REG-Starwood European Real Estate Finance Ltd SWEF: Half Yearly Report 30 June 2024
09/09/2024 07:15
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Starwood European Real Estate Finance Ltd (SWEF)
SWEF: Half Yearly Report 30 June 2024
09-Sep-2024 / 07:00 GMT/BST
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Starwood European Real Estate Finance Limited
Half Year Results for the Period Ended 30 June 2024
Orderly Realisation Process On Track
Starwood European Real Estate Finance Limited (the “Company”) and its
subsidiaries (“SEREF” or the “Group”), a leading investor originating,
executing and managing a diverse portfolio of high quality real estate
debt investments in the UK and Europe, announces Half Year Results for the
six months ended 30 June 2024.
Following the approval of the Company’s new investment objective and
policy as recommended to shareholders by the Board at the Company’s EGM on
27 January 2023, the Company is pursuing a strategy of orderly realisation
and the return of capital to shareholders.
Highlights for the period, six months ended 30 June 2024
• Positive realisation progress - during the half year:
• A total of £102.1 million, 38.9 per cent of the Group’s 31 December
2023 total funded loan portfolio, has been repaid across five
investments;
• This included the full settlement of four loans (totalling £101.2
million or 38.5 per cent of the Group’s 31 December 2023 total funded
loan portfolio);
• The proceeds of these realisations, along with available cash, were
used to fund the return of capital to shareholders of £125.0 million
paid in 2024 up to the date of this report.
• All assets are carefully monitored for changes in their risk profile -
during the half year:
• One Stage 2 asset was fully repaid, leaving three assets categorised
as Stage 2. This categorisation indicates a change in credit risk of
these loans since origination but no impairments anticipated; and
• The only asset categorised as Stage 3 as at 31 December 2023 was
settled in full and €0.2 million of a €4.0 million impairment
provision which had been accounted for against this loan was released.
• The average remaining loan term of the portfolio is 1.5 years.
• Strong cash generation - the portfolio continues to support annual
dividend payments of 5.5 pence per Ordinary Share, paid quarterly, and
generates an annual dividend yield of 5.9 per cent on the share price as
at 30 June 2024.
• Regular and consistent dividend - the Company continues to pay regular
and consistent dividends, in line with its prevailing target.
• Inflation protection - 85 per cent of the portfolio is contracted at
floating interest rates (with floors).
• Robust portfolio - the loan book is performing broadly in line with
expectations with its defensive qualities reflected in the Group’s
continued NAV stability.
• Significant equity cushion - the weighted average Loan to Value for the
portfolio as at 30 June 2024 is 58 per cent.
• NAV per share of 104.92p – as at 30 June 2024 – representing a discount
of 11.4 per cent, with an average discount to NAV of 10.5 per cent over
the half year. The Board, the Investment Manager and Adviser continue to
believe that the shares represent attractive value at this level.
In line with the new strategic direction of the Group (i.e. the orderly
realisation and return of capital to shareholders) there have been no new
commitments made in the six months to 30 June 2024.
During the six months to 30 June 2024, the Group funded £8.8 million in
relation to cash loan commitments made in prior years which were unfunded.
In addition the Group capitalised £0.6 million of interest on one loan in
line with the facility agreement.
As anticipated the Group’s NAV has once again remained stable over the
first half of the year demonstrating the highly resilient credentials of
the asset class that contributes to its success as a reliable source of
alternative income. We do not expect to see significant movements in NAV
as the Group’s loans are held at amortised cost, Euro exposures are hedged
and credit risk is proactively managed.
The Group continues to closely monitor its loan exposures, underlying
collateral performance and repayments.
John Whittle, Chairman of the Company commented:
“We are pleased to report a robust performance during the half year.
“Following approval of the Company’s new investment objective and policy
in early 2023, SEREF is pursuing a strategy of orderly realisation. During
the half year to 30 June 2024, a total of £102.1 million, 38.9 per cent of
the Group’s 31 December 2023 total funded loan portfolio, has been repaid
across five investments.
“In 2024 to date the Company has returned £125.0 million to Shareholders
through the compulsory redemption of shares.
“The focus of the Group for the rest of 2024 continues to be the continued
robust asset management of the existing loan portfolio; the orderly
realisation of the portfolio; and the timely return of capital to
shareholders. We look forward to providing further updates towards meeting
these objectives and would like to thank shareholders for their continued
commitment and support.”
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited as Company
Secretary +44 203 5303 630
Duke Le Prevost
Starwood Capital +44 (0) 20 7016 3655
Duncan MacPherson
Jefferies International Limited +44 (0) 20 7029 8000
Gaudi Le Roux
Stuart Klein
Harry Randall
Buchanan +44 (0) 20 7466 5000
Helen Tarbet +44 (0) 07788 528143
Henry Wilson
Notes:
Starwood European Real Estate Finance Limited is an investment company
listed on the main market of the London Stock Exchange with an investment
objective to conduct an orderly realisation of the assets of the
Group. 1 www.starwoodeuropeanfinance.com.
The Group's assets are managed by Starwood European Finance Partners
Limited, an indirect wholly owned subsidiary of the Starwood Capital
Group.
Interim Financial Report and Unaudited Condensed
Consolidated Financial Statements
for the six-month period from 1 January 2024 to 30 June 2024
Overview
Corporate Summary
PRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE
Starwood European Real Estate Finance Limited (the “Company”) was
established in November 2012 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 in the UK and the
European Union’s internal market.
The Company made its investments through Starfin Lux S.à.r.l (indirectly
wholly-owned via a 100 per cent 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 per cent shareholding in Starfin Public Holdco 2
Limited) (collectively the “Group”).
Following the Company’s Extraordinary General Meeting (“EGM”) on 27
January 2023, the Company’s objective changed and is now to conduct an
orderly realisation of the assets of the Group and the return of capital
to Shareholders. In line with this objective the Board is endeavouring to
realise all of the Group’s investments in a manner that achieves a balance
between maximising the net value received from those investments and
making timely returns to Shareholders. It is anticipated that it will take
three to four years to complete this objective.
The Group will not make any new investments going forward save that
investments may be made to honour commitments under existing contractual
arrangements or to preserve the value of any underlying security.
Cash held by the Group pending distribution will be held in either cash or
cash equivalents for the purposes of cash management.
Subject to the above restrictions, the Company retains the ability to seek
to enhance the returns of selected loan investments through the economic
transfer of the most senior portion of such loan investments. It is
anticipated that where this is undertaken it would generate a positive net
interest rate spread and enhance returns for the Company.
Full details of the investment objectives and policy post the EGM on 27
January 2023 are set out in the 2023 Annual Report which can be found on
the company’s website https://starwoodeuropeanfinance.com.
The Investment Objective and Policy which applied prior to the EGM on 27
January 2023 are set out in the 2021 Annual Report which can also be found
on the company’s website https://starwoodeuropeanfinance.com. The
Investment Objective applied prior to the EGM on 27 January 2023 was 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 in the UK and the European Union’s internal market. The
Investment Policy applied prior to the EGM on 27 January 2023 was to
invest in a diversified portfolio of real estate debt investments in the
UK and the European Union’s internal market as the Group had done since
its initial public offering (“IPO”) in December 2012.
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 registered with the Guernsey Financial
Services Commission (“GFSC”) as a closed-ended collective investment
scheme. The Company’s ordinary shares were first admitted to the premium
segment of the UK’s Financial Conduct Authority’s Official List and to
trading on the Main Market of the London Stock Exchange as part of its IPO
which completed on 17 December 2012. Further issues took place in March
2013, April 2013, July 2015, September 2015, August 2016 and May 2019. The
issued capital during the period comprises the Company’s Ordinary Shares
denominated in Sterling.
The Company received authority at the 2020 Annual General Meeting (“AGM”),
to purchase up to 14.99 per cent of the Ordinary Shares in issue. This
authority was renewed at the 2021, 2022, 2023 and 2024 AGMs. Between 2020
and 2023 the Company bought back 17,626,702 Ordinary Shares. Shares bought
back (which had been held in treasury) were cancelled in June 2023.
During 2023 the Company compulsorily redeemed 81,901,754 Ordinary Shares
from Shareholders at an average price of 103.79 pence per share.
During the six months to 30 June 2024 the Company compulsorily redeemed a
further 43,512,736 Ordinary Shares from Shareholders at an average price
of 103.42 pence per share.
In July 2024 the Company compulsorily redeemed a further 76,248,573
Ordinary Shares at a price of 104.92 pence per share. As at the date of
the issuance of this report the Company had 193,929,633 shares in issue
and the total number of voting rights was 193,929,633.
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,
On behalf of the Board I present the Interim Financial Report and
Unaudited Condensed Consolidated Financial Statements of Starwood European
Real Estate Finance Limited (the “Group”) for the period from 1 January
2024 to 30 June 2024.
Since I presented the Annual Report and Audited Consolidated Financial
Statement of the Group for the year end 31 December 2023 to you in March
it seems like a lot has changed while a lot has stayed the same. Around
half the world’s population lives in more than 60 countries holding
national elections in 2024, and with roughly two billion eligible voters,
this is being described as the largest election year in history. As a
result of elections held so far in 2024 there is a new governing party in
the UK but the same governing parties in both Russia and India. We await
to see the outcome of the forthcoming United States of America
Presidential election. At the same time global economies appear to be
recovering slowly from the systemic shocks over the last four years with
interest rates seeming to be on a downward trajectory.
Once again the Group’s performance has remained consistent demonstrating
its unique portfolio resilience through the strength and consistency of
its results. All contractual loan interest and scheduled amortisation
payments have been received on time and underlying valuations continue to
provide reassuring headroom. As I reported in March the loan asset
categorised as Stage 3 as at 31 December 2023 was settled in full in March
and since then one of the four assets categorised as Stage 2 as at 31
December 2023 has been fully repaid. As a result there are three assets
currently categorised as Stage 2 indicating an increase in their credit
risk since origination but with no impairments anticipated and no assets
categorised as Stage 3. The Group will continue to exercise caution in
these challenging times and work closely with borrowers to effect the best
results for the Company and the Group.
The Group’s NAV has also remained stable over the last six months. This
stability demonstrates the positive fundamentals of the Group’s portfolio
as an attractive risk-adjusted source of alternative income. Against
market volatility, the Group has maintained a relatively stable market
valuation, met or exceeded its dividend targets (an annualised 5.5 pence
per share to shareholders) and continued the orderly realisation of the
Group’s assets started in 2023 and the return of capital to Shareholders.
The capital redemptions announced and implemented in 2023 returned £85.0
million in total to shareholders. During the first half of 2024, the
Company announced and implemented its fourth and fifth capital
redemptions, returning, in total, £45.0 million to shareholders. Following
the fifth redemption, and as at 30 June 2024 the Company had 270,178,206
shares in issue and the total number of voting rights was 270,178,206.
Since 30 June 2024 the Company has announced it's sixth capital
redemption, which returned, in July 2024, a further £80.0 million to
shareholders through the compulsory redemption of shares. As at the date
of the issuance of this report the Company had 193,929,633 shares in issue
and the total number of voting rights was 193,929,633. This means that, in
total, the Company has returned £210 million to shareholders since January
2023 when the strategy of orderly realisation and return of capital was
approved by shareholders.
JOHN WHITTLE
Chairman
6 September 2024
HIGHLIGHTS OVER THE SIX MONTHS TO 30 JUNE 2024
Positive realisation progress - during the half year:
A total of £102.1 million, 38.9 per cent of the Group’s 31 December 2023
total funded loan portfolio, has been repaid across five investments
This included the full settlement of four loans (totalling £101.2
million or 38.5 per cent of the Group’s 31 December 2023 total funded loan
portfolio); and
The proceeds of these realisations and some of the cash balances held as
at 31 December 2023 were used to fund the return of capital to
shareholders of £125.0 million paid in 2024 up to the date of this report
All assets are carefully monitored for changes in their risk profile -
during the half year:
One Stage 2 asset was fully repaid, leaving three assets categorised as
Stage 2. This categorisation indicates a change in credit risk of these
loans since origination but no impairments anticipated; and
The only asset categorised as Stage 3 as at 31 December 2023 was settled
in full and €0.2 million of a €4.0 million impairment provision which had
been accounted for against this loan was released
The average remaining loan term of the portfolio is 1.5 years
Strong cash generation - the portfolio continues to support annual
dividend payments of 5.5 pence per Ordinary Share, paid quarterly, and
generates an annual dividend yield of 5.9 per cent on the share price as
at 30 June 2024
Regular and consistent dividend - the Company continues to pay regular
and consistent dividend, in line with its prevailing target
Inflation protection - 85 per cent of the portfolio is contracted at
floating interest rates (with floors)
Robust portfolio - the loan book is performing broadly in line with
expectations with its defensive qualities reflected in the Group’s
continued NAV stability
Significant equity cushion - the weighted average Loan to Value for the
portfolio as at 30 June 2024 is 58 per cent
INVESTMENT MOMENTUM
In line with the new strategic direction of the Group (i.e. the orderly
realisation and return of capital to shareholders) there has been no new
commitments made in the six months to 30 June 2024.
