TIDMSWEF
RNS Number : 7811I
Starwood European Real Estate Finan
30 March 2015
30 March 2015
Starwood European Real Estate Finance Limited
Annual Report and Audited Consolidated Financial Statements for
the year ended 31 December 2014
Objective and Investment Policy
Investment Objective
The investment objective of Starwood European Real Estate
Finance Limited (the "Company"), together with its subsidiaries
Starfin Lux S.à.r.l, Starfin Public LP and Starfin Public GP
(collectively the "Group"), is to provide its shareholders with
regular dividends and an attractive total return while limiting
downside risk, through the origination, execution, acquisition and
servicing of a diversified portfolio of real estate debt
investments
including debt instruments) in the UK and the wider European
Union's internal market.
Investment Policy
The full text of the Company's revised investment policy
following the Extraordinary General Meeting on 9 March 2015 is set
out below.
The Company will seek to invest in a diversified portfolio of
real estate debt investments (including debt instruments) in the UK
and the wider European Union's internal market. Whilst investment
opportunities in the secondary markets will be considered from time
to time, the Company's predominant focus is to be a direct primary
originator of real estate debt investments on the basis that this
approach is expected to deliver better pricing, structure and
execution control and a client facing relationship that may lead to
further investment opportunities.
The Company will attempt to limit downside risk by focusing on
secured debt with both quality collateral and contractual
protection.
The Company anticipates that the typical loan term will be
between three and seven years. Whilst the Company retains absolute
discretion to make investments for either shorter or longer
periods, at least 75 per cent of total loans by value will be for a
term of seven years or less. The Company's portfolio is intended to
be appropriately diversified by geography, real estate sector type,
loan type and counterparty.
The Company will pursue investments across the commercial real
estate debt asset class through senior loans, subordinated loans
and mezzanine loans, bridge loans, selected loan-on-loan financings
and other debt instruments. The split between senior, subordinated
and mezzanine loans will be determined by the Investment Manager in
its absolute discretion having regard to the Company's target
return objectives. However, it is anticipated that whole loans will
comprise approximately 40-50 per cent of the portfolio,
subordinated and mezzanine loans approximately 40-50 per cent and
other loans (whether whole loans or subordinated loans) between
0-20 per cent (including bridge loans, selected loan-on-loan
financings and other debt instruments). Pure development loans will
not, in aggregate, exceed 25 per cent of the Company's Net Asset
Value ("NAV") calculated at the time of investment. The Company may
originate loans which are either floating or fixed rate.
The Company may seek to enhance the returns of selected loan
investments through the economic transfer of the most senior
portion of such loan investments which may be by way of
syndication, sale, assignment, sub- participation or other
financing (including true sale securitisation) to the same maturity
as the original loan (i.e. "matched funding") while retaining a
significant proportion as a subordinate investment. It is
anticipated that where this is undertaken it would generate a
positive net interest rate spread and enhance returns for the
Company. It is not anticipated that, under current market
conditions, these techniques will be deployed with respect to any
mezzanine or other already subordinated loan investments. The
proceeds released by such strategies will be available to the
Company for investment in accordance with the investment
policy.
Loan to Value ("LTV")
The Company will typically seek to originate debt where the
effective loan to real estate value ratio of any investment is
between 60 per cent and 80 per cent at the time of origination or
acquisition. In exceptional circumstances that justify it, the
ratio may be increased to an absolute maximum of 85 per cent. In
any event, the Company will typically seek to achieve a blended
portfolio LTV of no more than 75 per cent (based on the initial
valuations at the time of loan origination or participation
acquisition) once fully invested.
Geography
The Company's portfolio will be originated from the larger and
more established real estate markets in the European Union's
internal market. UK exposure is expected to represent the majority
of the Company's portfolio. Outside of the UK, investment in the
European Union's internal market will mainly be focussed on
Northern and Southern Europe. Northern European markets include
Germany, France, Scandinavia, Netherlands, Belgium, Poland,
Switzerland, Ireland, Slovakia and the Czech Republic. Southern
European markets include Italy and Spain. The Company may however
originate investments in other countries in the European Union's
internal market to the extent that it identifies attractive
investment opportunities on a risk adjusted basis.
The Company will not invest more than 50 per cent of the
Company's NAV (calculated at the time of investment) in any single
country save in relation to the UK, where there shall be no such
limit.
In the event that a member state ceases to be a member of the
European Union's internal market, it will not automatically cease
to be eligible for investment.
Real Estate Sector and Property Type
The Company's portfolio will focus on lending into commercial
real estate sectors including office, retail, logistics, light
industrial, hospitality, student accommodation, residential for
sale and multi-family rented residential. Investments in student
accommodation and residential for sale are expected to be limited
primarily to the UK, while multi-family investments are expected to
be limited primarily to the UK, Germany and Scandinavia. Further,
not more than 30 per cent, in aggregate, of the Company's NAV,
calculated at the time of investment, will be invested in loans
relating to residential forsale. No more than 50 per cent of the
Company's NAV will be allocated to any single real estate sector of
the UK, except for the UK office sector which is limited to 75 per
cent of the Company's NAV.
Counterparty and Property Diversification
No more than 20 per cent of the Company's NAV, calculated at the
time of investment, will be exposed to any one borrower legal
entity.
No single investment, or aggregate investments secured on a
single property or group of properties, will exceed 20 per cent of
theCompany's Net Asset Value, calculated at the time of
investment.
