitments made (of which GBP116.6 million was
funded in the first half of the year). Repayments were slightly below the
same period in prior years and as a result, the Group's net commitments
increased by GBP73.4 million in the first half of the year.
The table below summarises the new commitments made and repayments received
in the first six months of 2015 to 2018 and demonstrates the growth of the
portfolio.
New Repayments & Net Increase in Commitments
Commitments Amortisation
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
H1 2018 GBP147.5 m GBP74.1m GBP73.4m
In the last two financial years, new commitments have been broadly equal
between the first and second half of the year and the Group remains
optimistic that this trend is likely to continue, with more activity likely
to be seen towards the end of the year in the normal course.
Repayments in the first half of the year were approximately 18 per cent of
loans advanced at the end of 2017. We consider this to be the normalised
level we anticipate and whilst it is always difficult to forecast potential
repayments, and some years may be significantly higher or lower (as seen
with the significantly higher repayments in 2017), we anticipate that the
second half of 2018 may see repayments at a similar level to the first half
of the year. The Group will continue to seek to minimise cash drag from
potential repayments by utilising the revolving credit facilities available
to it.
NAV AND SHARE PRICE PERFORMANCE
The Group's performance during the period has been stable and the Company's
shares have generally traded at a premium to its Net Asset Value, which
averaged 5.6 per cent over the past six months. Over the first half of this
financial year, and after the payment of dividends of 3.25 pence per share,
the Company's Net Asset Value per share has decreased modestly from 102.17
pence to 102 pence per share.
OUTLOOK
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 completed.
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
2018.
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.
On behalf of the Board, I would like to close by thanking my fellow
Shareholders for their commitment and I look forward to updating you on the
Group's progress early next year.
Stephen Smith
Chairman
10 September 2018
Investment Manager's Report
CONTINUED INVESTMENT DEPLOYMENT
As at 30 June 2018, the Group had investments and commitments of GBP472.1
million as follows:
Sterling Sterling equivalent
equivalent unfunded
principal commitment(1)
balance(1)
Industrial Portfolio, GBP18.6m -
UK
Hospitals, UK GBP25.0m -
Varde Partners Mixed GBP3.0 m -
Portfolio, UK
Mixed Use GBP12.3m GBP0.9m
Development, South
East UK
Regional Hotel GBP45.9m -
Portfolio, UK
Credit Linked Notes, GBP21.8m -
UK Real Estate
Total Sterling Loans GBP126.6m GBP0.9m
Residential GBP6.7m -
Portfolio, Dublin,
Ireland
Logistics, Dublin, GBP13.0m -
Ireland
Hotel, Barcelona, GBP40.7m -
Spain
School, Dublin, GBP16.7m -
Ireland
Industrial Portfolio, GBP57.2m -
Central and Eastern
Europe
Three Shopping GBP31.2m GBP8.3m
Centres, Spain
Shopping Centre, GBP11.1m GBP3.9m
Spain
Hotel, Dublin, GBP53.1m -
Ireland
Residential, Dublin, GBP4.1m GBP3.9m
Ireland
Office Building, GBP23.0m -
Paris, France
Industrial, Paris, GBP13.1m -
France
Student GBP9.4m GBP0.6m
Accommodation, Dublin
Hotel, Spain GBP24.0m GBP24.6m
Total Euro Loans GBP303.3m GBP41.3m
Total Portfolio GBP429.9m GBP42.2m
(1) Euro balances translated to Sterling at reporting date exchange rate.
Between 31 December 2017 to 30 June 2018, the following significant
investment activity occurred (included in the table above):
New Loan: Student Accommodation, Dublin:
On 5 February 2018 the Group committed to a EUR11.25 million whole loan
facility to finance a 127 bed purpose built student development scheme in
central Dublin. The Dublin student market suffers from a severe structural
undersupply of purpose built student accommodation, and the borrower's aim
is to deliver high quality schemes in strong locations across Ireland in
order to address this shortage. The initial facility advance was made on 5
February 2018, with remaining development costs for the scheme to be funded
by the whole loan proceeds until expected practical completion in Summer
2018. The facility has a term of two years.
New Loan: Residential, Dublin, Ireland:
On 16 February 2018, the Group committed to a EUR9 million floating rate
whole loan to finance the conversion of 84 apart-hotels to residential use
on a site adjacent to the Hotel, Dublin (described below). The financing has
been provided in the form of an initial advance along with a capex facility
to fund the refurbishment works for a period of 18 months with a six month
extension option.
New Loan: Hotel, Dublin, Ireland:
On 21 February 2018, the Group closed a EUR60 million floating rate whole
loan to finance the acquisition of a 764 key hotel, 27 apart-hotel units and
ancillary development land in Dublin. The financing has been provided in the
form of a single advance for a four year term with a one year extension
option.
New Loan: Shopping Centre, Spain:
On 23 February 2018, the Group closed a EUR17 million floating rate
mezzanine loan secured by a shopping centre in Spain. The property is well
anchored, dominates its catchment and is positioned to benefit from the
sponsors' active asset management strategy. The financing has been provided
in the form of an initial advance along with a capex facility to implement
further value enhancing initiatives. The Group's loan complements an
existing senior facility provided by Spanish banks, a structure that the
Group sees potential to replicate further in Spain. The loan term is 30
months with two one year extension options.
New Loan: Hotel, Spain:
On 15 March 2018, the Group closed a EUR110 million floating rate whole loan
secured by a hotel in Spain with Starwood Property Trust, Inc (through a
wholly owned subsidiary) participating in 50 per cent of the loan amount,
providing the Company with a net commitment of EUR55 million. The financing
has been provided in the form of an initial advance along with a capex
facility to support the sponsor's repositioning strategy. The loan term is
five years, and the Group expects to earn an attractive risk-adjusted return
in line with its stated investment strategy.
New Loan: Industrial, Paris:
On 4 May 2018 the Group arranged and subscribed to a EUR14.77 million note
issuance, the proceeds of which were used to finance the acquisition of a
light industrial asset in the Parisian region of France.