Repayments received in the six months to 30 June 2024 are summarised in
the highlights section above and detailed in the Investment Managers
report.
During the six months to 30 June 2024, the Group funded £8.8 million in
relation to cash loan commitments made in prior years which were unfunded.
In addition the Group capitalised £0.6 million of interest on one loan in
line with the facility agreement.
June 2020 June 2021 June 2022 June 2023 June 2024
Funded loans £447.5m £418.5m £429.1m £379.2m £165.1m
Unfunded Cash £67.2m £36.8m £36.8m £47.3m £24.1m
Commitments
Total Portfolio £514.7m £455.3m £465.9m £426.5m £189.2m
NAV PERFORMANCE
The table below shows the NAV per share movements over the 6 months to 30
June 2024.
Jan - 24 Feb - 24 Mar - 24 Apr - May - Jun -
24 24 24
NAV per share at beginning 104.35 103.08 103.69 104.45 103.65 104.29
of month
Monthly Movements
Operating Income available
to distribute before 0.53 0.69 0.60 0.75 0.80 0.77
impairment provision(1)
Release of part of 2023
impairment provision on 0.00 0.00 0.05 0.00 0.00 0.00
asset classified as Stage
3(2)
Reclassification of
Realised FX gains from not
distributable to 0.00 0.00 (1.72) 0.00 0.00 (0.64)
distributable income
following loan
repayments(3)
Realised FX hedging gains
reclassified as available 0.00 0.00 1.56 0.00 0.00 0.40
to distribute following
loan repayments(4)
Unrealised FX 0.08 (0.08) 0.27 (0.17) (0.16) 0.10
gains/(losses)(5)
Dividends declared (1.88) 0.00 0.00 (1.38) 0.00 0.00
NAV per share as end of 103.08 103.69 104.45 103.65 104.29 104.92
month
1. Operating Income available to distribute before impairment provision
comprises loan income recognised in the period less operating costs
incurred. Operating Income available to distribute before impairment
provision also includes any realised foreign exchange gains or losses
upon settlement of hedges, except those described in note 3.
2. In March 2024 a loan which had been classified as Stage 3 was settled
in full and €0.2 million of a €4.0 million impairment provision which
had been accounted for the 2023 was released.
3. On occasion, the Group may realise a gain or loss on the roll forward
of a hedge if it becomes necessary to extend a capital hedge beyond
the initial anticipated loan term. If this situation arises the Group
will separate the realised FX gain or loss from other realised FX
gains or losses and not consider it available to distribute or as a
reduction in distributable profits. The FX gain or loss will only be
transferred to distributable income when the rolled hedge matures or
is settled due to the loan repayment, and the final net gain or loss
on the capital hedges over the life of the loan can be determined.
4. This relates to the transfer of historic realised gains on capital
hedges that were rolled (as described under note 3 from
undistributable to distributable income due to the final settlement of
capital hedges (or a portion thereof where a loan has only partially
repaid) less realised FX losses during the month on the repayment of
loan amounts and the settlement (or portion thereof) of the rolled
hedges.
5. Unrealised foreign exchange gain/losses relate to the net impact of
changes in the valuation of foreign exchange hedges and the sterling
equivalent value of Euro loan investments (using the applicable month
end rate). Mismatches between the hedge valuations and the loan
investments may occur depending on the shape of the forward FX curve
and this causes some movement in the NAV. These unrealised FX gains /
losses are not considered part of distributable reserves.
As anticipated, as shown above and as in the past, we are pleased to
report that the Group’s NAV has once again remained stable over the first
half of the year demonstrating the highly resilient credentials of the
asset class that contributes to its success as a reliable source of
alternative income. We do not expect to see significant movements in NAV
as the Group’s loans are held at amortised cost, Euro exposures are hedged
and credit risk is proactively managed.
The NAV would be materially impacted if a significant impairment in the
value of a loan was required but, despite the disruption to markets over
the recent years, no material impairment has been needed and the Group’s
underlying collateral valuations remain stable and current (the average
age in the six months to 30 June 2024 of current valuations is under one
year). Please refer to the Investment Manager’s report for detailed sector
performance reporting, information on the accounting for our loans and the
current loan to value position for the portfolio as a whole and for each
sector.
The Group continues to closely monitor its loan exposures, underlying
collateral performance and repayments.
CAPITAL REDEMPTIONS AND SHARE PRICE PERFORMANCE
During the half year to 30 June 2024, the Company redeemed a total of
43,512,736 shares for a total of £45.0 million. As at 30 June 2024 the
Company had 270,178,206 shares in issue and the total number of voting
rights was 270,178,206. Since 30 June 2024 the Company has announced it's
sixth capital redemption, which returned, in July 2024, £80.0 million to
shareholders through the compulsory redemption of 76,248,573 shares. As at
the date of the issuance of this report the Company had 193,929,633 shares
in issue and the total number of voting rights was 193,929,633.
During the first half of 2024, the Company’s share price has been,
relative to a volatile market, stable. In the six month period to 30 June
2024, the share price has been trading at between 89.6 pence and 95.6
pence and ended the half year at 93.0 pence. It should be noted that the
volumes of the Company's shares being traded are relatively low and will
decrease as the company reduces in size so even small transactions can
have a significant impact on daily share prices recorded.
As at 30 June 2024, the discount to NAV stood at 11.4 per cent, with an
average discount to NAV of 10.5 per cent over the half year. The Board,
the Investment Manager and Adviser continue to believe that the shares
represent attractive value at this level.
DIVIDENDS
The Directors declared dividends in respect of the first two quarters of
2024 of 1.375 pence per Ordinary Share, equating to an annualised 5.5
pence per annum. This was covered by earnings (excluding unrealised FX
gains and realised FX gains expected to reverse). The Board also declared
an additional dividend in January of 0.5 pence per share related to 2023.
With the current portfolio, and based on current forecasts (including
forecasts of capital redemptions), we expect the target dividend of 5.5
pence per share to continue to be covered by earnings over the 12 months
to 31 December 2024.
Based on the share price at 30 June 2024, a dividend of 5.5 pence per
annum represents a 5.9 per cent dividend yield.
BOARD COMPOSITION AND DIVERSITY
The Board believes in the value and importance of diversity in the
boardroom and it continues to consider the recommendations of the Davies,
Hampton Alexander and Parker Reports and these recommendations will be
taken into account should the appointment of a new Director be required.
As at 30 June 2024, the Company met the targets specified in the Listing
Rules 9.8.6R(9)(a)(i) and (ii) with the Board comprising 50 per cent
women, one of whom is the Senior Independent Director. However, the
Company has not met the target under Listing Rule 9.8.6R(9)(a) (iii) of
having one Director from a minority ethnic background. Please refer to the
Corporate Governance Statement in the Company's Annual Report and Audited
Consolidated Financial Statements for the year ended 31 December 2023 for
the Board’s diversity statement.
I am very pleased with the composition of the Board and I believe we have
a very relevant diversity of skills and expertise which places us well for
executing the strategy the shareholders have tasked us with.
GOING CONCERN
During the six months to 30 June 2024 the Company terminated its remaining
revolving credit facility.
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 comprehensive review of the Group’s
ability to continue as a going concern including a review of the ongoing
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, Investment Adviser and the Administrator and having
reassessed the principal risks in light of the recent change of investment
objective and strategy, 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
Notwithstanding the above, and as disclosed in these financial statements,
the strategy of orderly realisation and return of capital to shareholders
over time does in the long term create uncertainty as to the longer term
future of the Company and the Group and its longer term ability to
continue as a going concern. The financial statements have not been
modified in respect of this matter.
OUTLOOK
The Board is pleased that the diligent underwriting, loan structuring and
active asset management of the Investment Manager and Adviser has led to
very robust performance of the loans during the period.
At 30 June 2024, the Group had cash balances of £117.1 million which
included a reserve to fund the unfunded cash loan commitments of £24.1
million outstanding as at 30 June 2024. Since 30 June 2024 the Company has
returned £80.0 million to Shareholders through the compulsory redemption
of shares as detailed above.
The focus of the Group for the rest of 2024 continues to be:
i. the continued robust asset management of the existing loan portfolio;
ii. the orderly realisation of the portfolio; and
iii. the timely return of capital to shareholders
I would like to close by thanking you for your continued commitment and
support.
John Whittle
Chairman
6 September 2024
Investment Manager’s Report
MARKET COMMENTARY
During the second quarter of 2024 some central banks started cutting
interest rates. The Swedish National Bank (“SNB”) and the European Central
Bank (“ECB”) have led the way in Europe with cuts in May for the SNB and
June for the ECB. The Bank of England (“BOE”) decision at the June meeting
was finely balanced but, in the end, the BOE decided to wait with the
market initially expecting that this would mean that the BOE would then
almost definitely cut in August. In the end the Bank of England did cut
the base rate by 25 basis points in August but it was more finely balanced
than expected with a balance between the headline rate of inflation
supporting a cut but concerns on higher level of services inflation. In
Europe the pace of cuts is likely to be measured with the BOE and ECB both
flagging that they are not in a hurry to make cuts but in the final part
of the year there is more likely to be more volatility of expectations on
the pace and size of the rates cuts in the United States as the Federal
Reserve is likely to cut rates from September.
Long term interest rates and government bond yields were largely unchanged
in the second quarter with UK 10 Year Gilt rates at 4.1 per cent versus
4.3 per cent at the beginning of the quarter and 3.5 per cent at the
beginning of the year. German 10-year bonds are also slightly down at 2.4
per cent versus 2.5 per cent at the beginning of the quarter up from 2.0
per cent at the beginning of the year. Swap rates have also been steady
with GBP and EUR 5-year swaps currently standing at 3.9 per cent and 2.7
per cent respectively with almost no movement over the quarter as a whole.
A notable exception to the steady data was for France where the recent
election led to a repricing of the spread between German and French
government bonds. Prior to the election being called spreads were circa 50
basis points but jumped to as high as 80 basis points during the election
process before settling at a slightly lower level at the time of writing.
Last time we reported, 2023 had the lowest level of investment volume in
commercial real estate in Europe since the Global Financial Crisis with
volumes half of the levels of recent years. Lower volumes are persisting
as 2024 advances but we see a strong differentiation between asset classes
in sentiment for deal catalysts. For example, in the hospitality sector
where owners have more scope for asset management initiatives to create
value, we have seen a number of larger portfolio transactions in 2024
including Blackstone’s acquisition of Village Hotels for approximately
£800 million, Starwood’s acquisition of the Radisson Edwardian portfolio
in Central London for a similar amount and Ares’ acquisition of 21 Novotel
and Ibis hotels for £400 million from Land Securities.
There has also been a pick-up in public market merger and acquisition
activity including the merger of Tritax Big Box REIT and UK Commercial
Property REIT to create a combined group with a portfolio of £6.3 billion
and TPG’s take private of Brussels listed Intervest with a €1.4 billion
portfolio of logistics and office. In contrast, some asset classes and
geographies are seeing significantly less activity. For example, during
the pre-COVID decade from 2010 to 2019 the value of office transactions as
a proportion of the entire real estate transaction markets was 40.4 per
cent, however in 2023 this declined to 22.8 per cent and we are seeing a
similar proportion in the data from the first quarter of 2024. In the
biggest markets of UK, Germany and France, it is France that has held the
highest proportion of office transactions with 35.7 per cent of the total
volume. Germany and the UK are maintaining similar levels close to the
average with 18.3 per cent and 22.2 per cent respectively. Spain and
Portugal are seeing the lowest share of office transactions with only 10.6
and 9.5 per cent of total country volume respectively.
We continue to see a relatively consistent level of appetite for the
credit side of the capital structure in both the public and private
markets. While only a small part of the European markets, the CMBS market
in the US is a bell-weather for overall commercial real estate lending
market sentiment. There has been USD 48 billion of total commercial real
estate backed ABS issuance in the first half of the year which is an
increase of 158 per cent versus the USD 18.6 billion at the same time last
year. Bond spreads had contracted strongly in the first few months of 2024
leading to more favourable conditions for issuers but have now stabilised.