Corporate Borrowings
It is not the intention to pursue Company-level recourse
leverage for investment purposes. However, Company- level recourse
borrowings maybe used from time-to-time for the purpose of
bridging, financing repurchases of shares or managing working
capital requirements. In this regard, the Company is limited to
borrowing an amount equivalent to a maximum of 20 per cent of its
NAV, at the time of drawdown. In calculating the Company's
borrowings for this purpose, any liabilities incurred under the
Company's foreign exchange hedging arrangements shall be
disregarded.
Hedging
The Company will not enter into derivative transactions for
purely speculative purposes. However, the Company's investments
will typically be made in the currency of the country where the
underlying real estate assets are located. This will largely be in
Sterling and Euros. However, investments may be considered in other
European currencies, and the Company may implement measures
designed to protect the investments aga inst material movements in
the exchange rate between Sterling, being the Company's reporting
currency, and the currency inwhich certain investments are made.
The analysis as to whether such measures should be implemented will
take into account periodic interest, principal distributions or
dividends, as well as the expected date of realisation of the
investment. The Company may bear a level of currency risk that
could otherwise be hedged where it considers that bearing such risk
is advisable. The Company will only enter into hedging contracts,
such as currency swapagreements, futures contracts, options and
forward currency exchange and other derivative contracts when they
are available in a timely manner and on terms acceptable to it. The
Company reserves the right to terminate any hedging arrangement in
its absolute discretion.
The Company may, but shall not be obliged to, engage in a
variety of interest rate management techniques, particularly to the
extent the underlying investments are floating rate loans which are
not fully hedged at the borrower level (by way of floating to fixed
rate swap, cap or other instrument). Any instruments chosen may
seek on the one hand to mitigate the economic effect of interest
rate changes on the values of, and returns on, some of the
Company's assets, and on the other hand help the Company achieve
its risk management objectives. TheCompany may seek to hedge its
entitlement under any loan investment to receive floating rate
interest.
Cash Strategy
Cash held by the Company pending investment or distribution will
be held ineither cash or cash equivalents, or various real estate
related instruments or collateral, including but not limited to
money market instruments or funds, bonds, commercial paper or other
debt obligations with banks or other counterparties having a A- or
higher credit rating (as determined by any reputable rating agency
selected by the Company), Agency RMBS (residential mortgage backed
securities issued by government-backed agencies) and AAA rated CMBS
(commercial mortgage-backed securities).
Transactions with Starwood Capital Group or Other Accounts
Without prejudice to the pre-existing co-investment arrangements
described below, the Company may acquire assets from, or sell
assets to, or lend to, companies within the Starwood Capital Group
or any fund, company, limited partnership or other account managed
or advised by any member of the Starwood Capital Group ("Other
Accounts"). In order to manage the potential conflicts of interest
that may arise as a result of such transactions, any such
proposedtransaction may only be entered into if the independent
Directors of the Company have reviewed and approved the terms of
the transaction, complied with the conflict of interest provisions
in the Registered Collective Investment Scheme Rules 2008 issued by
the Commission under The Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended, and, whererequired by the Listing
Rules, Shareholder approval is obtained in accordance with the
listing rules issued by the UK Listing Authority. Typically, such
transactions will only be approved if: (i) an independent valuation
has been obtained inrelation to the asset in question; and (ii) the
terms are at least as favourable to the Company as would be any
comparable arrangement effected on normal commercial terms
negotiated at arms' length between the relevant person and an
independent party, taking into account, amongst other things, the
timing of the transaction.
Co-investment Arrangements
Starwood Capital Group and certain Other Accounts are party to
certain pre-existing co-investment commitments andit is anticipated
that similar arrangements may be entered into in the future. As a
result, the Company may invest alongside Starwood Capital Group and
Other Accounts in various investments. Where the Company makes any
such co-investments they will be made at the same time, and on
substantially the same economic terms, as those offered to Starwood
Capital Group and the Other Accounts.
UK Listing Authority Investment Restrictions
The Company currently complies with the investment restrictions
set out below and will continue to do so for so long as they remain
requirements of the UK Listing Authority:
-- neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context of its
group as a whole;
-- the Company will avoid cross-financing between businesses
forming part of itsinvestment portfolio;
-- the Company will avoid the operation of common treasury
functions as between the Company and investee companies;
-- not more than 10 per cent, in aggregate, of the Company's NAV
will be invested in other listed closed- ended investment funds;
andthe Company must, at all times, invest and manage its assets in
a way which is consistent
with its object of spreading investment risk and in accordance
with the published investment policy. The Directors do not
currently intend to propose any material changes to the Company's
investment policy, save in the case of exceptional or unforeseen
circumstances. As required by the Listing Rules, any material
change to the investment policy of the Company will be made only
with the approval of shareholders.
Key Highlights
Year ended Year ended
31 December 2014 31 December
2013
----------------------------------------- ------------------ -------------
NAV per Ordinary Share 100.08 p 99.13 p
Share Price 106.25 p 100.75 p
NAV total return 6.23% 1.95%
Share Price total return 10.93% 1.55%
Total Net Assets GBP238.3 m GBP236.0 m
Loans Advanced (including interest GBP221.0 m GBP156.4 m
receivables)
Cash and Cash Equivalents GBP13.2 m GBP79.7 m
Dividends per Ordinary Share (1) 5.8 p 1.9 p
Portfolio yield (2) 9.6% 9.2%
On-going charges percentage (3) 1.0% 0.5%
Weighted average portfolio LTV to Group
first GBP ((4) 15.3% 14.0%
Weighted average portfolio LTV to Group
last GBP (4) 62.5% 57.0%
----------------------------------------- ------------------ -------------
(1() Dividends declared and paid in the year to 31 December 2014
were 5.2 pence per share (of which 1.1 pence related to the
final quarter of 2013). A dividend of 1.7 pence relating to the
final quarter of 2014 was declared on 27 January 2015 and paid
on 27 February 2015. For the period ending 31 December 2013,
dividends declared and paid in the period were 0.8 pence
per share with the final dividend of 1.1pence declared and paid
in 2014.