Repayment: Centre Point, London:
The Group received full repayment of the Centre Point loan on 16 February
2018 following successful completion of the borrower's business plan.
Repayment: Residential Portfolio, Cork:
The Group received full repayment of the loan on 13 March 2018 following
successful completion of the borrower's business plan.
Repayment: Hotel, Channel Islands:
The Group received full repayment of the loan advanced to a Channel Islands
Hotel company on 18 May 2018 following a refinancing by the borrower.
During the period the Group continued to receive unscheduled amortisation on
other loans as borrowers continue to execute their business plans, in
particular on the Industrial Portfolio, UK, the Varde Partners Mixed
Portfolio and the Industrial Portfolio, Europe Loans. The Group also
advanced GBP2.2 million of proceeds to borrowers to which it has outstanding
commitments.
Portfolio Statistics
As at 30 June 2018, the portfolio was invested in line with the Group's
investment policy. The key portfolio statistics are as summarised below.
Number of investments 19
Percentage of portfolio currently invested in floating 92.0%
rate loans
Invested Loan Portfolio unlevered annualised total 7.4%
return(1)
Invested Loan Portfolio levered annualised total 8.2%
return(2)
Weighted average portfolio LTV - to Group first GBP(3) 13.3%
Weighted average portfolio LTV - to Group last GBP(3) 64.9%
Average loan term (stated maturity at inception) 4.1 years
Average remaining loan term 3.1 years
Net Asset Value GBP382.5m
Amount drawn under Revolving Credit Facilities (GBP54.0m)
(excluding accrued interest)
Loans advanced (including accrued income) GBP412.1m
Financial assets held at fair value (including GBP21.9m
associated accrued income)
Cash GBP8.7m
Other net assets/ (liabilities) (including hedges) (GBP6.2m)
Origination Fees - first 6 months GBP1.4m
Origination Fees - last 12 months GBP2.2m
Management Fees - first 6 months GBP1.4m
Management Fees - last 12 months GBP2.8m
(1) The unlevered annualised total return is calculated on amounts
outstanding at the reporting date, excluding undrawn commitments, and
assuming all drawn loans are outstanding for the full contractual term. 17
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 (but including
commitment fees) and excluding cash un-invested. The calculation also
excludes the origination fee payable to the Investment Manager.
(2) The levered annualised total return is calculated as per the unlevered
return but takes into account the amount of net leverage in the Group and
the cost of that leverage at current LIBOR/EURIBOR.
(3) LTV to Group last GBP means the percentage which the total loan drawn 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 loans drawn (when aggregated with any other indebtedness
ranking senior to it). For the Irish School, Dublin and the Mixed Use
Development, South East UK and Student Accommodation, Dublin the calculation
includes the total facility available and is calculated against the assumed
market value on completion of the project.
The maturity profile of investments as at 30 June 2018 is shown below.
Remaining years to Principal value of % of invested
contractual loans portfolio
maturity(1)
0 to 1 years GBP15.3m 3.6%
1 to 2 years GBP112.7m 26.2%
2 to 3 years GBP133.7m 31.1%
3 to 5 years GBP143.2m 33.3%
5 to 10 years GBP25.0m 5.8%
(1) Excludes any permitted extensions. Note that borrowers may elect to
repay loans before contractual maturity.
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.
HEDGING POLICY
The Group has the majority of its investments currently denominated in Euros
(although this can change over time) and is a Sterling denominated group.
The Group is therefore subject to the risk that 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 manages this risk by entering into forward contracts to hedge the
currency risk. All non-Sterling loan principal is hedged back to Sterling to
the maturity date of the loan (unless it was funded using the revolving
credit facilities in which case it will have a natural hedge). Interest
payments are generally hedged for the period for which prepayment protection
is in place. However, the risk remains that loans are repaid earlier than
anticipated and forward contracts need to be broken early. In these
circumstances the forward curve may have moved since the forward contracts
were placed which can impact the rate received. In addition, if the loan
repays after the prepayment protection, interest after the prepayment
protected period may be received at a lower rate than anticipated leading to
lower returns for that period. Conversely the rate could have improved and
returns may increase.
MARKET SUMMARY AND INVESTMENT OUTLOOK
Whilst the agreement of the terms of Brexit between the UK and the European
Union are making slow progress, the elongated uncertainties of Brexit are
less evident in the real estate markets. Appetite for London office
investment is unabated and while Chinese investors have pulled back from new
acquisitions, there are many other sources of capital attracted to the
London investment market illustrated through recent transactions such as Ho
Bee Land, a Singaporean listed company buying Ropemaker Place for GBP650
million, CK Holdings' purchase of 5 Broadgate for GBP1 billion and Korean
investors buying 20 Old Bailey and Cannon Street House. The occupational
market has also been strong with Savills reporting in June that the City's
12 month rolling take-up hit its highest level since September 2015 at 7.6 m
square feet, which is also 25 per cent up on June last year.
Student accommodation, residential private rented sector, light industrial,
logistics and hospitality markets all remain robust with good levels of
investor interest. The outlier in the UK is retail where there are a number
of headwinds and since the beginning of the year there has been a constant
stream of bad news on retail occupiers scaling back, Creditor Voluntary
Arrangements and tenant insolvencies. While some areas of retail will do
better than others from a leasing point of view, it is likely that the
negative sentiment will still affect the values of UK retail assets across
the board. As a result we are seeing increased interest from borrowers who
had been looking to sell last year but are now considering refinancing as an
alternative or a necessity as they begin to come up against financing
maturities. We are cautious around this trend and are likely to watch and
wait before considering new UK retail investments. Our overall retail
exposure in the UK is 1.5 per cent which is derived from smaller
contributions of mixed use assets or portfolios.
In the debt market there has been a resurgence in European CMBS issuance.
With a small number of exceptions, over the past few years CMBS pricing had
been at a level where bank and insurance companies generally would beat the
CMBS market on pricing. However, since the end of 2017 CMBS pricing has
lowered in line with other forms of fixed income. European fixed income
yields have been driven lower by ECB bond buying and as a result CMBS
pricing has come into lower levels which makes it competitive. A good
example of the pricing arbitrage is the GBP427 million Ribbon hotel portfolio
CMBS which priced at a blended margin of around 160bps at 65 per cent LTV.