With a higher level of supply, deals have been taking longer to clear the
market and investors have had more choices leading to slightly more
variation of pricing by deal but with overall spreads being stable.
In Europe the unsecured corporate bond market for real estate companies
has seen a similar change in pricing dynamics and strong levels of new
issuance since the beginning of the year. We have seen many high-quality
issuers coming to market with high levels of order book coverage and
attractive pricing. Including recent, benchmark issuance sizes of €500
million plus for Logicor, Aroundtown and Grand City Properties, with the
latest 5 year Logicor bond being 4.4x covered and priced at the mid swap
rate plus 153 basis points.
In the private loan market we continue to see a good level of appetite
from a diverse set of lender types including domestic and international
banks, insurance companies, debt funds and other non-bank lenders leading
to a healthy competition particularly for acquisition financing but also
for the right refinancing opportunities. Beds, sheds and datacentres are
often cited as the preferred asset classes for lenders, but we have seen
that well-located, high-quality office assets also receives a good level
of competition. One such example is the £235 million refinancing of 280
Bishopsgate which closed last month. 280 Bishopsgate is a top ESG rated
office building located in the City of London near Liverpool Street
Station. A £200 million senior loan was provided by LBBW with a further
£35 million of mezzanine financing provided by Delancey making this one of
the largest single asset office financings of the year.
PORTFOLIO STATISTICS
As at 30 June 2024, the portfolio was invested in line with the Group’s
investment policy.
The key portfolio statistics are as summarized below.
30 June 30 June
2024 2023
Number of investments 8 17
Percentage of currently invested portfolio in floating 84.8% 76.1%
rate loans
Invested Loan Portfolio unlevered annualised total 9.1% 8.1%
return(1)
Weighted average portfolio LTV – to Group first £(1) 16.7% 11.6%
Weighted average portfolio LTV – to Group last £(1) 58.0% 56.0%
Average remaining loan term 1.5 years 1.4 years
Net Asset Value £283.5m £400.4m
Loans advanced at amortised cost (including accrued £166.9m £384.1m
income)
Cash and cash equivalents £117.1m £13.1m
Other net assets /(liabilities) (including financial (£0.5m) £3.2m
assets held at fair value through the profit or loss)
(1) Alternative performance measure.
The maturity profile of investments as at 30 June 2024 is shown below.
Remaining years to Principal value of % of invested
contractual maturity* loans £m portfolio
0 to 1 years £45.3 27.4%
1 to 2 years £46.3 28.1%
2 to 3 years £73.5 44.5%
• Remaining loan term to current contractual loan maturity excluding any
permitted extensions. Note that borrowers may elect to repay loans
before contractual maturity or may elect to exercise legal extension
options, which are typically one year of additional term subject to
satisfaction of credit related extension conditions. The Group, in
limited circumstances, may also elect to extend loans beyond current
legal maturity dates if that is deemed to be required to affect an
orderly realisation of the loan.
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.
SHARE PRICE PERFORMANCE
As at 30 June 2024 the NAV was 104.92 pence per Ordinary Share (31
December 2023: 104.35 pence; 30 June 2023: 103.75 pence) and the share
price was 93.0 pence (31 December 2023: 90.4 pence; 30 June 2023: 88.6
pence).
The Company’s share price volatility has been driven by market conditions
and trading cash flows rather than a change in the Company’s NAV.
INVESTMENT DEPLOYMENT
As at 30 June 2024, the Group had 8 investments and commitments of £189.2
million as follows:
Sterling
Sterling Sterling Total
equivalent
equivalent (Drawn and
unfunded
balance (1) Unfunded)
commitment (1), (2)
Hospitals, UK £25.0 m £25.0 m
Hotel, North Berwick £15.0 m £15.0 m
Life Science, UK £15.5 m £4.0 m £19.5 m
Hotel and Office, Northern £7.3 m £7.3 m
Ireland
Hotels, United Kingdom £46.3 m £1.1 m £47.4 m
Industrial Estate, UK £27.2 m £19.0 m £46.2 m
Total Sterling Loans £136.3 m £24.1 m £160.4 m
Office Portfolio, Spain £7.5 m £7.5 m
Office Portfolio, Ireland £21.3 m £21.3 m
Total Euro Loans £28.8 m £28.8 m
Total Portfolio £165.1 m £24.1 m £189.2 m
1. Euro balances translated to sterling at period end exchange rate.
2. Excludes interest of circa £2.9 million which may be capitalised in
respect of Office Portfolio, Ireland.
Between 1 January 2024 and 30 June 2024, the following significant
investment activity occurred (reflected in the table overleaf):
REPAYMENTS:
During the half year, borrowers repaid the following loan obligations:
• £42.6 million, Hotel Scotland (full repayment of loan)
• €32.8 million, Three Shopping Centres, Spain (full repayment of
loan)
• €23.0 million, Hotel, Dublin (full repayment of loan)
• €12.2 million, Shopping Centre, Spain (settlement of loan in
full)
• £1.5 million, Hotel and Office, Northern Ireland (partial
repayment of loan)
These repayments along with available cash were used to return circa
£125.0 million of capital to shareholders during 2024 to the date of this
report.
ADDITIONAL FUNDING:
During the half year, the Group funded £8.8 million in relation to loan
commitments made in prior years which were unfunded and interest of £0.6
million was capitalised. No new loans were entered into during the half
year in line with the orderly realisation and the return of capital
strategy as outlined in the Chairman's Statement.
Subsequent to 30 June 2024, to the date of this report, the following loan
repayments occurred:
• £0.9 million, Hotel & Office, Northern Ireland (partial
repayment of loan)
Subsequent to 30 June 2024, the Group funded £1.1 million in relation to
loan commitments made in prior years which were unfunded.
PORTFOLIO OVERVIEW
The Group continues to closely monitor and manage the credit quality of
its loan exposures and repayments. The portfolio has continued to perform
well, with total repayments of £102.1 million in the six months to 30 June
2024, equivalent to 39 per cent of the 31 December 2023 total funded
portfolio. These repayments marked successful execution of underlying
borrower business plans to refinance or sell assets upon stabilisation.
The repayments during the half year included final settlement of the
Shopping Centre, Spain and the Three Shopping Centres, Spain loans which
results in the Group’s exposure to underlying retail assets reducing to
zero.
On an aggregate portfolio level the Group continues to benefit from
material headroom in underlying collateral value against the loan basis,
with a weighted average loan to value of 58 per cent. These metrics are
based on independent third party appraisals. These appraisals are
typically updated annually for income producing assets. The weighted
average age of valuations as at 30 June 2024 is just over ten months.
The Group’s remaining exposure is spread across eight investments. 99 per
cent of the total funded loan portfolio as of 30 June 2024 is spread
across five asset classes; Hospitality (40 per cent), Office (19 per
cent), Light Industrial (16 per cent), Healthcare (15 per cent) and Life
Sciences (9 per cent).
Hospitality exposure (40 per cent) is diversified across three loan
investments. This exposure has decreased from 31 December 2023 as a result
of the full repayments of Hotel, Scotland and Hotel, Dublin and the
partial repayment of Hotel and Office, Northern Ireland during the period.
One loan (71 per cent of hospitality exposure) has two underlying key UK
gateway city hotel assets, both of which are undergoing comprehensive
refurbishment programmes due to complete during 2024. Both hotels are also
rebranding to a major internationally recognised hotel brand. The second
largest hospitality loan (23 per cent of hospitality exposure) has also
been recently refurbished and is slowly increasing operating performance
metrics post refurbishment. One loan (6 per cent of hospitality exposure)
benefits from a State/Government licence in place at the property and has
structured amortisation that continues to decrease this loan exposure.
This loan is expected to be fully repaid before year end 2024.
The weighted average loan to value of the hospitality exposure is 56 per
cent.
The Group’s office exposure (19 per cent) is spread across three loan
investments. The weighted average loan to value of loans with office
exposure is 73 per cent and the average age of these independently
instructed valuation reports is just over a year. The higher loan to value
of this sector exposure reflects the wider decrease in market sentiment
driven by post pandemic trends and higher interest rates. These factors
have resulted in reduced investor appetite for office exposure and a
decline in both transaction volumes and values. The largest office
investment is a mezzanine loan which represents 65 per cent of this bucket
and is classified as a Stage 2 risk rated loan. The underlying assets
comprise seven well located European city centre CBD buildings and are
well tenanted, albeit certain assets are expected to require capital
expenditure to upgrade to Grade-A quality to retain existing tenants upon
future lease expiry events. The loan remains in compliance of its
third-party senior loan facility and the Group’s mezzanine loan facility,
however given the persisting challenging market dynamics, the Group is
working closely with the sponsor, a very large institutional asset
manager, and a leading global valuation and advisory firm to identify
future capital expenditure needs, funding sources, exit values and the
business plan to exit.
Light Industrial and Healthcare exposures comprise 16 per cent and 15 per
cent each respectively, totalling 31 per cent of the total funded
portfolio (across two investments) and provides good diversification into
asset classes that continue to have very strong occupational and investor
demand. The weighted average loan to value of these exposures is 56 per
cent.
LOAN TO VALUE
All assets securing the loans undergo third party valuations before each
investment closes and periodically thereafter at a time considered
appropriate by the lenders. The LTVs shown below are based on independent
third party appraisals. The weighted average age of the dates of these
valuations for the whole portfolio is just over ten months.
As of 30 June 2024 the Group has an average last £ LTV of 58.0 per cent
(31 December 2023: 61.8 per cent).
The Group’s last £ LTV means the percentage which the total loan drawn
less any deductible lender controlled cash reserves and 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, reviewed in
detail and approved by the reporting date. LTV to first Group £ 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
development projects the calculation includes the total facility available
and is calculated against the assumed market value on completion of the
relevant project.
The table below shows the sensitivity of the loan to value calculation for
movements in the underlying property valuation and demonstrates that the
Group has considerable headroom within the currently reported last LTVs.
Light
Change in Valuation Hospitality Office Industrial & Other Total
Healthcare
-15% 65.4% 85.5% 65.4% 56.4% 68.3%
-10% 61.8% 80.7% 61.7% 53.3% 64.5%
-5% 58.6% 76.5% 58.5% 50.5% 61.1%
0% 55.6% 72.7% 55.6% 48.0% 58.0%
5% 53.0% 69.2% 52.9% 45.7% 55.3%
10% 50.6% 66.1% 50.5% 43.6% 52.7%
15% 48.4% 63.2% 48.3% 41.7% 50.5%
LIQUIDITY AND HEDGING
The Group had no available credit facilities as at 30 June 2024 as it was
decided not to pursue the extension of any credit facilities that had been
available to it in the past as the Group has sufficient resources to meet
its liabilities as they fall due.
The table below summarises the available liquidity as at 30 June 2024 and
31 August 2024. The decrease between 30 June 2024 and 31 August 2024 is
primarily due to the £80.0 million capital redemption in July 2024 and the
payment of the Q2 2024 dividend (amounting to circa £2.7 million) declared
in July 2024 and paid in August 2024.
30 June 2024 31 August 2024
£ million £ million
Cash and Cash Equivalents 117.1 38.1
Undrawn Commitments to Borrowers (24.1) (23.0)
Available Capacity 93.0 (15.1)
The Group had a proportion (17%) of its investments denominated in Euros
as at 30 June 2024 (this proportion 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.
The Group does have the obligation to post cash collateral under its
hedging facilities. However, cash would not need to be posted until the
hedges were more than £15.0 million out of the money. This situation is
closely monitored as a result. The mark to market of the hedges at 30 June
2024 was £0.9 million (in the money) and with the robust hedging structure
employed by the Group, cash collateral has never been required to be
posted since inception.
CREDIT RISK ANALYSIS
All loans within the portfolio are classified and measured at amortised
cost less impairment.
During the half year there have been no changes to the existing credit
risk levels for any of the investments, however following the successful
settlement of the Stage 3 loan and the repayment of one of the Stage 2
loans there are now no loans classified as Stage 3 and three loans
classified as Stage 2.
The Group follows a three-stage model for impairment based on changes in
credit quality since initial recognition as summarised below:
A financial instrument that is not credit-impaired on initial
recognition is classified as Stage 1 and has its credit risk continuously
monitored by the Group. The expected credit loss (“ECL”) is measured over
a 12-month period of time.
If a significant increase in credit risk since initial recognition is
identified, the financial instrument is moved to Stage 2 but is not yet
deemed to be credit-impaired. The ECL is measured on a lifetime basis.