(2() Calculated on amounts currently outstanding, excluding
undrawn commitments, and assuming all currently drawn loans are
outstanding for the full contractual term. Six of the loans are
floating rate (some with floors) (2013: four) and returns are based
on an assumed profile for future LIBOR or EURIBOR but the actual
rate received may be higher or lower. Calculated only on amounts
funded to date and excluding committed amounts and cash uninvested.
The calculation excludes the origination fee payable to the
Investment Manager.
(3() Prepared in accordance with the AIC's recommended
methodology.
(4() LTV to Group last GBP means the percentage which the total
loan commitment less any amortisation received to date (when
aggregated with any other indebtedness ranking alongside and/or
senior to it) bears to the market value determined by the
last formal lender valuation received by the year end date. LTV
to first Group GBP means the starting point of the loan to value
range of the loan commitments (when aggregated with any other
indebtedness ranking senior to it). For 2014,
for Lifecare, W Hotel and Centre Point the calculation includes
the total facility available and is calculated against the
market
value on completion of the project. For Aldgate, the calculation
includes the current total facility drawn against the latest
value in use. For 2013: Centre Point included current debt drawn
against the lower of current-use market value and vacant
possession. LTVs are calculated for each loan and weighted by
the Group's investment in each loan.
Share Price Performance
As at 31 December 2014 the NAV was 100.08 pence per Ordinary
Share (2013: 99.13 pence) and the share pricewas 106.25 pence
(2013: 100.75 pence).
Chairman's Statement
Overview
The investment objective of the Group continues to be to provide
shareholders with regular dividends and an attractive total return
while limiting downside risk, through the origination, execution,
acquisition and servicing of a diversified portfolio of real estate
debt investments (including debt instruments) in the UK and
European markets.
As at 31 December 2014, the Group had investments and
commitments of GBP246.6 million (of which GBP28 million was undrawn
as at the year end). The netproceeds from the Initial Public
Offering ("IPO") and the subsequent tap issues in early 2013
resulted in proceeds available for investment of GBP233.8 million.
In order to meet the commitments in excess of these net proceeds,
the Group entered into a liquidity facility during December 2014,
the details of which are summarised in the Investment Manager's
report. This facility will also allow the Group to warehouse new
investments in the short term prior to refinancing with expected
loan repayments or additional equity raises and will assist the
Group in helping to minimise cash drag.
During 2014, the Group committed to approximately GBP111 million
of new loans, the details of which are contained in the Investment
Manager's portfolio review. The Group also syndicated two of the
loans with a total value of approximately GBP42.5 million in order
to enhance the returns on the remaining portion of those loans. As
a result of these activities at the year end the invested loan
portfolio annualised total return (as defined on page 12) is 9.6
per cent, which is in line with the IPO target.
The Board is satisfied with the progress made by the Investment
Manager and Investment Adviser during the year and believes that
the continued appointment of the Investment Manager is in the
interests of shareholders. Whilst market conditions have changed
since the IPO, the Investment Adviser and Investment Manager,
working in close collaboration with the Board, have maintained a
disciplined andrigorous approach to investment and continue to
operate within the risk parameters set out within the prospectus
and the investment policy (as subsequently amended).
Investment Policy and Equity Placement
In the December 2014 factsheet, released in January 2015, the
Group outlined its proposal to amend its investment policy in order
to include the wider European Union's internal market and to remove
the limitation of
75 per cent on investment in the United Kingdom. The Group also
announced its proposal to seek approval for an equity placement
programme which would allow the Group the flexibility to continue
to remain focussed on mitigating cash drag risk and ideally to
allow the Group to match equity raises to its pipeline.
I am pleased to confirm that these proposals were approved by
shareholders at the Extraordinary General Meeting ("EGM") held on 9
March 2015.
Results
On 28 January 2014 the Company declared a dividend of 1.1 pence
per Ordinary Share, relating to the final quarter of 2013. On 27
January 2015 the Company declared a dividend of 1.7 pence per
Ordinary Share relating to the final quarter of 2014.
Total dividends of 5.8 pence per Ordinary Share have been
declared in relation to the year ending 31
December 2014.
Period Dividend declared Payment date Amount per
share
------------------------------- ------------------- ---------------- -----------
1 January 2014 to 31 March
2014 23 April 2014 23 May 2014 1.25p
------------------------------- ------------------- ---------------- -----------
1 April 2014 to 30 June
2014 23 July 2014 22 August 2014 1.35p
------------------------------- ------------------- ---------------- -----------
1 July 2014 to 30 September 21 November
2014 27 October 2014 2014 1.50p
------------------------------- ------------------- ---------------- -----------
1 October 2014 to 31 December 27 February
2014 27 January 2015 2015 1.70p
------------------------------- ------------------- ---------------- -----------
Total 5.80p
---------------------------------------------------------------------- -----------
The Directors place primary importance on maintaining a
consistent dividend and ensuring, as much as possible, that cash
drag does not materially impact this aim. Any future plans to raise
additional equity will be considered against this objective and, as
previously mentioned, it is intended that the liquidity facility
will assist with this.
During the year, the share price rose from 100.75 pence per
share at 31 December 2013 to 106.25 pence at 31 December 2014,
representing a premium of 6.2 per cent to NAV. During the year, the
shares traded at an average 4.1 per cent premium to NAV.