This represents pricing about 100bps inside of where the bank market would
typically be for this loan. New CMBS issuance has created a lot of interest
and headlines but to put it in context, volumes at less than EUR2 billion in
only five issuances so far this year are still quite small compared to the
overall EUR1 trillion sized European commercial real estate loan market.
While these CMBS financings have been in sectors that the company has been
active in such as hospitality and light industrial, we do not believe that
CMBS is currently changing the competitive landscape for the investments the
Group is making. In order to be considered for a CMBS structure, the key
elements are for the loan to have sufficient scale, to spread the cost of
issuance and create sufficiently large note sizes, and for the underlying
collateral to have sufficient in place yield and granularity of income to
obtain the required ratings analysis. When looking at whether CMBS would
have been suitable as an alternative for previous investments made by the
Group we concluded that CMBS would have had limited success for a variety of
reasons. For example, on the light industrial side for our Danish and CEE
loans both the size of the loan and the jurisdictions resulted in a CMBS
structure not being feasible. For our Dutch portfolio both the loan size and
the multiple closings required for the borrowers needs would have not been
suitable for CMBS issuance.
In the subordinated debt space, we continue to see that widely marketed
mezzanine debt on income producing assets is being priced lower than our
return requirements. According to Debtwire recent examples include a Libor+
550bps mezzanine for the Enigma student housing portfolio and Libor+ 625bps
for the Ribbon hotel portfolio. We continue to see investment opportunities
in mezzanine financings however we will have to work hard to successfully
originate this type of debt by finding ways of adding value for borrowers
that creates an acceptable risk / reward return profile for the Group which
is in line with the Group's stated return targets.
ADOPTION AND THE IMPACT OF IFRS 9 "FINANCIAL INSTRUMENTS - CLASSIFICATION
AND MEASUREMENT"
IFRS 9 replaced IAS 39 'Financial Instruments: Recognition and Measurement'
with effect from 1 January 2018. IFRS 9 makes major changes to the previous
guidance on the classification and measurement of financial assets and
introduces an 'expected credit loss' model for the impairment of financial
assets. Under IFRS 9, the classification of assets is driven by the business
model in which the financial asset is managed and the contractual nature of
the cash flows arising from the investment. The adoption of IFRS 9 did not
have a material impact on the financial statements for the following
reasons:
? The majority of the Group's investments 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 consistent with IFRS 9;
? Credit linked notes are measured at fair value through profit or loss and
this treatment is consistent with IFRS 9; and
? Due to the detailed underwriting process, strong security packages in
place and significant loan-to-value headroom on each of the Group's loans,
the Group has recognised GBPnil expected credit losses ("ECL") on the Group's
portfolio, either at initial recognition or during the life of the loan to
date. The Group has undertaken a review of the underwriting assumptions and
does not consider there to have been any material changes impacting the
value.
RELATED PARTY TRANSACTIONS
Related party disclosures are given in note 13 to the Unaudited Condensed
Consolidated Financial Statements.
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.
Starwood European Finance Partners Limited
Investment Manager
10 September 2018
Principal Risks
PRINCIPAL RISKS FOR THE REMAINING SIX MONTHS OF THE YEAR TO 31 DECEMBER 2018
The principal risks assessed by the Board relating to the Group were
disclosed in the Annual Report and Audited Consolidated Financial Statements
for the period to 31 December 2017. 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 2018:
? 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 has the majority of its investments currently denominated in
Euros and 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. All non-Sterling loan principal is hedged back to Sterling to the
maturity date of the loan (except where drawn in Euros on the revolving
credit facilities). Interest payments are hedged for the period for which
prepayment protection is in place. However, the risk remains that loans are
repaid earlier than anticipated and forward contracts need to be broken
early. In these circumstances the forward curve may have moved since the
forward contracts were placed which can impact the rate received. In
addition, if the loan repays after the prepayment protection, interest after
the prepayment protected period may be received at a lower rate than
anticipated leading to lower returns for that period. Conversely the rate
could have improved and returns may increase. As a consequence of the
hedging strategy employed as outlined above, the Group is subject to the
risk that it will need to post cash collateral against the mark to market on
foreign exchange hedges which could lead to liquidity issues or leave the
Group unable to hedge new non-Sterling investments;
? 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; and
? 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 Chairman of the The PRS REIT which currently trades on the SFS of
the London Stock Exchange. He is also Chairman of AEW UK Long Lease REIT plc
which trades on the Main Market of the London Stock Exchange. 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 end 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 (FTSE 250) and Funding Circle SME Income
Fund Limited which are listed on the main market of the London Stock
Exchange, Phaunos Timber Fund Limited which is in wind up and DP Aircraft I
Limited and Fair Oaks Income Fund Limited. He was previously Managing
Director of Royal Bank of Canada's investment business in the Channel
Islands. Prior to this, after working at Pricewaterhouse 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, a Chartered
Director and Fellow of 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 Director of International Public Partnerships Limited
(FTSE 250), India Capital Growth Fund which is listed on the main market of
London Stock Exchange, Globalworth Real Estate Investments Limited, GLI
Finance Ltd and Aberdeen Frontier Markets Investment Company Limited (all
listed on AIM), Chenavari Toro Income Fund 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
PriceWaterhouse in London before embarking on a career in business services,
predominantly telecoms. He co-led the business turnaround of Talkland
International (which became Vodafone Retail) and was directly responsible
for the strategic shift into retail distribution and its subsequent
implementation; he subsequently worked on the 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 the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority; and
2. The Interim Financial Report, comprising of the Chairman's Statement, the
Investment Manager's Report and the Principal Risks meet 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.