If the financial instrument is credit-impaired it is then moved to Stage
3. The ECL is measured on a lifetime basis.
The Group closely monitors all loans in the portfolio for any
deterioration in credit risk. As of 30 June 2024, assigned classifications
are:
Stage 1 loans – five loan investments totalling £113.3 million,
equivalent to 69 per cent of the funded portfolio are classified in the
lowest risk profile, Stage 1.
Stage 2 loans – three loan investments totalling £51.8 million,
equivalent to 31 per cent of the funded portfolio are classified as Stage
2. The average loan to value of these exposures is 67 per cent. The
weighted average age of valuation report dates used in the loan to value
calculation is one year. While these loans are higher risk than at initial
recognition, no loss has been recognised on a twelve-month and lifetime
expected credit losses basis. Therefore, no impairment in the value of
these loans has been recognised. The drivers for classifying these deals
as Stage 2 are typically either one or a combination of the below factors:
lower underlying property values following receipt of updated formal
appraisals by independent valuers or agreed and in exclusivity sale
values;
sponsor business plans progressing more slowly than originally
underwritten meaning that trading performance has lagged expectations and
operating financial covenants under the facility agreements have breached;
and
additional equity support is required to cover interest or operating
shortfalls as a result of slower lease up or operations taking longer to
ramp up.
The Stage 2 loans continue to benefit from headroom to the Group’s
investment basis. The Group has a strategy for each of these deals which
targets full loan repayment over a defined period of time. Timing of
repayment will vary depending on the level of equity support from
sponsors. Typically, where sponsors are willing to inject additional
equity to partially pay down the loans and support their business plan
execution, then the Group will grant some temporary financial covenant
headroom. Otherwise, sponsors are running sale processes to sell assets
and repay their loans.
Stage 3 loans – As of 30 June 2024, no loans were classified as Stage 3.
This assessment has been made based on information in our possession at
the date of reporting, our assessment of the risks of each loan and
certain estimates and judgements around future performance of the assets.
A detailed description of how the Group determines on what basis loans are
classified as Stage 1, Stage 2 and Stage 3 post initial recognition is
provided in to the Principal Risk section of the full year accounts.
FAIR VALUE OF THE PORTFOLIO COMPARED TO AMORTISED COST
The table below represents the fair value of the loans based on a
discounted cash flow basis using a range of potential discount rates.
Discount Rate Value Calculated % of book value
8.4% £ 171.8 M 102.9%
8.9% £ 170.5 M 102.2%
9.4% £ 169.3 M 101.4%
9.9% £ 168.1 M 100.7%
10.4% £ 166.9 M = BOOK VALUE 100.0%
10.9% £ 165.7 M 99.3%
11.4% £ 164.5 M 98.6%
11.9% £ 163.4 M 97.9%
12.4% £ 162.2 M 97.2%
The effective interest rate (“EIR”) – i.e. the discount rate at which
future cash flows equal the amortised cost is 10.4 per cent. We have
sensitised the cash flows at EIR intervals of 0.5 per cent up to +/- 2.0
per cent. The table reflects how a change in market interest rates or
credit risk premiums may impact the fair value of the portfolio versus the
amortised cost. Further, the Group considers the EIR of 10.4 per cent to
be conservative as many of these loans were part of a business plan which
involved transformation and many of these business plans are advanced in
the execution and therefore significantly de-risked from the original
underwriting and pricing. The volatility of the fair value to movements in
discount rates is low due to the low remaining duration of most loans.
RELATED PARTY TRANSACTIONS
Related party disclosures are given in note 16 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. Because 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
6 September 2024
Principal Risks
PRINCIPAL RISKS FOR THE REMAINING SIX MONTHS OF THE YEAR TO 31 DECEMBER
2024
The principal risks assessed by the Board relating to the Group were
disclosed in the Strategic Report set out in the Annual Report and Audited
Consolidated Financial Statements for the year to 31 December 2023. 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 2024:
FINANCIAL MARKET VOLATILITY (RISK THAT DIVIDENDS DO NOT MEET THE TARGETED
LEVELS AND THAT THE SHARE PRICE DISCOUNT PERSISTS AND WIDENS)
Subsequent to the EGM held on 27 January 2023 the Group’s strategy is for
an orderly realisation of its assets and the return of capital to
shareholders. During the realisation period the Company intends to target
a similar per share level of dividends as previously for as long as this
is feasible and to return capital to shareholders subject to maintaining
sufficient cash to fund as yet unfunded cash commitments on loans and
ongoing operating costs.
The Group’s targeted returns are based on estimates and assumptions that
are inherently subject to significant business and economic uncertainties
and contingencies and, consequently, the actual rate of return may be
materially lower than the targeted 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.
Since March 2020 the shares have traded 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 Board, along with the Investment Manager and the Investment Adviser,
monitor, review and consider the estimates and assumptions that underpin
the targeted returns of the business and, where necessary, communicate any
changes in those estimates and assumptions to the market.
The Board monitors the level of premium or discount of the share price to
NAV per share and deployed a share buyback programme during 2020, 2021 and
2022 in order to support the share price. No shares were bought back in
2023 or the first six months of 2024. The current strategy of the orderly
realization of assets and the return of capital to shareholders over time
should mean that, subject to no unforeseen negative impacts on the value
of investments, shareholders will receive a return of capital invested
over time. During 2023 the Company returned £85.0 million to shareholders.
During the first six months of 2024 the Company returned £45.0 million to
shareholders. Subsequent to 30 June 2024 and prior to the issuance of this
report the Company returned a further £80.0 million to shareholders.
LONG-TERM STRATEGIC RISK (RISK THAT THE BUSINESS MODEL IS NO LONGER
ATTRACTIVE)
Subsequent to the EGM held on 27 January 2023, the Group’s strategy is for
an orderly realisation and return of capital to shareholders. It is
anticipated that the return of capital to shareholders will be completed
in the next three to four years.
The Group’s targeted returns are based on estimates and assumptions that
are inherently subject to significant business and economic uncertainties
and contingencies and, consequently, the actual rate of return may be
materially lower than the targeted returns.
The Directors regularly receive information on the performance of the
existing loans, including the performance of underlying assets versus
underwritten business plan and the likelihood of any early repayments, or
the need for any loan amendments.
The Board continues to monitor the revised investment strategy and
performance on an ongoing basis.
MARKET DETERIORATION RISK (RISK OF THE ECONOMIES IN WHICH THE GROUP
OPERATES EITHER STAGNATE OR GO INTO RECESSION)
The Group’s investments are comprised of debt investments in the United
Kingdom (‘UK’) and the 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 loan defaults or impairments.
The Covid-19 pandemic has had a material long term impact on global
economies and on the operations of the Group’s borrowers since 2020.
The situation in Ukraine, following the February 2022 incursion into
Ukraine by Russia and in the Middle East, following the October 2023 Hamas
attacks in Israel, also presents a significant risk to European and global
economies. While the Group has no direct or known indirect involvement
with Ukraine, Russia or the Middle East it may be impacted by the
consequences of the instability caused by the ongoing conflict.
The impact of the UK’s departure from the European Union in 2020 still
represents a potential threat to the UK economy as well as wider Europe.
On a cyclical view, the national economies across Europe appear to be
heading towards lower growth, and alongside the economic impact of
Covid-19 and the destabilising impact of the conflicts in Ukraine and the
Middle East, towards recession.
In addition there is the impact of the ongoing high inflationary
environment to consider (driven by increasing interest rates, energy costs
and costs of living). This environment could make it harder for borrowers
to meet their interest obligations to the Group and to ultimately repay
the loans advanced to them.
The Board have considered the impact of market deterioration on the
current and future operations of the Group and its portfolio of loans
advanced. As a result of the cash held in reserve by the Group and the
underlying quality of the portfolio of loans advanced, both the Investment
Manager and the Board still believe the fundamentals of the portfolio
remain optimistic and that the Group can adequately support the portfolio
of loans advanced despite current market conditions.
In the event of a loan default in the portfolio, the Group is generally
entitled to accelerate the loan and enforce security, but the process may
be expensive and lengthy, and the outcome is dependent on sufficient
recoveries being made to repay the borrower’s obligations and associated
costs. Some of the investments held 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
by the borrower at maturity 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 mitigated against this
with an average weighted loan to value of the portfolio of 58.0 per cent
as at 30 June 2024. Therefore, the portfolio should be able to withstand a
significant level of deterioration before credit losses are incurred.
The Investment Adviser and Manager has also mitigated the risk of credit
losses by undertaking detailed due diligence prior to the signing of each
loan. Whilst the precise scope of due diligence will have depended on the
proposed investment, such diligence will typically have included
independent valuations, building, measurement and environmental surveys,
legal reviews of property title, assessment of the strength of the
borrower’s management team and key leases and, where necessary, mechanical
and engineering surveys, accounting and tax reviews and know your customer
checks.
The Investment Adviser, Investment Manager and Board have also managed
these risks in the past by ensuring a diversification of investments in
terms of geography, market and type of loan. Such diversification will be
harder to achieve as the company pursues a strategy of orderly realisation
and does not enter into any new investments. The Investment Manager and
Investment Adviser operate in accordance with the guidelines, investment
limits and restrictions as determined by the Board. The Directors review
the portfolio against these guidelines on a regular basis.
The Investment Adviser obtains regular performance reporting from all
borrowers and meets with all borrowers on a regular basis to monitor
developments in respect of each loan and reports to the Investment Manager
and the Board periodically and on an ad hoc basis where considered
necessary.
The Group’s loans are held at amortised cost. The performance of each loan
is reviewed quarterly by the Investment Adviser for any indicators of
significant increase in credit risk, impaired or defaulted loans. The
Investment Adviser also provides their assessment of any expected credit
loss for each loan advanced. The results of the performance review and
allowance for expected credit losses are discussed with the Investment
Manager and the Board.
The Group has prudently assessed key risk indicators impacting all
investments and three loans within the portfolio are classified as Stage 2
(increased risk of default) as at 30 June 2024. These loans account for 31
per cent of the portfolio funded by the Group as at 30 June 2024. No
expected credit losses have been recognised against any of these loans,
because of the strong LTVs across the loan portfolio and strong
contractual agreements with borrowers, including these Stage 2 loans.This
is further outlined in detail under the Credit Risk Analysis section of
the Investment Manager report. Despite increased risk around higher
interest rates and lower transaction volumes, the portfolio has continued
to perform well. The reasons, estimates and judgements supporting this
assessment are described in the Investment Manager’s report.
INTEREST RATE RISK
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 loans in place at 30 June 2024 are structured so that 85 per cent are
floating rate and all of these floating rate loans are subject to
interbank rate floors such that the interest cannot drop below a certain
level, which offers some protection against downward interest rate risk.
The remaining 15 per cent by value of the loans are fixed rate, which
provides protection from downward interest rate movements to the overall
portfolio (but also prevents the Group from benefiting from any interbank
rate rises on these positions).
FOREIGN EXCHANGE RISK
The majority of the Group’s investments are Sterling denominated (83 per
cent as at 30 June 2024) with the remainder being Euro denominated. The
Group is subject to the risk that the exchange rates move unfavourably and
that a) foreign exchange losses on the Euro loan principals are incurred
and b) that Euro 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. Interest payments are normally
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 Company had approximately £40.4 million (€47.8 million) of net hedged
notional exposure with Lloyds Bank plc at 30 June 2024 (converted at 30
June 2024 FX rates).
As at 30 June 2024, the hedges were in the money. If the hedges move out
of the money and this mark to market exceeds £15.0 million the Company is
required to post collateral, subject to a minimum transfer amount of £1
million. This situation is monitored closely, however, and as at 30 June
2024, the Company had sufficient liquidity to meet substantial cash
collateral requirements.
CYBERCRIME
The Group is subject to the risk of unauthorised access into systems,
identification of passwords or deleting data, which could result in loss
of sensitive data, breach of data physical and electronic, amongst other
potential consequences. This risk is managed and mitigated by regular
reviews of the Group’s operational and financial control environment. The
matter is also contained within service providers surveys which are
completed by the Group’s service providers and are regularly reviewed by
the Board. No adverse findings in connection with the service provider
surveys have been found. The Company and its service providers have
policies and procedures in place to mitigate this risk, the cybercrime
risk continues to be closely monitored.
REGULATORY RISK
The Group is also subject to regulatory risk as a result of any changes in
regulations or legislation. Constant monitoring by the Investment Adviser,
Investment Manager and the Board is in place to ensure the Group keeps up
to date with any regulatory changes and compliance with them.