Alternative Investment Fund Managers Directive ("AIFMD")
Under the AIFMD, the Company became an Alternative Investment
Fund and was required to appoint a Manager who has the necessary
regulatory approval to act as the Company's Alternative Investment
Fund Manager ("AIFM") under the new AIFMD requirements. The Company
has appointed the Investment Manager, Starwood European Finance
Partners Limited, as its AIFM. Nochanges of significance are
envisaged in the management arrangements for the Company as a
result of AIFMD.
Outlook
As 2015 starts, the Group is well positioned, with a diversified
high quality loan portfolio with an overall risk profile that is
more conservative than anticipated at IPO without compromising on
returns. The primary focus of the Board, working closely with the
Investment Manager and Investment Adviser, is to minimise cash drag
risk which could result from any repayments, whilst not looking to
deviate from the current prudent approach to credit risk.
The Board will continue to update you on progress by way of the
quarterly fact sheets and investment updates when deals are signed.
On behalf of the Board, I would like to close by thanking
shareholders for your commitment and I look forward to updating you
on the Group's progress later this year.
Strategic Report
The Strategic Report describes the business of the Group and
details the principal risks and uncertainties associated with its
activities. These are amplified in the Investment Manager's
Report.
Objective, Investment Policy and Business Model
The Objective and Investment Policy describes the Group's
strategy and business model.
The Investment Manager is Starwood European Finance Partners
Limited, a Company incorporated in Guernsey with registered number
55819 and regulated by the Guernsey Financial Services Commission
(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.
Current and Future Development
A review of the year and outlook is contained in the Investment
Highlights and Portfolio Review sections of the Investment
Manager's Report and also within the Chairman's Statement.
Performance
A review of performance is contained in the Investment
Highlights and Portfolio Review sections of the Investment
Manager's Report.
A number of performance measures are considered by the Board,
the Investment Manager and Investment Adviser in assessing the
Company's success in achieving its objectives. The Key Performance
Indicators ("KPIs") used to measure the progress and performance of
the Group are established industry measures and are as follows:
-- The portfolio yield;
-- The movement in NAV per Ordinary Share;
-- The movement in share price and the discount / premium to NAV;
-- On-going charges as a percentage of undiluted NAV; and
-- Weighted averageloan to value for the portfolio.
Risk Management
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
performs a review of a risk matrix at each Board meeting.
The Board considers that the following risks are the principal
risks and uncertainties faced and has identified the mitigating
actions in place to manage them.
Target Portfolio Returns and Dividend
The Group's targeted returns are based on estimates and
assumptions that are inherently subject to significant business and
economic uncertainties and contingencies, and the actual rate of
return may be materially lower than the targeted returns. In
addition, the pace of investment has and may be slower than
expected, or principal may be repaid earlier than anticipated,
causing the return on affected investments to be less than
expected. In addition if repayments are not promptly re-invested
this may result in cash drag which may lower portfolio returns. As
a result the level of dividends and other distributions to be paid
by the Company may fluctuate and there is no guarantee that any
such distributions will be paid.
The Investment Adviser provides the Investment Manager and the
Board with a weekly report on pipeline opportunities, which
includes analysis of the returns available. The Directors also
regularly receive information on the performance of the existing
loans which includes analysis of the likelihood of any early
repayments which may impact returns.
Long-term Strategic Risk
The Company is subject to the risk that its long-term strategy
and its level of performance fail to meet the expectations of its
shareholders. The shares may trade at a discount to NAV per share
and shareholders may be unable to realise their investments through
the secondary market at NAV per share. The Board monitors the level
of premium or discount of share price to NAV per share.
While the Directors may seek to mitigate any discount to NAV per
share through the discount management mechanisms set out in the
Prospectus, there can be no guarantee that they will do so or that
such mechanisms will be successful and the Directors accept no
responsibility for any failure of any such strategy to effect a
reduction in any discount or premium. Please see the Objective and
Investment Policy, page 3 for further information on the discount
management mechanisms.
The Board monitors investment strategy and performance on an
on-going basis and regularly reviews the Objective and Investment
Policy in light of prevailing investor sentiment to ensure the
Company remains attractive to its shareholders.
Interest 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 LIBOR or EURIBOR.
The loans in place at 31 December 2014 have been structured so
that 57.9 per cent of the loans are fixed rate which provides
protection from interest rate movements to the overall portfolio.
In addition whilst the remaining 42.1 per cent is classified as
floating, 46.2 per cent are subject to LIBOR or EURIBOR floors such
that the interest cannot drop below a certain level which provides
significant additional protection against downward interest risk.
When reviewing future investments the Investment Manager will
continue to review such opportunities to protect against downward
interest risk.
Credit Risk
The Group's investments are subject to risk of default where a
borrower is unable or does not pay interest or principal as it
becomes due. In the event of a default the Group is generally
entitled to enforce security, but the process may be expensive and
lengthy and the outcome is dependent on sufficient capital being
available to meet the borrower's obligations. Some of the
investments made would rank behind senior debt tranches for
repayment in the event that a borrower defaults, with the
consequence of greater risk of partial or total loss. In addition,
repayment of loans could be subject to the availability of
refinancing options, including the availability of senior and
subordinated debt and is also subject to the underlying value of
the real estate collateral at the date of maturity.
The Investment Adviser undertakes detailed due diligence on each
loan. Whilst the precise scope of due diligence will depend on the
proposed investment, such diligence will typically include
independent valuations, building and measurement and environmental
surveys, legal reviews of property title and key leases, where
necessary mechanical and engineering surveys, accounting and tax
reviews and know your customer checks. The loan is first taken to
the Investment Adviser's Investment Committee for consideration and
if approved is then presented to the Investment Manager for
consideration.