By order of the Board
For Starwood European Real Estate Finance Limited
Stephen Smith John Whittle
Chairman Director
10 September 2018 10 September 2018
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 2018. 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 unaudited condensed consolidated statement of financial position as of
30 June 2018;
? the unaudited condensed consolidated statement of comprehensive income for
the six-month period then ended;
? the unaudited condensed consolidated statement of changes in equity for
the six-month period then ended;
? the unaudited 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 Unaudited Condensed Consolidated Financial Statements and considered
whether they contain any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants,
Guernsey, Channel Islands
10 September 2018
(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 2018
Notes 1 January 1 January 1 January
2018 to 2017 to 2017 to
30 June 2018 30 June 2017 31 December
2017
GBP GBP
GBP
(unaudited) (unaudited) (audited)
Income
Income from loans 5 14,363,129 15,838,604 31,969,225
advanced
Net changes in 11 850,117 - -
fair value of
financial assets
at fair value
through profit or
loss
Income from cash 21,204 1 19,535
and cash
equivalents
Total income from 15,234,450 15,838,605 31,988,760
investments
Expenses
Investment 13 1,415,286 1,412,930 2,844,140
management fees
Credit facility 489,960 48,684 72,834
interest
Credit facility 240,143 69,983 195,327
amortisation of
fees
Credit facility 232,228 147,363 359,000
commitment fees
Administration 179,047 138,110 335,048
fees
Audit and 160,034 87,570 204,609
non-audit fees
Other expenses 114,384 121,623 236,529
Legal and 88,895 91,392 239,999
professional fees
Directors' fees 13 71,541 62,707 125,416
and expenses
Broker's fees and 50,749 44,709 76,525
expenses
Agency fees 5,446 - -
Net foreign 676,718 298,878 734,926
exchange losses
Total operating 3,724,431 2,523,949 5,424,353
expenses
Operating profit 11,510,019 13,314,656 26,564,407
for the period /
year before tax
Taxation 12 1,901 3,310 2,120
Operating profit 11,508,118 13,311,346 26,562,287
for the period /
year and total
comprehensive
income
Other
comprehensive
income
Items that may be
reclassified to
profit or loss
Exchange 54,644 - 2,484
differences on
translation of
foreign
operations
Other 54,644 - 2,484
comprehensive
income for the
period / year
Total 11,562,762 13,311,346 26,564,771
comprehensive
income for the
period / year
Weighted average 3 375,019,398 375,019,398 375,019,398
number of shares
in issue
Basic and diluted 3 3.07 3.55 7.08
earnings per
Ordinary Share
(pence)
Unaudited Condensed Consolidated Statement of Financial Position
as at 30 June 2018
Notes As at As at As at
30 June 30 June 2017 31 December
2018 2017
GBP
GBP GBP
(unaudited) (unaudited) (audited)
Assets
Cash and cash 4 8,730,655 2,351,730 11,750,356
equivalents
Other receivables 13,411 13,162 378,103
and prepayments
Credit facility 8 1,224,205 123,863 1,433,462
capitalised cost
Financial assets 6 21,878,430 - 22,112,820
at fair value
through profit or
loss
Loans advanced 5 412,109,232 393,387,738 369,955,983
Total assets 443,955,933 395,876,493 405,630,724
Liabilities
Financial 6 6,010,773 5,351,376 6,726,268
liabilities at
fair value
through profit or
loss
Credit facility 8 54,098,366 7,502,072 13,338,329
(including
accrued interest)
Trade and other 7 1,332,626 948,803 2,426,591
payables
Total liabilities 61,441,765 13,802,251 22,491,188
Net assets 382,514,168 382,074,242 383,139,536
Capital and
reserves
Share capital 371,929,982 371,929,982 371,929,982
Retained earnings 10,527,058 10,144,260 11,207,070
Translation 57,128 - 2,484
reserves
Total equity 382,514,168 382,074,242 383,139,536
Number of 375,019,398 375,019,398 375,019,398
Ordinary Shares
in issue
Net asset value 102.00 101.88 102.17
per Ordinary
Share (pence)
These Unaudited Condensed Consolidated Financial Statements were approved
and authorised for issue by the Board of Directors on 10 September 2018, and
signed on its behalf by:
Stephen Smith John Whittle
Chairman Director
Unaudited Condensed Consolidated Statement of Changes in Equity
for the period ended 30 June 2018
Share capital Retained Translation Total equity
earnings
reserves
Period GBP GBP GBP GBP
ended 30
June 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Balance at 371,929,982 11,207,070 2,484 383,139,536
1 January
2018
Dividends - (12,188,130) - (12,188,130)
paid
Operating - 11,508,118 - 11,508,118
profit for
the period
Other
comprehensi
ve income:
Other - - 54,644 54,644
comprehensi
ve income
for the
period
Balance at 371,929,982 10,527,058 57,128 382,514,168
30 June
2018
Share capital Retained Translation Total equity
earnings
reserves
Period GBP GBP GBP GBP
ended 30
June 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Balance at 371,929,982 9,021,044 - 380,951,026
1 January
2017
Cost of - - - -
issues
Dividends - (12,188,130) - (12,188,130)
paid
Operating - 13,311,346 - 13,311,346
profit and
total
comprehensi
ve income
Balance at 371,929,982 10,144,260 - 382,074,242
30 June
2017
Share capital Retained Translation Total equity
earnings
reserves
Year ended GBP GBP GBP GBP
31 December
2017
(audited) (audited) (audited) (audited)
Balance at 371,929,982 9,021,044 - 380,951,026
1 January
2017
Issue of - - - -
share
capital
Cost of - - - -
issues
Dividends - (24,376,261) - (24,376,261)
paid
Operating - 26,562,287 - 26,562,287
profit for
the year
Other
comprehensi
ve income:
Other - - 2,484 2,484
comprehensi
ve income
for the
year
Balance at 371,929,982 11,207,070 2,484 383,139,536
31 December
2017
Unaudited Condensed Consolidated Statement of Cash Flows
for the period ended 30 June 2018
1 January 2018 1 January 2017 1 January 2017
to to to
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
(unaudited) (unaudited) (audited)
Operating
activities:
Operating profit 11,508,118 13,311,346 26,562,287
for the period /
year
Adjustments