OPERATIONAL RISK
The Group has no employees and is reliant on the performance of
third-party service providers. Failure by the Investment Manager,
Investment Adviser, Administrator or any other third-party service
provider to perform in accordance with the terms of its appointment could
have a material detrimental impact on the operation of the Group.
The Board maintains close contact with all service providers to ensure
that the operational risks are minimised.
EMERGING RISKS
Emerging risks to the Group are considered by the Board to be trends,
innovations and potential rule changes relevant to the real estate
mortgage and financial sector. The challenge to the Group is that emerging
risks are known to some extent but are not likely to materialise or have
an impact in the near term. The Board regularly reviews and discusses the
risk matrix and has identified climate change as an emerging risk.
CLIMATE CHANGE
The consequences that climate change could have are potentially severe but
highly uncertain. The potential high impact of possible losses has done a
lot to raise the awareness of this risk in investment circles. The Board,
in conjunction with the Investment Manager and Investment Adviser,
considers the possible physical and transitional impact of climate change
on properties secured on loans provided by the Group and includes the
consideration of such factors in valuation instructions of the collateral
properties and in considering any potential expected credit losses on
loans. The Investment Adviser considers the possible physical and
transitional impact of climate change as part of the origination process.
In addition, the Board, in conjunction with the Investment Adviser, is
monitoring closely the regulation and any developments in this area.
Governance
Board of Directors
JOHN WHITTLE | Non-executive Director – Chairman of the Board
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 and Audit Committee Chairman of The
Renewable Infrastructure Group Ltd (FTSE 250), Sancus Lending Group Ltd
(listed on AIM), and Chenavari Toro Limited Income Fund Limited (listed on
the SFS segment of the Main Market of the London Stock Exchange). 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 a resident of Guernsey.
GARY YARDLEY | Non-executive Director
Gary is a Fellow of the Royal Institution of Chartered Surveyors and holds
a degree in estate management from Southbank University and an MBA. He has
been a senior deal maker in the UK and European real estate market for
over 25 years. Gary was formally Managing Director & Chief Investment
Officer of Capital & Counties Property PLC (“Capco”) and led Capco’s real
estate investment and development activities. Leading Capco’s team on the
redevelopment of Earls Court, Gary was responsible for acquiring and
subsequently securing planning consent for over 11m sq. ft. at this
strategic opportunity area capable of providing over 7,500 new homes for
London. Gary was also heavily involved in the curation and growth of the
Covent Garden estate for Capco, now an established premier London
landmark. Gary is a Chartered Surveyor with over 30 years’ experience in
UK & European real estate. He is a former CIO of Liberty International and
former equity partner of King Sturge and led PwC’s real estate team in
Prague and Central Europe in the early 1990s. Gary has recently returned
to Prague and became Managing Director of West Bohemia Developments a.s,
in August 2023, leading a major development opportunity on the D5 Highway
adjacent to the German border. Gary now resides in the Czech Republic.
SHELAGH MASON | Non-executive Director - Management Engagement Committee
Chairman and Senior Independent Director
Shelagh Mason is a solicitor specialising in English commercial property
who retired as a consultant with Collas Crill LLP in 2020. She is the
Non-Executive Chairman of the Channel Islands Property Fund Limited listed
on the International Stock Exchange and is also Non-Executive Chairman of
Riverside Capital PCC, sits on the board of Skipton International Limited,
a Guernsey Licensed bank, and until 28 February 2022, she was a
Non-Executive Director of the Renewables Infrastructure Fund a FTSE 250
company, standing down after nine years on the board. In addition to the
Company, she has a non-executive position with Ruffer Investment Company
Limited, a FTSE 250 company. Previously Shelagh was a member of the board
of directors of Standard Life Investments Property Income Trust, a
property fund listed on the London Stock Exchange for 10 years until
December 2014. She retired from the board of Medicx Fund Limited, a main
market listed investment company investing in primary healthcare
facilities in 2017 after 10 years on the board. She is a past Chairman of
the Guernsey Branch of the Institute of Directors and she also holds the
IOD Company Direction Certificate and Diploma with distinction. Shelagh is
a resident of Guernsey.
CHARLOTTE DENTON | Non-executive Director - Audit Committee Chairman
Charlotte is a Fellow of the Institute of Chartered Accountants in England
and Wales and a Chartered Director and a fellow of the Institute of
Directors. She holds a degree in politics from Durham University. During
Charlotte’s executive career she worked in various locations through roles
in diverse organisations, including KPMG, Rothschild, Northern Trust, a
property development startup and a privately held financial services
group. She has served on boards for nearly twenty years and is currently a
Non-Executive Director of various entities including the GP boards of
Private Equity groups Cinven and Hitec and the Investment Manager for
NextEnergy. She is also on the board of Pershing Square Holdings Limited,
a FTSE 100 company. Charlotte is 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 as required by DTR 4.2.4 R; and
2. The Interim Financial Report, comprising of the Chairman’s Statement,
the Investment Manager’s Report and the Principal Risks, meets the
requirements of an interim management report and includes a fair review of
information required by:
(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
John Whittle Charlotte Denton
Chairman Director
6 September 2024 6 September 2024
Interim Financial Statements
Independent Review Report to Starwood European Real Estate Finance Limited
Report on the unaudited condensed consolidated financial statements
OUR CONCLUSION
We have reviewed Starwood European Real Estate Finance Limited's unaudited
condensed consolidated financial statements (the "interim financial
statements") in the Interim Financial Report and Unaudited Condensed
Consolidated Financial Statements of Starwood European Real Estate Finance
Limited for the 6-month period ended 30 June 2024 (the “period”).
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are 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.
The interim financial statements comprise:
the unaudited condensed consolidated statement of financial position as
at 30 June 2024;
the unaudited condensed consolidated statement of comprehensive income
for the period then ended;
the unaudited condensed consolidated statement of cash flows for the
period then ended;
the unaudited condensed consolidated statement of changes in equity for
the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Financial Report
and Unaudited Condensed Consolidated Financial Statements have 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.
BASIS FOR CONCLUSION
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 enquiries, 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 it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE REVIEW
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
The Interim Financial Report and Unaudited Condensed Consolidated
Financial Statements, including the interim financial statements, is the
responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the Interim Financial Report and Unaudited
Condensed Consolidated Financial Statements 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 responsibility is to express a conclusion on the interim financial
statements in the Interim Financial Report and Unaudited Condensed
Consolidated Financial Statements 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.
PricewaterhouseCoopers CI LLP
Chartered Accountants,
Guernsey, Channel Islands
8 September 2024
(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 interim financial statements since
they were initially presented on the website.
(b) Legislation in Guernsey governing the preparation and dissemination of
interim financial statements may differ from legislation in other
jurisdictions.
Unaudited Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2024
1 January 2024 1 January 2023 1 January 2023
to to to
30 June 2024 30 June 2023 31 December
2023
Notes £ (unaudited) £ (unaudited) £ (audited)
Income
Income from loans 7 10,792,003 18,204,923 31,923,037
advanced
Short term deposits 1,443,065 11,435 1,222,122
interest income
Net foreign exchange 3 452,917 (33,802) 1,809,952
gains / (losses)
Total income 12,687,985 18,182,556 34,955,111
Expenses
Impairment (reversal) / 7 (143,478) 1,726,000 3,476,360
loss on loans advanced
Investment management 16 1,092,092 1,520,900 2,910,524
fees
Credit facility 56,610 424,219 604,878
commitment fees
Credit facility
interest and 8,333 255,505 514,651
amortisation of fees
Other expenses 143,903 214,759 442,863
Audit and non-audit 143,460 182,957 290,376
fees
Administration fees 193,737 158,769 353,610
Legal and professional 117,523 144,932 248,936
fees
Directors' fees and 16 99,002 103,112 204,739
expenses
Broker's fees and 25,000 25,000 50,000
expenses
Total operating 1,736,182 4,756,153 9,096,937
expenses
Operating profit for
the period / year 10,951,803 13,426,403 25,858,174
before tax
Taxation 15 130,100 367,217 607,193
Operating profit for 10,821,703 13,059,186 25,250,981
the period / year
Other comprehensive
income
Items that may be
reclassified to profit
or loss
Exchange differences on
translation of foreign (74,037) 18,174 (60,422)
operations
Other comprehensive
(loss)/income for the (74,037) 18,174 (60,422)
period / year
Total comprehensive
income for the period / 10,747,666 13,077,360 25,190,559
year
Weighted average number 4 286,319,699 395,326,056 378,184,423
of shares in issue
Basic and diluted
earnings per Ordinary 4 3.78 3.30 6.66
Share (pence)
The accompanying notes form an integral part of these Unaudited Condensed
Consolidated Financial Statements.
Unaudited Condensed Consolidated Statement of Financial Position
as at 30 June 2024
As at As at As at
30 June 2024 30 June 2023 31 December 2023
Notes £ (unaudited) £ (unaudited) £ (audited)
Assets
Cash and cash 5 117,143,316 13,137,269 63,837,644
equivalents
Other receivables and 6 33,568 1,537,753 24,225
prepayments
Revolving credit
facility capitalised – 262,287 8,333
cost
Financial assets at
fair value through 8 947,729 2,891,365 993,204
profit or loss
Loans advanced 7 166,864,999 384,146,488 264,096,284
Total assets 284,989,612 401,975,162 328,959,690
Liabilities
Credit facilities 10 – – –
Trade and other 9 1,506,891 1,543,420 1,627,985
payables
Total liabilities 1,506,891 1,543,420 1,627,985
Net assets 283,482,721 400,431,742 327,331,705
Capital and reserves
Share capital 11 269,825,015 385,435,824 313,280,868
Retained earnings 13,938,224 15,123,803 14,257,318
Translation reserve (280,518) (127,885) (206,481)
Total equity 283,482,721 400,431,742 327,331,705
Number of Ordinary 11 270,178,206 385,940,346 313,690,942
Shares in issue
Net asset value per 104.92 103.75 104.35
Ordinary Share (pence)
These Unaudited Condensed Consolidated Financial Statements were approved
and authorised for issue by the Board of Directors on 6 September 2024,
and signed on its behalf by:
John Whittle Charlotte Denton
Chairman Director
The accompanying notes form an integral part of these Unaudited Condensed
Consolidated Financial Statements.
Unaudited Condensed Consolidated Statement of Changes in Equity
for the period ended 30 June 2024
Share Retained Translation Total
Period ended 30 June capital earnings reserve equity
2024
£ £ £ £
(unaudited) (unaudited) (unaudited) (unaudited)
Balance at 1 January 313,280,868 14,257,318 (206,481) 327,331,705
2024
Shares redeemed (43,455,853) (1,544,142) – (44,999,995)
Dividends paid – (9,596,655) – (9,596,655)
Operating profit for – 10,821,703 – 10,821,703
the period
Other comprehensive
income:
Other comprehensive – – (74,037) (74,037)
loss for the period
Balance at 30 June 2024 269,825,015 13,938,224 (280,518) 283,482,721
Share Retained Translation Total
Period ended 30 June capital earnings reserve equity
2023
£ £ £ £
(unaudited) (unaudited) (unaudited) (unaudited)
Balance at 1 January 395,075,556 21,218,267 (146,059) 416,147,764
2023
Shares redeemed (9,639,732) (362,997) – (10,002,729)
Dividends paid – (18,790,653) – (18,790,653)
Operating profit for – 13,059,186 – 13,059,186
the period
Other comprehensive
income:
Other comprehensive – – 18,174 18,174
income for the period
Balance at 30 June 2023 385,435,824 15,123,803 (127,885) 400,431,742
Share Retained Translation Total
Year ended 31 December capital earnings reserve equity
2023
£ £ £ £
(audited) (audited) (audited) (audited)
Balance at 1 January 395,075,556 21,218,267 (146,059) 416,147,764
2023
Shares redeemed (81,794,688) (3,207,935) – (85,002,623)
Dividends paid – (29,003,995) – (29,003,995)
Operating profit for – 25,250,981 – 25,250,981
the year
Other comprehensive
income:
Other comprehensive – – (60,422) (60,422)
loss for the year
Balance at 31 December 313,280,868 14,257,318 (206,481) 327,331,705
2023
The accompanying notes form an integral part of these Unaudited Condensed
Consolidated Financial Statements.