The loan investments made are secured by way of a standard
security package depending on the type of asset andjurisdiction.
This will generally include, but not be limited to, a first ranking
charge or mortgage over the property (or in the case of any
mezzanine participations a second ranking entitlement or second
ranking charge) and a charge or pledge over all other assets of the
borrower accompanied, usually, by security over the shares of the
borrower.
The Investment Adviser, Investment Manager and Board also manage
these risks by ensuring a diversification of investments in terms
of geography, market and type of loan. The Investment Manager and
Investment Adviser operate in accordance with the guidelines,
investment limits and restrictions policy determined by the Board.
The Directors review the portfolio against these guidelines, limits
and restrictions on a regular basis. The Investment Manager
provides the Board with management information including
performance data on each individual loan in the underlying
portfolio. The Directors monitor the implementation and results of
the investment process with the Investment Manager at each Board
meeting and monitor risk factors in respect of the portfolio.
Investment strategy is reviewed at each meeting.
Liquidity Risk
The Group's investments primarily consist of loans secured on
real estate assets. Such investments are often illiquid and may be
difficult for the Group to sell, particularly at times of market
stress, and the price achieved on any such realisation is likely to
be at a discount to the face value of the relevant loan.
The Group currently has sufficient cash to manage any liquidity
issues. In addition, the Group has the ability to borrow up to 20
per cent of NAV in order to manage any liquidity issues that may
arise. The Company has arranged a revolving credit facility with a
major UK clearing bank in the sum of GBP50 million. This is
currently undrawn.
Valuation Risk
Real estate valuation is inherently subjective and uncertain. In
addition, the value of the real estate underlying the Group's
portfolio of loans, and the rental income it produces, may
fluctuate as a result of factors which are outside the Group's
control. The Group is and will be exposed to the residential and
commercial real estate markets and if those markets enter a
downturn it could materially adversely affect the Group's business
and financial condition. Commercial mortgage loans are subject to
the ability of the property owner to generate net income from
operating the property/ies as well as the risk of delinquency and
financial difficulty of the tenants. A major occupier or tenant of
aproperty financed by the Group could default and / or seek to
renegotiate terms during the course of a tenancy, which would lower
the value of that property and may impact on the income to service
the related loans provided by the Group. Loans on residential for
sale assets are subject to the ability of the developer to complete
the development and sell the individual residential units. Ifthe
developer is unable to sell the units at the price anticipated this
may impact on the borrower's ability to repay the loan.
The Investment Adviser 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 and are reviewed
quarterly forsigns of impairment by the Investment Adviser. The
results of the impairment review are discussed with the Investment
Manager and the Board. The value of investments in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS") requires considerable judgement and is
explained on page 44.
Community, Social, Employee, Human Rights and Environmental
Issues
In carrying out its activities and in its relationship with the
community, the Group aims to conduct itself responsibly, ethically
and fairly, including in relation to social and human rights
issues. The Group has no employees and the Board is composed
entirely of non-executive Directors. As an investment company, the
Group has no direct impact on the environment. However, the Group
believes that it is in the shareholders' interest to consider
environmental, social and ethical factors when selecting and
retaining investments.
Board Diversity
The Board considers that its members have a balance of skills,
qualifications and experience which are relevant to the Company.
The Board supports the recommendations of the Davies Report and
believes in the value and importance of diversity in the boardroom
but it does not consider it is appropriate or in the interest of
the Company and its shareholders to set prescriptive targets for
gender or nationality on the Board.
The Company has no employees and therefore has no disclosures to
make in this regard.
The Investment Manager and Investment Adviser are both part of
the Starwood Capital Group, a leading global real estate investment
group.
Portfolio Statistics
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 its
investments constitute separate operating segments.
As at 31 December 2014, the portfolio was invested in line with
the Group's investment policy and is summarised below.
31 December 31 December
2014 2013
---------------------------------------------------- ------------ ------------
Number of Borrowers 12 7
Number of Investments 12 7
Invested loan portfolio annualised total return(1) 9.6% 9.2%
Weighted average portfolio LTV - to Group first
GBP(2) 15.3% 14.0%
Weighted average portfolio LTV - to Group last
GBP(2) 62.5% 57.0%
Average loan term 3.7 years 4 years
Percentage of net assets in cash 6.2% 33.7%
Percentage of net assets committed to senior
and whole loans 61.8% 47.0%
Percentage of net assets committed to second
lien and mezzanine loans 25.7% 11.7%
Percentage of net assets committed to other
debt instruments 6.3% 7.6%
Percentage invested in GBP(3) 67.7% 63.8%
Percentage invested in Euro(3) 32.3% 36.2%
Percentage of invested portfolio in floating
rate investments(3) 42.1% 48.8%
---------------------------------------------------- ------------ ------------
(1) Calculated on amounts currently outstanding, excluding
undrawn commitments, and assuming all currently drawn loans are
outstanding for the full contractual term. Six ofthe loans are
floating rate (some with floors) (2013: four) and returns are based
on an assumed profile for future LIBOR or EURIBOR but the actual
rate received may be higher or lower. Calculated only on amounts
funded to date and excluding committed amounts and cash uninvested.
The calculation excludes the origination fee payable to the
Investment Manager.