Income from loans (14,363,129) (15,838,604) (31,969,225)
advanced
Net changes in (850,117) - -
fair value of
financial assets
at fair value
through profit or
loss
Interest income (21,204) (1) (19,535)
on cash and cash
equivalents
(Increase) / (12,787) 40,219 21,871
decrease in
prepayments and
receivables
Increase in trade 68,638 85,793 55,234
and other
payables
Net unrealised (715,495) (3,804,712) (2,429,820)
(gains) on
foreign exchange
derivatives
Net foreign 402,449 (3,439,978) (5,104,358)
exchange losses /
(gains)3
Credit facility 489,960 48,684 72,834
interest
Credit facility 240,143 69,983 195,327
amortisation of
fees
Credit facility 232,228 147,363 359,000
commitment fees
(3,021,196) (9,379,907) (12,256,385)
Loans advanced1 (114,786,936) (114,243,795) (215,175,030)
Loans repaid 74,091,183 85,227,730 213,114,663
Arrangement fees 347,490 478,690 -
received (not
withheld from
proceeds)
Origination fees (1,382,544) (864,281) (1,668,811)
paid2
Origination - - (23,273)
expenses paid
Interest, 13,420,672 14,978,119 30,171,530
commitment and
exit fee income
from loans
advanced
Interest received 1,084,507 - -
on Credit Linked
Notes
Acquisitions of - - (21,773,000)
financial assets
at fair value
through profit or
loss
Net cash outflow (30,246,824) (23,803,444) (7,610,306)
from operating
activities
Cash flows from
investing
activities
Interest income 21,204 1 19,535
from cash and
cash equivalents
Net cash inflow 21,204 1 19,535
from investing
activities
Cash flows from
financing
activities
Credit facility (420,567) (165,000) (451,632)
arrangement fees
and expenses paid
Credit facility
utilised, net of
fees withheld,
foreign exchange
and translation 40,584,862 7,500,000 13,284,000
movements
Credit facility (372,806) (46,612) (65,005)
interest paid
Credit facility (259,914) (154,509) (281,939)
commitment fees
paid
Dividends paid (12,188,130) (12,188,130) (24,376,261)
Net cash inflow / 27,343,445 (5,054,251) (11,890,837)
(outflow) from
financing
activities
Net (decrease) in (2,882,175) (28,857,694) (19,481,608)
cash and cash
equivalents
Cash and cash 11,750,356 31,018,181 31,018,181
equivalents at
the start of the
period / year
Net foreign (137,526) 191,243 213,783
exchange (losses)
/ gains on cash
and cash
equivalents
Cash and cash 8,730,655 2,351,730 11,750,356
equivalents at
the end of the
period / year
1 Net of arrangement fees of GBP1,771,375 (30 June 2017: GBP1,607,763; 31
December 2017: GBP2,679,765) withheld.
2 Including CLNs origination fees of GBP288,150.
3 Excludes foreign exchange differences on revolving credit facilities and
cash.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the period ended 30 June 2018
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, Starfin Public Holdco 1 Limited (the
"Holdco 1"), Starfin Public Holdco 2 Limited (the "Holdco 2"), Starfin Lux
S.à.r.l ("Luxco"), Starfin Lux 3 S.à.r.l ("Luxco 3") and Starfin Lux 4
S.à.r.l ("Luxco 4") (together the "Group") as at 30 June 2018.
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 sourcebook of the United Kingdom Financial Conduct
Authority and IAS 34 Interim Financial Reporting as adopted by the European
Union. This Interim Financial Report and Unaudited Condensed Consolidated
Financial Statements do 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 2017, 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 2017 were approved by the Board of Directors on 26 March 2018. The
opinion of the Auditor on those Financial Statements was unqualified and did
not contain an emphasis of matter. This Interim Financial Report and
Unaudited Condensed Consolidated Financial Statements for the period ended
30 June 2018 have been reviewed by the Auditor but not audited.
The Company has adopted the new accounting pronouncements which have become
effective this year, and are as follows:
IFRS 9 Financial Instruments - Classifications and Measurement
IFRS 9 replaced IAS 39 'Financial Instruments: Recognition and Measurement'
with effect from 1 January 2018. It makes major changes to the previous
guidance on the classification and measurement of financial assets and
introduces an 'expected credit loss' model for the impairment of certain
financial assets. Under IFRS 9, the classification of assets is driven by
the business model in which the financial asset is managed and the
contractual nature of the cash flows arising from the investment. The
adoption of IFRS 9 did not have a material impact on the financial
statements for the following reasons:
* The majority of the Group's investments 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 continue to be measured at fair value through profit or loss and
this treatment is consistent with IFRS 9;
* Credit linked notes are measured at fair value through profit or loss and
this treatment is consistent with IFRS 9; and
* Due to the detailed underwriting process, strong security packages in
place and significant loan-to-value headroom on each of the Group's loans,
the Group has recognised GBPnil expected credit losses ("ECL") on the Group's
portfolio, either at initial recognition or during the life of the loans.
IFRS 15 Financial Instruments - Revenue from Contracts from Customers
IFRS 15 replaces IAS 18 'Revenue' and several revenue-related
interpretations. There are no changes to the recognition of income by the
Group as a result of the new Standard.
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 2017.
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 GBP11,508,118 (30 June 2017: GBP13,311,346 and 31 December
2017: GBP26,562,287) and on the weighted average number of Ordinary Shares in
issue at 30 June 2018 of 375,019,398 (30 June 2017: 375,019,398 and 31
December 2017: 375,019,398).
The calculation of NAV per Ordinary Share is based on a NAV of GBP382,514,168
(30 June 2017: GBP382,074,242 and 31 December 2017: GBP383,139,536) and the
actual number of Ordinary Shares in issue at 30 June 2018 of 375,019,398 (30
June 2017: 375,019,398 and 31 December 2017: 375,019,398).