Unaudited Condensed Consolidated Statement of Cash Flows
for the period ended 30 June 2024
1 January 2024 1 January 2023 1 January 2023
to to to
30 June 2024 30 June 2023 31 December
2023
£ £ £
(unaudited) (unaudited) (audited)
Operating activities:
Operating profit for the 10,951,803 13,426,403 25,858,174
period / year before tax
Adjustments before tax
Income from loans advanced (10,792,003) (18,204,923) (31,923,037)
Short term deposits interest (1,443,065) (11,435) (1,222,122)
income
(Increase) / decrease in
prepayments, receivables and (9,150) (5,875) 2,567
capitalised costs
(Decrease) / increase in (65,135) (259,704) (312,832)
trade and other payables
Net unrealised losses /
(gains) on foreign exchange 45,475 (2,184,704) (286,543)
derivatives
Net foreign exchange (gains) (498,392) 5,036,923 (1,523,409)
/ losses
Net foreign exchange losses /
(gains) on foreign exchange 2,142,687 (2,553,840) 4,988,870
derivatives
Impairment (reversal) / loss (143,478) 1,726,000 3,476,360
on loans advanced
Credit facility interest and 8,333 255,504 514,651
amortisation of fees
Credit facility commitment 56,610 424,219 604,878
fees
Currency translation 977,980 2,199,941 1,969,811
difference
Corporate taxes paid (131,405) (290,396) (290,396)
1,100,260 (441,887) 1,856,972
Loans advanced1 (8,828,699) (1,661,978) (7,338,190)
Loan repayments and 102,077,030 43,551,178 166,897,162
amortisation
Interest, commitment and exit
fee income from loans 13,255,599 16,604,438 33,545,209
advanced
Net cash inflow from 107,604,190 58,051,751 194,961,153
operating activities
Cash flows from investing
activities
Short term deposits interest 1,443,065 11,435 1,222,122
income
Net cash inflow from 1,443,065 11,435 1,222,122
investing activities
Cash flows from financing
activities
Share redemptions (44,999,995) (10,002,729) (85,002,623)
Dividends paid (9,596,655) (18,790,653) (29,003,995)
Repayments under credit – (19,000,000) (19,000,000)
facility
Credit facility interest and – (535,358) (377,796)
amortisation paid
Credit facility commitment (111,267) (443,877) (715,131)
fees paid
Net cash outflow from (54,707,917) (48,772,617) (134,099,545)
financing activities
Net (decrease)/increase in 54,339,338 9,290,569 62,083,730
cash and cash equivalents
Cash and cash equivalents at
the start of the period / 63,837,644 3,576,155 3,576,155
year
Net foreign exchange (losses)
/ gains on cash and cash (1,033,666) 270,545 (1,822,241)
equivalents
Cash and cash equivalents at 117,143,316 13,137,269 63,837,644
the end of the period / year
1 Net of arrangement fees of £nil (period ended 30 June 2023: £nil, year
ended 31 December 2023: £nil) withheld.
The accompanying notes form an integral part of these Unaudited Condensed
Consolidated Financial Statements.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the period ended 30 June 2024
1. GENERAL INFORMATION
Starwood European Real Estate Finance Limited (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 scheme.
The registered office and principal place of business of the Company is 1,
Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands,
GY1 2HL.
The Company has appointed Starwood European Finance Partners Limited as
the Investment Manager (the “Investment Manager”), a company incorporated
in Guernsey 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 FCA, to provide investment advice pursuant to an
Investment Advisory Agreement. The administration of the Company is
delegated to Apex Fund and Corporate Services (Guernsey) Limited (the
“Administrator”).
On 12 December 2012, the Company announced the results of its IPO, which
raised net proceeds of £223.9 million. The Company’s Ordinary Shares were
admitted to the premium segment of the UK FCA’s Official List and to
trading on the Main Market of the London Stock Exchange as part of its IPO
which completed on 17 December 2012. Further issues took place in March
2013, April 2013, July 2015, September 2015, August 2016 and May 2019. On
10 August 2020, the Company announced the appointment of Jefferies
International Limited as buy-back agent to effect share buybacks on behalf
of the Company. During the years ended 2020, 2021 and 2022 the Company
bought back a total of 17,626,702 Ordinary Shares at an average cost of
91.51 pence per share. These Ordinary Shares were held in treasury until
they were cancelled in June 2023.
Following the Company’s Extraordinary General Meeting (“EGM”) on 27
January 2023, the Company’s objective changed and is now to conduct an
orderly realisation of the assets of the Group and the return of capital
to Shareholders. In line with this objective the Board will endeavour to
realise all of the Group’s investments in a manner that achieves a balance
between maximising the net value received from those investments and
making timely returns to Shareholders. During June, August and December of
2023 and February and March of 2024 the Company redeemed a total of
125,414,490 Ordinary Shares at an average cost of 103.66 pence per share.
Subsequent to period end, in July 2024 the Company compulsorily redeemed a
further 76,248,573 Ordinary Shares at a price of 104.92 pence per share.
As at the date of the issuance of this report the Company had 193,929,633
shares in issue and the total number of voting rights was 193,929,633.
Further details and background is covered in the Corporate Summary section
of this report.
The Unaudited Condensed Consolidated Financial Statements comprise the
financial statements of the Company, Starfin Public Holdco 1 Limited
(“Holdco 1”), Starfin Public Holdco 2 Limited (“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 2024.
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 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. 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 2023, which have been
prepared in accordance with International Financial Reporting Standards as
adopted by the European Union and the Companies (Guernsey) Law, 2008. The
statutory Financial Statements for the year ended 31 December 2023 were
approved by the Board of Directors on 18 March 2024. The opinion of the
Auditor on those Financial Statements was unqualified. This Interim
Financial Report and Unaudited Condensed Consolidated Financial Statements
for the period ended 30 June 2024 has been reviewed by the Auditor but not
audited.
In line with the considerations noted in Note 1 above, the Directors have
undertaken a comprehensive review and considered it appropriate to adopt
the going concern basis of accounting in preparing the Interim Financial
Report and Unaudited Condensed Consolidated Financial Statements.
There are a number of new and amended accounting standards and
interpretations that became applicable for annual reporting periods
commencing on or after 1 January 2024.
These amendments have not had a significant impact on these Unaudited
Condensed Consolidated Financial Statements and therefore the additional
disclosures associated with first time adoption have not been made.
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 2023.
3. NET FOREIGN EXCHANGE GAINS / (LOSSES)
30 June 2024 30 June 2023 31 December 2023
£ £ £
Loans advanced gains - realised 449,103 113,162 221,192
Loans advanced losses - (2,294,092) (166,935) (724,358)
realised
Forward contracts gains - 2,255,012 2,755,096 5,218,375
realised
Forward contracts losses - (8,500) (209,237) (334,112)
realised
Other gains/(losses) - realised (85,477) 4,904 320,918
Total realised gains 316,046 2,496,990 4,702,015
Loans advanced gains - 1,305,216 32,929 57,994
unrealised
Loans advanced losses - (1,122,870) (4,748,425) (3,236,599)
unrealised
Forward contracts gains - 4,039,911 7,716,816 7,319,115
unrealised
Forward contracts losses - (4,085,386) (5,532,112) (7,032,573)
unrealised
Total unrealised gains/(losses) 136,871 (2,530,792) (2,892,062)
Net gains/(losses) 452,917 (33,802) 1,809,952
On occasion, the Group may realise a gain or loss on the roll forward of a
hedge if it becomes necessary to extend a capital hedge beyond the initial
anticipated loan term. If this situation arises the Group will separate
the realised FX gain or loss from other realised FX gains or losses and
not consider it available to distribute (or as a reduction in
distributable profits). The FX gain or loss will only be considered part
of distributable reserves when the rolled hedge matures or is settled and
the final net gain or loss on the capital hedges can be determined.
4. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
The calculation of basic earnings per Ordinary Share is based on the
operating profit of £10,821,703 (30 June 2023: £13,059,186 and 31 December
2023: £25,250,981) and on the weighted average number of Ordinary Shares
in issue at 30 June 2024 of 286,319,699 (30 June 2023: 395,326,056 and 31
December 2023: 378,184,423).
The calculation of NAV per Ordinary Share is based on a NAV of
£283,482,721 (30 June 2023: £400,431,742 and 31 December 2023:
£327,331,705) and the actual number of Ordinary Shares in issue at 30 June
2024 of 270,178,206 (30 June 2023: 385,940,346 and 31 December 2023:
313,690,942).
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprises bank balances and short term bank
deposits held by the Group. The carrying amount of these represents their
fair value.
30 June 2024 30 June 2023 31 December 2023
£ £ £
Cash at bank 18,661,380 3,125,834 20,673,973
Short term deposit 98,481,936 10,011,435 43,163,671
117,143,316 13,137,269 63,837,644
Cash and cash equivalents comprises cash and short-term deposits held with
various banking institutions with original maturities of three months or
less.
6. OTHER RECEIVABLES AND REPAYMENTS
30 June 2024 30 June 2023 31 December 2023
£ £ £
Prepayments 33,568 32,667 24,225
Investment
interest – 1,505,086 –
receivable1
33,568 1,537,753 24,225
1 Investment interest receivable as at 30 June 2023 relates to loan
related payments which were received after period end.
7. LOANS ADVANCED
30 June 2024 30 June 2023 31 December 2023
£ £ £
UK
Hotels, United Kingdom 46,046,030 32,061,420 37,355,613
Industrial Estate, UK 27,261,756 27,414,987 27,410,670
Hospitals, UK 25,354,632 25,363,038 25,370,368
Life Science, UK 16,021,354 20,055,999 15,923,105
Hotel, North Berwick 15,189,791 15,253,555 15,241,403
Hotel and Office, Northern 7,579,367 10,919,618 9,099,325
Ireland
Hotel & Residential, UK – 50,110,830 –
Hotel, Scotland – 43,249,198 43,232,893
Office, London – 20,975,997 –
Spain
Office Portfolio, Spain 8,019,380 8,138,179 8,236,586
Three Shopping Centres – 29,590,487 29,276,457
Office, Madrid, Spain – 15,988,322 –
Shopping Centre, Spain – 13,466,064 11,189,028
Ireland
Office Portfolio, Ireland 21,392,689 21,264,090 21,428,669
Hotel, Dublin – 33,267,881 20,332,167
Mixed use, Dublin – 11,127,912 –
Rest of Europe
Mixed Portfolio, Europe – 5,898,911 –
166,864,999 384,146,488 264,096,284
The amortised carrying cost of the Shopping Centre, Spain in 2023 includes
an impairment provision of £1.7 million as at 30 June 2023 and £3.5
million as at 31 December 2023. This loan was settled in March 2024
resulting in the writing back of £0.14 million of the provision held as at
31 December 2023 as shown below.
The table below reconciles the movement of the carrying value of loans
advanced in the period / year.
30 June 2024 30 June 2023 31 December 2023
£ £ £
Loans advanced at the start of 264,096,284 432,459,966 432,459,966
the period / year
Loans advanced1 9,410,527 1,637,570 7,338,190
Income from loans advanced 10,792,003 18,204,923 31,923,037
Impairment reversal/(loss) on 143,478 (1,726,000) (3,476,360)
loans advanced
Foreign exchange (1,662,643) (4,769,269) (3,681,770)
gains/(losses)
Exit fees received (1,163,650) (238,207) (499,300)
Commitment fees received (307,042) (433,719) (846,127)
Interest payments received1 (12,366,928) (17,437,598) (32,199,782)
Loan repayments (102,077,030) (43,551,178) (166,921,570)
Loans advanced at the end of 166,864,999 384,146,488 264,096,284
the period / year
Loans advanced at fair value 178,250,750 398,443,765 275,556,353
1. These items include interest capitalised of £581,828.
8. 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
domestic currency and sell foreign currency on a future date at a
specified price.
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 foreign exchange derivatives are
subject to offsetting, enforceable master netting agreements for each
counterparty.
The gains and losses relating to the currency forwards are included within
“Net foreign exchange gains / (losses)” in the Unaudited Condensed
Consolidated Statement of Comprehensive Income”.
Fair value estimation
The fair value of financial assets, which comprise derivatives not
designated as hedges, are valued based on the difference between the
agreed price of selling or buying the financial instruments on a future
date and the price quoted on the year end date for selling or buying the
same or similar financial instruments.