(2) LTV to Group last GBP means the percentage which the total
loan commitment less any amortisation received to date
(when aggregated with any other indebtedness ranking alongside
and/or senior to it) bears to the market value determined
by the last formal lender valuation received by the year end
date. LTV to first Group GBP means the starting point of the loan
to value range of the loan commitments (when aggregated with any
other indebtedness ranking senior to it). For 2014, for
Lifecare, W Hotel and Centre Point the calculation includes the
total facility available and is calculated against the market
value on completion of the project. For Aldgate, the calculation
includes the current total facility drawn against the latest
value in use. For 2013: Centre Point included current debt drawn
against the lower of current-use market value and vacant
possession. LTVs are calculated for each loan and weighted by
the Group's investment in each loan.
(3) Calculated on loans currently drawn using the exchange rates
applicable when the loans were funded.
Dividend and Future Policy
The Company declared a dividend of 1.25 pence per Ordinary Share
for the first quarter of 2014, a dividend of 1.35 pence per
Ordinary Share for the second quarter and a dividend of 1.5 pence
per Ordinary Share for the third quarter, a total of 4.1 pence per
Ordinary Share for the first nine months of 2014.
Reflecting the Company's desire for strong distribution of free
cash, on27 January 2015 it declared a dividend for the period from
1 October 2014 to 31 December 2014 of 1.7 pence per Ordinary Share
(annualised 6.8 pence), representing a total dividend for 2014 of
5.8 pence per Ordinary Share.
The Directors place primary importance now on maintaining a
consistent dividend and ensuring, as much as possible, that cash
drag does not materially impact this aim. Any future plans to raise
additional equity will be considered against this objective and it
is intended that the liquidity facility will assist with this.
The investment environment for the Company has changed somewhat
over thelast two years and the Company has to date sourced
attractive business consistent with risk/return metrics set out at
IPO. Going forward, should any material equity issuance be
envisaged, the Company will look to take account of shareholders'
current views on the relative balance between risk, returnsand
scalability.
Investment Outlook and Investment Policy
As 2015 starts the Company is well positioned, with a
diversified high quality loan portfolio where the last GBP LTV
averages 62.5 per cent, nearly 66 per cent of the loan book is in
senior or whole loan positions and the invested annualised gross
total return is 9.6 per cent. The primary focus isto continue to
minimise cash drag risk whilst not looking to deviate from the
current prudent approach to credit risk. The last two years have
demonstrated the Company's careful approach to investing and this
is expected to continue.
During early 2015, the Board proposed that some of the Company's
investment policy should be marginally revised as some of the
initial constraints were no longer appropriate, and occasionally
over-restrictive, e.g. the capon investments in the UK.
Consequently the Board proposed an amendment of the Company's
investment policy in orderto include the wider European Union's
internal market and to remove the limitation of 75 per cent on
investments in the United Kingdom (subject to a maximum of 50 per
cent of NAV in any sector, excluding office which is limited to 75
per cent of NAV). The geographical change in no way suggests a
change to the Company's core focus; it merely provides the
flexibility for the Company to react to quality risk adjusted
one-off opportunities. Prudence will apply, for example, it is
almost inconceivable anyinvestment would be made in Greece in the
short to medium term, if ever.
The Company held an EGM on 9 March 2015 to consider this
proposal and also sought approval for an equity placement programme
as a matter of good housekeeping to avoid the need for a further
EGM. In line with the strategy any equity raising will be highly
focussed on mitigating cash drag risk and ideally matching the deal
pipeline. These proposals were approved by shareholders at the
EGM.
Liquidity Facility
During the final quarter of 2014, a liquidity facility was
introduced due to all available liquidity being broadly committed,
with additional investment needs crystallising. A facility was
signed in December giving the Company enhanced flexibility. Further
detail is set out below, but in summary thefacility provides
immediate coverage for existing unfunded commitments and, being
multi-currency, helps mitigate FX risks on new non- sterling
commitments (where a syndication is envisaged) and allows cash drag
to be mitigated through the short term warehousing of new
investments prior to refinancing with loan repayment receipts or
additional equity.
The GBP50 million revolving credit facility (the "Facility") is
with a major UK clearing bank and is intended for short- term
liquidity and, under its investment policy, the Company is limited
to borrowing an amount equivalent to a maximum of 20 per cent of
its NAV, at the time of drawdown. In calculating the Company's
borrowings for this purpose, any liabilities incurred under the
Company's foreign exchange hedging arrangements shall be
disregarded.
The interest rate payable will depend on how long a particular
loan is outstanding: LIBOR plus 2.50 per cent per annum at initial
draw down and increasing for loans outstanding for more than six
months.
It is anticipated that amounts drawn under the Facility will be
repaid using the proceeds of one or more issues of Ordinary Shares
or by means of liquidity arising in the portfolio (including the
proceeds of syndication of loans and the receipt of loan repayments
and amortisation). The facility is secured by a pledge over the
bank accounts of the Company, its interests in Starfin Public L.P.
and the intercompany funding provided by the Company to Starfin
Public L.P. Starfin Public L.P. also acts as guarantor of the
facility and has pledged its bank accounts as collateral.
The undertakings and events of default are customary for a
transaction of this nature.
Foreign Exchange
During the year, the Group recognised GBP1,246,877 of unrealised
foreign exchange gains relating to investment activity (2013:
GBP617,942 of unrealised losses). The Group has fully hedged the
principal of each individual Euro-denominated loan to its maturity
date with forward contracts.
Each such hedge is expected to result in a realised foreign
exchange gain provided that the relevant loan is repaid at its
maturity date.