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
30 June 2018 30 June 2017 31 December 2017
GBP GBP GBP
Cash at bank 8,730,655 2,351,730 11,750,356
8,730,655 2,351,730 11,750,356
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. LOANS ADVANCED
30 June 30 June 2017 31 December
2018 2017
GBP GBP GBP
UK
Regional Hotel 46,747,493 - 46,329,933
Portfolio
Hospitals 25,351,156 25,349,324 25,356,064
Industrial Portfolio 19,070,180 25,733,736 26,039,509
Mixed Use Development, 12,932,216 8,699,236 10,886,017
South East UK
Varde Partners Mixed 3,058,045 16,901,213 9,235,610
Portfolio
Regional Hotel - 75,255,311 -
Portfolio
Centre Point, London - 45,640,251 26,379,420
Hotel, Channel Islands - 27,103,241 27,262,859
5 Star Hotel, London - 12,974,698 -
Netherlands
Office - 12,332,827 -
Ireland
Hotel, Dublin 53,372,166 - -
School, Dublin 16,967,038 16,866,624 17,111,265
Logistics, Dublin 12,970,152 12,996,965 13,077,887
Student Accommodation, 9,402,404 - -
Dublin
Residential Portfolio, 6,869,245 6,953,044 6,947,895
Dublin
Residential, Dublin 4,029,496 - -
Residential Portfolio, - 5,386,202 5,437,250
Cork
Spain
Hotel, Barcelona 40,887,310 40,838,645 41,042,007
Three Shopping Centres 31,045,447 - 30,860,627
Hotel 24,210,649 - -
Shopping Centre 11,162,015 - -
France
Office Building, Paris 23,232,265 - 22,969,095
Industrial, Paris 13,146,683 - -
Central and Eastern
Europe
Industrial Portfolio 57,655,272 60,356,421 61,020,545
412,109,232 393,387,738 369,955,983
No element of loans advanced are past due or impaired. For further
information and the associated risks see the Investment Manager's Report.
The table below reconciles the movement of the carrying value of loans
advanced in the period / year:
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
Loans advanced at the 369,955,983 359,876,862 359,876,862
start of the period /
year
Loans advanced 116,558,311 115,851,558 217,854,795
Loans repaid (74,091,183) (85,227,730) (213,114,663)
Arrangement fees (1,771,375) (2,086,453) (3,026,358)
earned
Commitment fees earned (135,670) (58,630) (297,117)
Exit fees earned (1,071,217) (967,369) (1,662,413)
Origination fees for 1,106,714 864,281 1,656,491
the year
Origination expenses - - 23,273
paid
Effective interest 14,363,129 15,838,604 31,917,555
income earned
Interest payments (12,213,785) (13,952,120) (28,212,000)
received / accrued
Foreign exchange (591,675) 3,248,735 4,939,558
(losses) / gains
Loans advanced at the 412,109,232 393,387,738 369,955,983
end of the period /
year
Loans advanced at fair 425,785,582 411,988,743 382,689,045
value
For further information on the fair value of loans advanced, refer to note
11.
6. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
OR LOSS
Financial assets at fair value through profit or 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.
Financial instruments designated at fair value through profit or loss are
debt securities that are managed by the Group and their performance is
evaluated on a fair value basis.
The underlying instruments of currency forwards 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 financial assets and liabilities at fair value through
profit or loss are set out below:
Notional Fair values
contract
amount1
30 June 2018 Assets Liabilities Total
GBP GBP GBP GBP
Investments at
fair value
through profit
or loss
Credit Linked N/A 21,878,43 - 21,878,430
Notes, UK Real 0
Estate
Total - 21,878,43 - 21,878,430
0
Foreign exchange
derivatives
Currency
forwards:
Lloyds Bank plc 265,658,802 67,297 (6,061,845) (5,994,548
)
Goldman Sachs 940,988 - (16,225) (16,225)
Total 266,599,790 67,297 (6,078,070) (6,010,773
)
1 Euro amounts are translated at the period / year end exchange rate
Notional Fair values
contract
amount1
31 December 2017 Assets Liabilities Total
GBP GBP GBP GBP
Investments at
fair value
through profit
or loss
Credit Linked N/A 22,112,82 - 22,112,820
Notes, UK Real 0
Estate
Total - 22,112,82 - 22,112,820
0
Foreign exchange
derivatives
Currency
forwards:
Lloyds Bank plc 198,329,630 17,858 (6,726,062) (6,708,204
)
Goldman Sachs 945,136 - (18,064) (18,064)
Total 199,274,766 17,858 (6,744,126) (6,726,268
)
1 Euro amounts are translated at the period / year end exchange rate
7. TRADE AND OTHER PAYABLES
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
Investment management 712,064 710,023 713,498
fees payable
Refinancing and 300,166 44,709 1,148,310
restructuring fees
payable (1)
Audit fees payable 180,729 98,754 72,620
Revolver commitment fees 79,293 22,772 106,979
payable
Administration fees 60,374 72,545 109,354
payable
Origination fees payable - - 275,830
1,332,626 948,803 2,426,591
(1) A total balance of GBP420,567 of refinancing and restructuring fees
accrued were paid during the reporting period and arrangement fees of
GBP432,738 were retained from borrowing facilities (refer to Note 8).
8. CREDIT FACILITIES
Under its investment policy, the Company is limited to borrowing an amount
equivalent to a maximum of 30 per cent of its NAV at the time of drawdown,
of which a maximum of 20 per cent can be longer term borrowings. In
calculating the Company's borrowings for this purpose, any liabilities
incurred under the Company's foreign exchange hedging arrangements shall be
disregarded.
On 4 December 2014, the Company entered into a GBP50 million revolving credit
facility with a major UK clearing bank which is intended for short-term
liquidity. This facility was amended and extended on 22 December 2015, 28
October 2016 and 6 October 2017. The current maturity date is 6 October
2018. The facility is secured by a pledge over the bank accounts of the
Company, its interests in Starfin Public Holdco 1 Limited and the
intercompany funding provided by the Company to Starfin Public Holdco 1
Limited. Starfin Public Holdco 1 Limited 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.
On 18 December 2017, the Group entered into a new GBP64 million secured
borrowing facility with Morgan Stanley (the "MS Facility"). The debt can be
drawn in respect of underlying loans which are eligible under the facility.