The fair value of financial assets and liabilities at fair value through
profit or loss are set out below:
Notional contract Fair values
30 June 2024 amount1 Assets Liabilities Total
£ £ £ £
Foreign exchange
derivatives
Currency forwards:
Lloyds Bank plc 72,153,271 1,419,030 (471,301) 947,729
Total 72,153,271 1,419,030 (471,301) 947,729
Notional contract Fair values
30 June 2023 amount1 Assets Liabilities Total
£ £ £ £
Foreign exchange
derivatives
Currency forwards:
Lloyds Bank plc 238,265,359 4,865,135 (1,973,770) 2,891,365
Total 238,265,359 4,865,135 (1,973,770) 2,891,365
Notional contract Fair values
31 December 2023 amount1 Assets Liabilities Total
£ £ £ £
Foreign exchange
derivatives
Currency forwards:
Lloyds Bank plc 329,276,074 3,826,628 (2,833,424) 993,204
Total 329,276,074 3,826,628 (2,833,424) 993,204
1 Euro amounts are translated at the period / year end exchange rate
9. TRADE AND OTHER PAYABLES
30 June 2024 30 June 2023 31 December 2023
£ £ £
Investment management fees 525,743 757,750 672,075
payable
Audit fees payable 223,569 223,094 206,866
Accrued expenses 273,745 172,764 256,530
Administration fees payable 141,865 132,971 82,556
Commitment fees payable – 154,195 54,654
Tax provision 341,242 102,646 342,547
Directors' fees and expenses 727 – 12,757
payable
1,506,891 1,543,420 1,627,985
10. CREDIT FACILITIES
Under its investment policy, the Group 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 Group’s borrowings for this purpose, any liabilities
incurred under the Group’s foreign exchange hedging arrangements shall be
disregarded.
In March 2024 the credit facilities available to the Group (of £25
million) were cancelled by the company and their extension not pursued as
the Company had sufficient cash in reserve. As at 30 June 2023, the Group
had credit facilities of £101,000,000 (31 December 2023: £25,000,000) of
which none were drawn (31 December 2023: £nil).
The changes in liabilities arising from financing activities are shown in
the table below.
30 June 2024 30 June 2023 31 December 2023
£ £ £
Borrowings at the start of the – 18,863,204 18,863,204
period /year
Repayments during the period / – (19,000,000) (19,000,000)
year
Interest expense recognised for – 148,118 153,250
the period / year
Interest paid during the period – (330,455) (327,796)
/ year
Credit facility fees incurred – (50,000) –
Credit facility amortisation of – 107,386 311,342
fees
Foreign exchange and – 261,747 –
translation difference
Borrowings at the end of the – – –
period/year
11. SHARE CAPITAL
The share capital of the Company consists of an unlimited number of
redeemable Ordinary Shares of no par value which upon issue the Directors
may classify into such classes as they may determine. The Ordinary Shares
are redeemable at the discretion of the Board.
At the period end, the Company had issued and fully paid up share capital
as follows:
Six months to Six months to Year to
30 June 2024 30 June 2023 31 December 2023
£ £ £
Period to:
Ordinary Shares of no par
value Issued and fully paid 313,690,942 395,592,696 395,592,696
at beginning of period
Shares redeemed during period (43,512,736) (9,652,350) (81,901,754)
Total Ordinary Shares at end 270,178,206 385,940,346 313,690,942
of period
The Company’s share capital is denominated in Sterling. At any general
meeting of the Company each ordinary share carries one vote. The Ordinary
Shares also carry the right to receive all income of the Company
attributable to the Ordinary Shares, and to participate in any
distribution of such income made by the Company, such income shall be
divided pari passu among the holders of Ordinary Shares in proportion to
the number of Ordinary Shares held by them.
Significant share movements
1 January 2024 to 30 June 2024:
Number £
Balance at the start of the period 313,690,942 321,570,857
Shares redeemed in six months to June 2024 (43,512,736) (43,455,853)
Balance at the end of the period 270,178,206 278,115,004
Issue costs since inception (8,289,989)
Net proceeds 269,825,015
1 January 2023 to 30 June 2023:
Number £
Balance at the start of the period 395,592,696 403,365,545
Shares redeemed in June 2023 (9,652,350) (9,639,732)
Balance at the end of the period 385,940,346 393,725,813
Issue costs since inception (8,289,989)
Net proceeds 385,435,824
1 January 2023 to 31 December 2023:
Number £
Balance at the start of the period 395,592,696 403,365,545
Shares redeemed in 2023 (81,901,754) (81,794,688)
Balance at the end of the year 313,690,942 321,570,857
Issue costs since inception (8,289,989)
Net proceeds 313,280,868
12. DIVIDENDS
Dividends will be declared by the Directors and paid in compliance with
the solvency test prescribed by Guernsey law. Under Companies (Guernsey)
Law, 2008, 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 2024:
Dividend rate per Net dividend
Period to: Payment date
Share (pence) paid (£)
31 March 2024 (1) 1.375 3,714,950 24 May 2024
30 June 2024 (2) 1.375 2,666,532 23 August 2024
(1) Declared on 24 Apr 2024 and to be paid on 24 May 2024 to shareholders
on the register as at 3 May 2024.
(2) Declared on 24 July 2024 and to be paid on 23 August 2024 to
shareholders on the register as at 2 August 2024.
The Company paid the following dividends in respect of the year to 31
December 2023:
Dividend rate per Net dividend
Payment date
Share (pence) paid (£)
Period to:
31 March 2023 1.375 5,439,400 23 May 2022
30 June 2023 1.375 5,306,680 28 August 2023
30 September 2023 1.375 4,906,662 25 November 2023
31 December 2023(1) 1.875 5,881,705 23 February 2024
(1) Declared on 25 January 2024 and to be paid on 23 February 2024 to
shareholders on the register as at 2 February 2024. As this was declared
after year end it was not accrued at year end.
13. 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.
It is the role of the Board to review and manage all risks associated with
the Group, mitigating these either directly or through the delegation of
certain responsibilities to the Audit Committee, Investment Manager and
Investment Adviser.
The Board of Directors has established procedures for monitoring and
controlling risk. The Group has investment guidelines that set out its
overall business strategies, its tolerance for risk and its general risk
management philosophy.
In addition, the Investment Manager monitors and measures the overall risk
bearing capacity in relation to the aggregate risk exposure across all
risk types and activities. Further details regarding these policies are
set out below:
(i) Market 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 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.
The Group and Lloyds Bank plc entered into an international forward
exchange master agreement dated 5 April 2013 and on 7 February 2014 the
Group entered into a Professional Client Agreement with Goldman Sachs,
pursuant to which the parties can enter into foreign exchange transactions
with the intention of hedging against fluctuations in the exchange rate
between Sterling and other currencies. The Group does not trade in
derivatives but holds them to hedge specific exposures and have maturities
designed to match the exposures they are hedging. The derivatives are held
at fair value which represents the replacement cost of the instruments at
the reporting date and movements in the fair value are included in the
Unaudited Condensed Consolidated Statement of Comprehensive Income under
net foreign exchange losses/ (gains). The Group does not adopt hedge
accounting in the Unaudited Condensed Consolidated Statement of Financial
Statements. At the end of the reporting period the Group had 19 (June
2023: 113 and December 2023: 84) open forward contracts.
b) Interest rate risk
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 majority of the Group’s financial assets are loans advanced at
amortised cost, receivables and cash and cash equivalents. The Group’s
investments have some exposure to interest rate risk which 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.
The loans in place at 30 June 2024 are structured so that 85.0 per cent
(30 June 2023: 76.1 per cent, 31 December 2023: 90.5 per cent) are
floating rate and all of these floating rate loans are subject to
interbank rate floors such that the interest cannot drop below a certain
level, which offers some protection against downward interest rate risk.
The remaining 15.0 per cent by value of the loans are fixed rate, which
provides protection from downward interest rate movements to the overall
portfolio (but also prevents the Group from benefiting from any interbank
rate rises on these positions).
(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, 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 2024 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. For banks and financial institutions, only
independently rated parties with a minimum rating of ‘A’ are accepted. The
Group also has credit risk exposure in its financial assets classified as
financial assets through profit or loss which can be diversified between
hedge providers in order to spread credit risk to which the Group is
exposed. At the period end the derivative exposures were with one
counterparty.
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 end of the reporting period. As at 30 June
2024, the maximum credit risk exposure was £284,956,044 (30 June 2023:
£401,942,495 and 31 December 2023: £328,927,132).
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 ongoing 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.
The Group measures credit risk and expected credit losses using
probability of default, exposure at default and loss given default. The
Directors consider both historical analysis and forward looking
information in determining any expected credit loss. The Directors
consider the loss given default to be close to zero as all loans are the
subject of very detailed underwriting, including the testing of resilience
to aggressive downside scenarios with respect to the loan specifics, the
market and general macro changes. In addition to this, all loans have very
robust covenants in place, strong security packages and significant
loan-to-value headroom.
During the period, one asset which is classified as Stage 2 made a
significant repayment decreasing the Group's exposure to loss. One asset
classified as Stage 3 was settled and an impairment loss of £3.5 million
was recognized (this loss had already been provided for as at 31 December
2023).
(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. However, as
at 30 June 2024 the company had no credit facilities as it had not pursed
the extension of the facilities it had held up to March 2024 (amounting to
£25.0 million) as it held sufficient cash reserves to cover unfunded cash
loan commitments (30 June 2023: £101.0 million of which none were drawn;
31 December 2023: £25.0 million of which none were drawn).
As at 30 June 2024, the Group had £117,143,316 (30 June 2023: £13,137,269
and 31 December 2023: £63,837,644) available in cash and £1,506,891 (30
June 2023: £1,543,420 and 31 December 2023: £1,627,985) trade payables.
The Directors considered this to be sufficient cash to meet the Group's
liabilities and undrawn loan commitments. These are set out in the
Investment Managers report.
(iv) Risk of default under the revolving credit facilities
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 under market deterioration risk. As a consequence of this,
the Group could breach the covenants of its revolving credit facilities
and fall into default itself.
A number of the measures the Group takes to mitigate market deterioration
risk as outlined above, such as portfolio diversification and rigorous due
diligence on investments and monitoring of borrowers, will also help to
protect the Group from the risk of default under the revolving credit
facility as this is only likely to occur as a consequence of borrower
defaults or loan impairments.
The Board regularly reviews the balances drawn under the credit facility
against commitments and reviews the performance under the agreed
covenants. The loan covenants are also stress tested to test how robust
they are to withstand default of the Group’s investments.
The Group had no available credit facilities as at 30 June 2024 as it was
decided not to pursue the extension of any credit facilities that had been
available to it in the past as the Group has sufficient resources to meet
its liabilities as they fall due, therefore, the Group is no longer
subject to this risk as at 30 June 2024.
14. FAIR VALUE MEASUREMENT
IFRS 13 requires the Group 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 2024
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Investments at fair value through – 1,419,030 – 1,419,030
profit or loss
Short term deposit 1 98,481,936 – – 98,481,936
Total 98,481,936 1,419,030 – 99,900,966
Liabilities
Investments at fair value through – (471,301) – (471,301)
profit or loss
Total – (471,301) – (471,301)
1 Presented under cash and cash equivalents in Statement of Financial
Position.
30 June 2023
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Investments at fair value – 4,865,135 – 4,865,135
through profit or loss
Short term deposit 1 10,011,435 – – 10,011,435
Total 10,011,435 4,865,135 – 14,876,570
Liabilities
Investments at fair value – (1,973,770) – (1,973,770)
through profit or loss
Total – (1,973,770) – (1,973,770)
1 Presented under cash and cash equivalents in Statement of Financial
Position.
31 December 2023
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Investments at fair value – 3,826,628 – 3,826,628
through profit or loss
Short term deposit 1 43,163,671 – – 43,163,671
Total 43,163,671 3,826,628 – 46,990,299
Liabilities
Investments at fair value – (2,833,424) – (2,833,424)
through profit or loss
Total – (2,833,424) – (2,833,424)
1 Presented under cash and cash equivalents in Statement of Financial
Position.
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 following table summarises within the fair value hierarchy the Group’s
assets and liabilities (by class) not measured at fair value but for which
fair value is disclosed:
30 June 2024
Level 1 Level 2 Level 3 Total fair Total carrying
values amount
£ £ £ £ £
Assets
Loans – – 178,250,750 178,250,750 166,864,999
advanced
Total – – 178,250,750 178,250,750 166,864,999
30 June 2023
Level 1 Level 2 Level 3 Total fair Total carrying
values amount
£ £ £ £ £
Assets
Loans – – 398,443,765 398,443,765 384,146,488
advanced
Total – – 398,443,765 398,443,765 384,146,488
31 December 2023
Level 1 Level 2 Level 3 Total fair Total carrying
values amount
£ £ £ £ £
Assets
Loans – – 275,556,353 275,556,353 264,096,284
advanced
Total – – 275,556,353 275,556,353 264,096,284
For cash and cash equivalents, other receivables and trade and other
payables the carrying amount is a reasonable approximation of the fair
value.
The fair value of loans advanced have been determined by discounting the
expected cash flows using a discounted cash flow model. For avoidance of
doubt, the Group carries its loans advanced at amortised cost.