However, the accounting treatment for the Euro loans is to value
the loan at the foreign exchange rate at the relevant Statement of
Financial Position date, andto value the hedge based on the market
forward rates at the Statement of Financial Position date to the
maturity date of the relevant hedge (discounted back to present
value). As a result of this accounting treatment, whilst the loan
principal is economically fully hedged (if held to loan maturity),
unrealised foreign exchange gains or losses are recognised in the
accounts during the life of the loan due to changes in the shape of
the forward EUR:GBP curve. For this reason, the Group disregards
unrealised foreign exchange gains and losses when declaring
dividends.
It is important to note that should any of the Euro loans repay
early, and the Group has no alternative use for the Euro funds
repaid and therefore breaks the hedges early, foreign exchange
gains or losses could be realised at that point. The size of this
will depend on the shape of the forward EUR:GBP curve at the point
at which the relevant hedge is broken. Using the EUR:GBP forward
curve as at 23 March 2015, the Group would not, expect to realise
material foreign exchange gains or losses upon repayment of any of
its Euro loans.
The Group recognised GBP514,836 of realised foreign exchange
losses relating to the syndication of the Industrial Portfolio,
Netherlands loan. Whilst a realised loss has been recognised in the
Consolidated Statement of Comprehensive Income as a result of the
foreign exchange rate hedges allocated against this loan, it is our
current expectation that this loss will be largely offset by a
corresponding foreign exchange gain if the retained loan is repaid
in the timeline currently envisaged with the current forward curve.
If the timing of repayment or the FX forward curve changes, the
amount of this offset will vary.
Market Summary
The Company's quarterly factsheets published during 2014 have
sought to highlight themarket dichotomy between the return of
tempered banking liquidity for real estate finance and the
seemingly endless requirement forbanks to adapt to meet new
regulatory requirements and exit from distressed or non-core
loans.
This very much continues with several new observations to be
made. 2015 will unquestionably be yet another transitional and
transformational year. The November 2014 Asset Quality Review
process may well have been somewhat massaged, but European Central
Bank oversight has encouraged further impaired loan pools to be
marketed for sale with the Dutch, German, Portuguese and Central
and Eastern Europe markets adding to the current flow in the UK,
Ireland, Spain and, recently, Italy. Further hits to banks' P&L
will probably occur in a number of sale situations. At the same
time there is increasing focus on the need to be Basel III
compliant - the phasing in of the higher capital requirements
starts this year, and recently greater focus has been given to the
Liquidity Ratio which is mandatory by 2018. The Liquidity Ratio is
a simple tool to track how leveraged a bank is. Normally a bank
focusses perhaps more on Risk Weighted Assets (RWAs) rather than
the face amounts of its assets. For perceived low risk assets RWAs
are lower than face and vice versa. The impact of banks holding AAA
rated sub-prime mortgage bonds in the crash was that expected low
risk, low RWA assets wereshown to be actually very high risk. To
learn from this lesson, a new regulatory ratio was devised which is
tier 1 capital divided by face value of assets - a very simplistic
measure of bank leverage. Basel III imposes a 3 per cent minimum,
the Fed has indicated this will be 6 per cent for Globally
Systematic Important Banks and theEuropean Central Bank ("ECB") and
Bank of England are likely to follow suit. Such a target will be
yet another headache forthe banking community, especially inFrance
and with a number of German institutions. The net impact remains
likely to be at best continued anaemic lending growth if not
outright decline. The impacts of the ECB's potential Quantitive
Easing ("QE") programme will be examined in the future but even the
mooted EUR60 billion monthly QE for the next year and a half would
only take the ECB's balance sheet back to 2012 levels. This and the
ECB focus on sovereign debt purchasing is unlikely to act as a
material catalyst to the European bond markets.
There are other reasons that the Investment Adviser has detected
a slight softening to the current lending market, hopefully
enlarging the opportunity set.There are suggestions that the
syndication market is smaller than perhaps anticipated. This has
dampened underwriting appetite, which is added to general caution
with regards to the impact of theGreek and Spanish elections.
Most of the Eurozone countries are now running current account
surpluses, with a major exception being France. The biggest change
is the peripheral countries. One might think this is a good thing,
but arguably it reflects those countries also not spending, a key
growth driver. Without exchange rate tools, the Eurozone's
peripheral countries have to deflate more than the core to improve
competitiveness and inevitably this increases the real cost of
debt. Negative scenarios do not simply impact the lending market
but also the asset value side. One could foresee further value
strengthening in London, being a perceived "safe haven",and value
decline on the Continent. The Investment Adviser will be monitoring
this all carefully.
A final area of risk focus is oil. Oil prices are down
significantly over recent months, with Brent having fallen to under
$50 a barrel. It appears that OPEC members (in particular Saudi
Arabia) are betting that US shale producers will reduce capital
expenditure as aresult. Given that US shale is on a quite short
(12-18 month) capex/production cycle this is not a wild assumption.
Soit appears that US shale may in future take the role of
themarginal producerfrom Saudi Arabia. This reorganisation of the
oil producers, coupled by constantly changing outlook for world
economic growth(and therefore demand for oil) will lead to
significant price movements in the short term. There should be
follow on impacts to the European real estate market.
Lower oil prices will boost GDP growth and create more
consumption, which should boost retail spending and hence strength
of and opportunity in the retail real estate sector. Deflation is
the obvious fear and comparisons are made to Japan's lost decades.
Note that Japan's GDP still grew inthis period whereas such growth
eludes the Eurozone today. One other impact is that oil rich
Sovereign Wealth Funds are often large-scale buyers of real estate
using surplus funds generated from oil revenues. Without such large
surpluses their capacity for further acquisition may be tempered
over the short to medium term. On a geographical note Aberdeen and
maybe the rest of Scotland will be hit.