Certain loans will not be eligible, for example mezzanine loans and loans
above 75 per cent loan to value. It is secured by a customary security
package of bank account pledges, intercompany receivables security, share
security over the two borrower entities (Starfin Lux 3 S.à.r.l and Starfin
Lux 4 S.à.r.l) and their shares. The MS Facility does not have recourse to
the Company. The undertakings and events of default are customary for a
facility of this nature.
As at 30 June 2018 an amount of GBP53,972,800 (31 December 2017: GBP13,330,500)
was drawn and interest of GBP125,566 (31 December 2017: GBP7,829) was payable.
The revolving credit facility capitalised costs are directly attributable
costs incurred in relation to the establishment of the credit loan
facilities.
The changes in liabilities arising from financing activities are shown in
the below table.
1 January 2018 1 January 1 January
to 2017 to 2017 to
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
Beginning of the (13,338,329) - -
period / year
Proceeds during the (65,295,600) (21,500,000) (34,784,000)
period
Repayment during the 24,278,000 14,000,000 21,500,000
period
Arrangement fees (432,738) - -
payable
Arrangement fees 432,738 - -
retained (Note 7)
Interest expense (489,960) (48,684) (72,834)
recognised for the
period
Interest paid during 372,806 46,612 65,005
the period
Foreign exchange and 374,717 - (46,500)
translation movements
End of the period / (54,098,366) (7,502,072) (13,338,329)
year
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
2018:
Period to: Dividend rate per Net dividend Payment
Share (pence) paid (GBP) date
31 March 2018 1.625 6,094,065 17 May 2018
After the end of the period, the Directors declared a dividend in respect of
the financial period ended 30 June 2018 of 1.625 pence per share which was
paid on 31 August 2018 to Shareholders on the register on 10 August 2018.
The Company paid the following dividends in respect of the year to 31
December 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
30 June 2017 1.625 6,094,065 25 August 2017
30 September 1.625 6,094,065 17 November 2017
2017
31 December 2017 1.625 6,094,065 23 February 2018
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 2017 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. The
Group's exposure to market price risk arises from Credit Linked Notes held
by the Group and classified as assets at fair value through profit or loss.
The Group considers that there is no material market price risk at the end
of the reporting period.
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 ongoing 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 ongoing 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, credit
linked notes, 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 to
reduce the overall impact of interest rate movements. Further protection is
provided by including interbank rate floors and 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 investment
portfolio, shown as loans advanced at amortised cost and to a lesser extent
with the credit linked notes designated at fair value through profit or
loss, 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 a spread concentration of risk as at 30 June
2018 due to several loans being advanced since inception. 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 derivative financial instruments which is diversified between hedge
providers in order to spread credit risk to which the Group is exposed.
With respect to the credit linked notes designated at fair value through
profit or loss, the Group holds junior notes linked to the performance of a
portfolio of high quality UK real estate loans owned by a major commercial
bank. The transaction is structured as a synthetic securitisation with risk
transfer from the bank to the Group achieved via the purchase of credit
protection by the bank on the most junior tranches. The credit risk to the
Group is the risk that one of the underlying borrowers defaults on their
loan and the Group is required to make a payment under the credit protection
agreement. Despite the different way in which the transaction has been
structured the Group considers the risks to be fundamentally the same as any
other junior loan in the portfolio and monitors and manages this risk in the
same way as the other loans advanced by the Group.
The total exposure to credit risk arises from default by 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 2018, the maximum
credit risk exposure was GBP442,718,317 (31 December 2017: GBP404,165,752).
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 ongoing 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 revolving credit facilities totalling GBP114,000,000 of which GBP54,098,366
(including accrued interest) was drawn on 30 June 2018 (31 December 2017:
GBP13,338,329).
As at 30 June 2018, the Group had GBP8,730,655 (31 December 2017: GBP11,750,356)
available in cash and GBP1,332,626 (31 December 2017: GBP2,426,591) trade
payables. The Directors considered this to be sufficient cash available,
together with the undrawn facilities on the credit facilities, to meet 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 rates, 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).
The following table analyses within the fair value hierarchy the Group's
financial assets and liabilities (by class) measured at fair value:
30 June 2018 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Investments at fair - - 21,878,430 21,878,430
value through profit
or loss
Total - - 21,878,430 21,878,430
Liabilities
Derivative - (6,010,773) - (6,010,773)
liabilities
Total - (6,010,773) - (6,010,773)
31 December 2017 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Investments at fair - - 22,112,820 22,112,820
value through profit
or loss
Total - - 22,112,820 22,112,820
Liabilities
Derivative - (6,726,268) - (6,726,268)
liabilities
Total - (6,726,268) - (6,726,268)
There have been no transfers between levels for the period ended 30 June
2018 (31 December 2017: GBPnil).
Investments classified within level 3 consist of Credit Linked Notes
("CLNs"). The fair value of the CLNs is determined by the Investment Adviser
using a discounted cash flow valuation model. The main inputs into the
valuation model for the CLNs are discount rates, market risk factors,
probabilities of default, expected credit loss levels and cash flow
forecasts. The Investment Adviser also considers the original transaction
price and recent transactions of comparable instruments (where available)
and adjusts the valuation model as deemed necessary.
The Directors are responsible for considering the methodology and
assumptions used by the Investment Adviser and for approving the fair values
reported at the financial period end.
The table below presents the movement in level 3 investments.
1 January 2018 1 January 1 January
to 2017 to 2017 to
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
Beginning of the 22,112,820 - -
period / year
Disposals - - -
Acquisitions - - 22,061,150
Cash interest received (1,084,507) - -
Net gains / (losses) 850,117 - 51,670
recognised in profit
or loss(1)
End of the period / 21,878,430 - 22,112,820
year
Changes in unrealised - - -
gains or losses for
Level 3 assets held at
period / year end and
included in net
changes in fair value
of financial assets at
fair value through
profit or loss
(1) The net gains comprise of GBP1,138,267 interest income recognised on
Credit Linked Notes and GBP288,150 initially capitalised origination fees
which were subsequently expensed.