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.
15. 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
£1,600 as of 2024 (previously £1,200). The Luxembourg indirect
subsidiaries of the Company are subject to the applicable tax regulations
in Luxembourg.
The Luxco had no operating gains on ordinary activities before taxation
and was therefore subject to the Luxembourg minimum corporate income
taxation at €4,815 (year ended 31 December 2023: €4,815). The Luxco 3 and
Luxco 4 are subject to Corporate Income Tax and Municipal Business Tax
based on a margin calculated on an arm's-length principle. The effective
annual tax rate in Luxembourg during the reporting period was 24.94 per
cent (year ended 31 Dec 2023 :24.94 per cent).
16. 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.
Outstanding at Outstanding at Outstanding at
30 June 2024 30 June 2023 31 December 2023
£ £ £
Investment Manager
Investment management fees 525,743 757,750 672,075
payable
For the period For the period For the year
ended ended ended
30 June 2024 30 June 2023 31 December 2023
£ £ £
Directors’ fees and
expenses
John Whittle 30,000 30,000 60,000
Shelagh Mason 22,500 22,500 45,000
Charlotte Denton 25,000 25,000 50,000
Gary Yardley 21,000 21,000 42,000
Expenses 502 4,612 7,739
Investment Manager
Investment management fees 1,092,092 1,520,900 2,910,524
earned
Expenses 49,197 42,781 90,813
The tables below summarise the dividends paid to and number of Company’s
shares held by related parties.
Dividends paid Dividends paid Dividends paid
during during during
the period ended the period ended the year ended
30 June 2024 30 June 2023 31 December 2023
£ £ £
Starwood Property Trust 221,727 434,150 670,125
Inc.
SCG Starfin Investor LP 55,432 108,538 167,531
John Whittle 822 1,609 2,483
Charlotte Denton 1,078 2,111 3,259
Shelagh Mason 2,737 5,359 8,272
Duncan MacPherson* 6,011 11,875 18,329
Lorcain Egan* 2,030 3,975 6,135
As at As at As at
30 June 2024 30 June 2023 31 December 2023
Number of shares Number of shares Number of shares
Starwood Property Trust 6,242,339 8,916,984 7,247,687
Inc.
SCG Starfin Investor LP 1,560,587 2,229,246 1,811,923
John Whittle 23,133 33,040 26,857
Charlotte Denton 30,355 43,360 35,244
Shelagh Mason 77,051 110,066 89,461
Duncan MacPherson* 170,743 243,891 198,239
Lorcain Egan* 57,149 81,638 66,353
* Employees at the Investment Adviser
RELATED PARTIES’ INTEREST IN SHARES
The related parties' interests in the Ordinary Shares of the Company are
shown on the table above. Changes in shareholdings between 30 June 2023,
31 December 2023 and 30 June 2024 are as a result of the compulsory share
redemptions which took place during those periods.
Other
The Group continues to participate in a number of loans in which Starwood
Property Trust, Inc. (“STWD”) acted as a co‐lender. The Group also acted
as co-lender with Starwood European Real Estate Debt Finance I LP (“SEREDF
I”) an affiliate entity. The details of these loans are shown in the table
below.
Loan Related party co-lenders
Office Portfolio, Spain STWD
Office Portfolio, Ireland STWD
Hotels, United Kingdom SEREDF I
17. EVENTS AFTER THE REPORTING PERIOD
Subsequent to 30 June 2024, the following loan amortisation (both
scheduled and unscheduled) has been received up to the date of publication
of this report:
Local Currency
Hotel and Office, Northern Ireland £930,000
Subsequent to 30 June 2024, the Group funded £1.1 million in relation to
loan commitments made in prior years which were unfunded.
In July 2024, a compulsory share redemption was announced which returned
circa £80.0 million to shareholders through the compulsory redemption of
76,248,573 shares at a price of £1.0492 per share.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures
(“APMs”) the Board has considered what APMs are included in the Interim
Financial Report and Unaudited Condensed Consolidated Financial Statements
which require further clarification. An APM is defined as a financial
measure of historical or future financial performance, financial position,
or cash flows, other than a financial measure defined or specified in the
applicable financial reporting framework. APMs included in the financial
statements, which are unaudited and outside the scope of IFRS, are deemed
to be as follows:
NAV PER ORDINARY SHARE
The NAV per Ordinary Share represents the net assets attributable to
equity shareholders divided by the number of Ordinary Shares in issue,
excluding any shares held in treasury. The NAV per Ordinary Share is
published monthly. This APM relates to past performance and is used as a
comparison to the share price per Ordinary Share to assess performance.
There are no reconciling items between this calculation and the Net Asset
Value shown on the balance sheet (other than to calculate by Ordinary
Share).
NAV TOTAL RETURN
The NAV total return measures the combined effect of any dividends paid,
together with the rise or fall in the NAV per Ordinary Share. This APM
relates to past performance and takes into account both capital returns
and dividends paid to shareholders. Any dividends received by a
shareholder are assumed to have been reinvested in the assets of the
Company at its NAV per Ordinary Share.
SHARE PRICE TOTAL RETURN
The share price total return measures the combined effects of any
dividends paid, together with the rise or fall in the share price. This
APM relates to past performance and assesses the impact of movements in
the share price on total returns to investors. Any dividends received by a
shareholder are assumed to have been reinvested in additional shares of
the Company at the time the shares were quoted ex-dividend.
NAV TO MARKET PRICE DISCOUNT / PREMIUM
The discount / premium is the amount by which the share price of the
Company is lower (discount) or higher (premium) than the NAV per Ordinary
Share at the date of reporting and relates to past performance. The
discount or premium is normally expressed as a percentage of the NAV per
Ordinary Share.
INVESTED LOAN PORTFOLIO UNLEVERED ANNUALISED TOTAL RETURN
The unlevered annualised return is a calculation at the quarterly
reporting date of the estimated annual return on the portfolio at that
point in time. It is calculated individually for each loan by summing the
one-off fees earned (such as up-front arrangement or exit fees charged on
repayment) and dividing these over the full contractual term of the loan,
and adding this to the annual returns. Where a loan is floating rate
(partially or in whole or with floors), the returns are based on an
assumed profile for future interbank rates, but the actual rate received
may be higher or lower. The return is calculated only on amounts funded at
the quarterly reporting date and excludes committed but undrawn loans and
excludes cash not invested. The calculation also excludes origination fees
paid to the Investment Manager, which are accounted for within the
interest line in the financial statements.
An average, weighted by loan amount, is then calculated for the portfolio.
This APM gives an indication of the future performance of the portfolio
(as constituted at the reporting date). The calculation, if the portfolio
remained unchanged, could be used to estimate “income from loans advanced”
in the Unaudited Condensed Consolidated Statement of Comprehensive Income
if adjusted for the origination fee of 0.75 basis points amortised over
the average life of the loan. As discussed earlier in this report the
figure actually realised may be different due to the following reasons:
In the quoted return, we amortise all one-off fees (such as arrangement
and exit fees) over the contractual life of the loan. However, it has been
our general experience that loans tend to repay sooner and as such, these
fees are generally amortised over a shorter period
Many loans benefit from prepayment provisions, which means that if they
are repaid before the end of the protected period, additional interest or
fees become due. As we quote the return based on the contractual life of
the loan these returns cannot be forecast in the return
The quoted return excludes the benefit of any foreign exchange gains on
Euro loans. We do not forecast this as the loans are often repaid early
and the gain may be lower than this once hedge positions are settled
Generally speaking, the actual annualised total return is likely to be
higher than the reported return for these reasons, but this is not
incorporated in the reported figure, as the benefit of these items cannot
be assumed.
ONGOING CHARGES PERCENTAGE
Ongoing charges represents the management fee and all other operating
expenses excluding finance costs and transactions costs, expressed as a
percentage of the average monthly net asset values during the year and
allows users to assess the running costs of the Group. This is calculated
in accordance with AIC guidance and relates to past performance. The
charges include the following lines items within the Consolidated
Statement of Comprehensive Income:
Investment management fees
Administration fees
Audit and non‐audit fees
Other expenses
Legal and professional fees
Directors’ fees and expenses
Broker’s fees and expenses
Agency fees
The calculation adds back any expenses unlikely to occur absent any loan
originations or repayments and as such, the costs associated with hedging
Euro loans back to sterling have been added back. The calculation does not
include origination fees paid to the Investment Manager; these are
recognised through “Income from loans advanced”.
WEIGHTED AVERAGE PORTFOLIO LTV TO GROUP FIRST AND LAST £
These are calculations made as at the quarterly reporting date of the loan
to value (“LTV”) on each loan at the lowest and highest point in the
capital stack in which the Group participates. LTV to “Group last £” 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 quarterly reporting date. LTV
to “first Group £” 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 development projects, the calculation includes the
total facility available and is calculated against the assumed market
value on completion of the project.
An average, weighted by the loan amount, is then calculated for the
portfolio.
This APM provides an assessment of future credit risk within the portfolio
and does not directly relate to any financial statement line items.
PERCENTAGE OF INVESTED PORTFOLIO IN FLOATING RATE LOANS
This is a calculation made as at the quarterly reporting date, which
calculates the value of loans, which have an element of floating rate in
part, in whole and including loans with floors, as a percentage of the
total value of loans. This APM provides an assessment of potential future
volatility of the income on loans, as a large percentage of floating rate
loans would mean that income would move up or down with changes in SONIA.
AVERAGE LOAN TERM AND AVERAGE REMAINING LOAN TERM
The average loan term is calculated at the quarterly reporting date by
calculating the average length of each loan from initial advance to the
contractual termination date. An average, weighted by the loan amount, is
then calculated for the portfolio.
The average remaining loan term is calculated at the quarterly reporting
date by calculating the average length of each loan from the quarterly
reporting date to the contractual termination date. An average, weighted
by the loan amount, is then calculated for the portfolio.
This APM provides an assessment of the likely level of repayments
occurring in future years (absent any early repayments or loan
extensions).
UNUSED LIQUID FACILITIES
Unused liquid facilities is the result of the Group’s total cash and cash
equivalents plus the available balance to withdraw under existing credit
facilities at the reporting date.
PORTFOLIO DIVERSIFICATION
The portfolio diversification statistics are calculated by allocating each
loan to the relevant sectors and countries based on the value of the
underlying assets. This is then summed for the entire portfolio and a
percentage calculated for each sector / country.
This APM provides an assessment of future risk within the portfolio due to
exposure to specific sectors or countries and does not directly relate to
any financial statement line items.
Further Information
Corporate Information
Directors
John Whittle (non-executive
Chairman) Registered Office
Shelagh Mason (non-executive
Director) 1 Royal Plaza
Charlotte Denton
(non-executive Director) Royal Avenue
Gary Yardley (non-executive
Director) St Peter Port
(all care of the registered Guernsey
office)
GY1 2HL
Investment Manager
Investment Adviser
Starwood European Finance
Starwood Capital Europe Advisers, LLP
Partners Limited
1 Berkeley Street
1 Royal Plaza
London
Royal Avenue
W1J 8DJ
St Peter Port
United Kingdom
Guernsey
Advocates to the Company
GY1 2HL (as to Guernsey law)
Solicitors to the Company Carey Olsen
(as to English law and U.S.
securities law) PO Box 98
Norton Rose Fullbright LLP
3 More London Riverside Carey House, Les Banques
London
SE1 2AQ St Peter Port
United Kingdom
Guernsey
Registrar
GY1 4BZ
Computershare Investor
Services Independent Auditor
(Guernsey) Limited
PricewaterhouseCoopers CI LLP
2nd Floor
Lefebvre Place Royal Bank Place
Lefebvre Street
St Peter Port 1 Glategny Esplanade
GY1 2JP
Guernsey St Peter Port
Sole Broker Guernsey
Jefferies Group LLC GY1 4ND
100 Bishopsgate Principal Bankers
London, EC2N 4JL Barclays Private Clients International
Limited
United Kingdom
PO Box 41
Administrator, Designated
Manager St Julian's Court
and Company Secretary St Julian's Avenue
Apex Fund and Corporate St Peter Port
Services
Guernsey
(Guernsey) Limited
GY1 1WA
1 Royal Plaza
Website:
Royal Avenue
www.starwoodeuropeanfinance.com
St Peter Port
Guernsey
GY1 2HL
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ISIN: GG00BPLZ2K28
Category Code: IR
TIDM: SWEF
LEI Code: 5493004YMVUQ9Z7JGZ50
OAM Categories: 1.2. Half yearly financial reports and audit
reports/limited reviews
3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 345423
EQS News ID: 1983421
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