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 2018
but for which fair value is disclosed:
Level 1 Level 2 Level 3 Total Total
fair carrying
values amount
GBP GBP GBP GBP GBP
Assets
Cash and cash - 8,730,655 - 8,730,655 8,730,655
equivalents
Other - 13,411 - 13,411 13,411
receivables and
prepayments
Loans advanced - - 425,785,5 425,785,5 412,109,2
82 82 32
Total - 8,744,066 425,785,5 434,529,6 420,853,2
82 48 98
Liabilities
Trade and other - 1,332,626 - 1,332,626 1,332,626
payables
Credit - 54,098,366 - 54,098,36 54,098,36
facilities 6 6
Total - 55,430,992 - 55,430,99 55,430,99
2 2
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
2017 but for which fair value is disclosed:
Level 1 Level 2 Level 3 Total Total
fair carrying
values amount
GBP GBP GBP GBP GBP
Assets
Cash and cash - 11,750,356 - 11,750,35 11,750,35
equivalents 6 6
Other - 378,103 - 378,103 378,103
receivables and
prepayments
Loans advanced - - 382,689,0 382,689,0 369,955,9
45 45 83
Total - 12,128,459 382,689,0 394,817,5 382,084,4
45 04 42
Liabilities
Trade and other - 2,426,591 - 2,426,591 2,426,591
payables
Credit - 13,338,329 - 13,338,32 13,338,32
facilities 9 9
Total - 15,764,920 - 15,764,92 15,764,92
0 0
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. Credit facilities and 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
(31 December 2017: GBP1,200).
The Luxembourg indirect subsidiaries of the Company have no operating gains
on ordinary activities before taxation and are therefore subject to the
Luxembourg minimum net wealth tax at EUR4,815 (2017: EUR3,210). The Luxco 3
and Luxco 4 were not subject to minimum net wealth tax in 2017 due to
formation closer to year end.
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.
The tables below summarise the outstanding balances and transactions which
occurred with related parties.
As at 30 June As at 30 June As at 31 Dec
2018 2017 2017
GBP GBP GBP
Investment Manager
Investment management 712,064 710,023 716,498
fees payable
Origination fees - - 275,830
payable
For the For the For the
period ended period ended year ended
30 June 2018 30 June 2017 31 December
2017
GBP GBP GBP
Directors' fees and
expenses paid
Stephen Smith 25,000 23,750 47,500
John Whittle 22,500 20,000 40,000
Jonathan Bridel 21,250 17,500 35,000
Expenses paid 2,791 1,457 2,916
Investment Manager
Investment management 1,415,286 1,412,930 2,844,140
fees
Origination fees 1,106,714 864,281 1,944,641
Expenses 49,717 7,591 47,636
The tables below summarise the dividends paid to and number of Company's
shares held by related parties.
Dividends paid Dividends paid Dividends paid
for for for
the period the period the year ended
ended ended 31 December 2017
30 June 2018 30 June 2017
GBP GBP
Starwood 297,050 297,050 594,100
Property Trust
Inc.
SCG Starfin 74,262 74,262 148,525
Investor LP
Stephen Smith 2,565 2,565 5,130
John Whittle 386 386 771
Jonathan Bridel 386 386 771
As at As at As at
30 June 2018 30 June 2017 31 December
Number of Number of 2017
shares shares Number of
shares
Starwood Property 9,140,000 9,140,000 9,140,000
Trust Inc.
SCG Starfin 2,285,000 2,285,000 2,285,000
Investor LP
Stephen Smith 78,929 78,929 78,929
John Whittle 11,866 11,866 11,866
Jonathan Bridel 11,866 11,866 11,866
OTHER
The Group continues to participate in a number of loans in which Starwood
Property Trust, Inc. ("STWD") acted as a co-ender. The details of these
loans are shown in the table below.
Loan Related party co-lenders
Mixed Use Development, South East UK STWD
Hotel, Spain STWD
Credit Linked Notes, UK Real Estate STWD
14. EVENTS AFTER THE REPORTING PERIOD
No new loan commitments have been made since 30 June 2018 up to 10 September
2018.
The following cash amounts have been funded since 30 June 2018 up to 10
September 2018 under existing commitments:
Local currency
Shopping Centre, Spain EUR1,902,946
Residential, Dublin, Ireland EUR322,669
The following loan amortisation (both scheduled and unscheduled) has been
received since 30 June 2018 up to 10 September 2018:
Local currency
Residential Portfolio, Dublin, Ireland EUR19,688
Logistics, Dublin, Ireland EUR38,967
Industrial Portfolio, Central and Eastern Europe EUR11,098,728
Varde Partners Mixed Portfolio, UK GBP798,476
Industrial Portfolio, UK GBP1,000,000
No loans have been repaid in full since 30 June 2018.
Following the above activity the Company has repaid part of the revolving
credit facilities. At 10 September 2018 the amount drawn under each facility
is:
* Lloyds Facility: EUR16 million
* Morgan Stanley Facility: EUR34 million
On 27 July 2018 the Company declared a dividend of 1.625 pence per Ordinary
Share paid on 31 August 2018 to shareholders on the register on 10 August
2018.
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
SE1 2AQ
United Kingdom
Registrar
Computershare Investor Services (Guernsey) Limited
3rd Floor
Natwest House
Le Truchot
St Peter Port
Guernsey
GY1 1WD
Sole Broker
Stifel Nicolaus Europe Limited trading as Stifel
150 Cheapside
London
EC2V 6ET
United Kingdom
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
SW1Y 6AF
United Kingdom
Advocates to the Company (as to Guernsey law)
Carey Olsen
PO Box 98
Carey House, Les Banques 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
ISIN: GG00B79WC100
Category Code: IR
TIDM: SWEF
LEI Code: 5493004YMVUQ9Z7JGZ50
Sequence No.: 5993
EQS News ID: 722153
End of Announcement EQS News Service
(END) Dow Jones Newswires
September 11, 2018 02:02 ET (06:02 GMT)
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