Investment Manager's Report - Portfolio Review
Investment Deployment
As at 31 December 2014 the Group had investments and commitments
of GBP246.6 million (Sterling equivalent at year end exchange
rates) as follows:
Balance as at 31 Unfunded
December 2014 Commitments
----------------------------------- ----------------- -------------
Maybourne Hotel Group, London GBP19.0 m
----------------------------------- ----------------- -------------
West End Development, London GBP10.0 m
----------------------------------- ----------------- -------------
Lifecare Residences, London GBP13.3 m GBP1.2 m
----------------------------------- ----------------- -------------
Heron Tower, London GBP14.9 m
----------------------------------- ----------------- -------------
Centre Point, London GBP40.0 m GBP5.0 m
----------------------------------- ----------------- -------------
FC200, London GBP9.2 m GBP4.3 m
----------------------------------- ----------------- -------------
5 Star Hotel, London GBP6.9 m
----------------------------------- ----------------- -------------
Aldgate Tower, London GBP37.8 m GBP7.2 m
----------------------------------- ----------------- -------------
Total Sterling Loans GBP151.1 m GBP17.7 m
----------------------------------- ----------------- -------------
Retail Portfolio, Finland EUR40.4 m
----------------------------------- ----------------- -------------
Industrial Portfolio, Netherlands EUR20.0 m
----------------------------------- ----------------- -------------
Office, Amsterdam EUR14.2 m
----------------------------------- ----------------- -------------
W Hotel, Amsterdam EUR11.7 m EUR13.3 m
----------------------------------- ----------------- -------------
Total Euro Loans EUR86.3 m EUR13.3 m
----------------------------------- ----------------- -------------
During the financial year, the Group has made the following loan
commitments:
Office, Amsterdam: The Group provided a EUR14.3 million
financing facility for the acquisition of an office building in
Amsterdam fully occupied by UPC Nederlands, BV. The Group expects
to earn a solid single digit return in line with its investment
criteria. The loan was fully drawn in the middle of April 2014.
FC200, London: The Group provided a GBP27 million financing
facility for an office building in Park Royal, West London. The
three year financing is secured against a six-storey, 160,000
square foot building named FC200 located within the First Central
mixed-use development site in Park Royal. The financing allowed the
sponsors to refinance the all-cash acquisition of the property in
late 2011 as well as providing funding for the remaining capex to
complete its fit out. On 15 September 2014, the Group completed the
syndication of a GBP13.5 million senior note on to a UK
clearer.
Industrial Portfolio, Netherlands: On 30 June 2014, the existing
EUR35.3 million whole loan facility was increased by EUR36.1
million to a total facility of EUR71.4 million in cooperation with
private debt funds associated with Starwood Capital Group. The
Group's overall exposure increased to EUR55.9 million with the
Starwood associated private debt funds taking the remaining
EUR15.5m. The additional funds facilitated the acquisition of nine
light-industrial and office properties in the Netherlands taking
the overall portfolio to 28
assets. On 5 December 2014, the Group completed the syndication of a EUR35.9 million senior note.
W Hotel, Amsterdam: The Group has committed to provide EUR25
million out of a total of EUR99 million for the refinancing and
refurbishment of a new W branded hotel located in the centre of
Amsterdam. The sponsor is Liran Wizman, a highly experienced hotel
owner and key shareholder in Grand City Hotels, a highly rated pan-
European hotel management company. Expected to be completed in the
second half of 2015, the refurbished hotel is based on Spuistraat,
a prime location within the city and providing easy access to
transport links and attractions including the Royal Palace and Dam
Square, which the hotel adjoins.
Centre Point, London: On 4 December 2014, the Group, along with
other Starwood affiliated vehicles, reached an agreement to
supplement its existing loan to Almacantar, a property investment
and development company specialising in large-scale complex
investments in London, for the comprehensive refurbishment of
Centre Point, the iconic 34-story tower located at 103 New Oxford
Street in Central London. The overall facility will increase by
GBP45 million to GBP265 million, with the Group funding GBP5
million of the increase. This is expected to be drawn in the first
half of 2015.
5 Star Hotel, London: On 17 December 2014, the Group provided
GBP6.9 million of a GBP14 million junior loan to refinance a 5 star
hotel in central London. The loan's interest rate floats over LIBOR
and has a term of 5 years. TheGroup expects to earn a return
consistent with its target for junior loans.
Aldgate Tower, London: On 22 December 2014, the Company provided
a GBP45 million participation in a GBP200 millionfacility for the
refinancing of Aldgate Tower, a new Grade A office building located
in the City of London. Thefacility will support the acquisition and
stabilisation through the leasing of the property. The loan's
interest rate is part fixed with part floating over 3 month LIBOR.
The Company expects to earn an attractive risk adjusted return
commensurate with its stated investment strategy.
Events After the Reporting Period
On 23 January 2015, the Maybourne facilities were amended and
restated with the effect of increasing the senior financing by
GBP40 million and the mezzanine facilities being reduced by a
corresponding amount. This restructure was an alternative to a
complete refinancing of the debt and enabled the Group to retain an
investment (albeit lower) notwithstanding theimprovement in the
debt markets since the time of the original transaction. Following
the amendments, the Group's participation has been reduced to
GBP11,244,898 and a lower interest rate is now being received. The
returns are, however, commensurate with a transaction of this
nature.
Since the year end, additional drawdowns of EUR2,233,117 under
the W Hotel, Amsterdam facility; GBP147,006 under the Aldgate
Tower, London facility; GBP2,042,056 under the Centre Point, London
facility and GBP378,943 under the FC200, London facility have been
made. Scheduled amortisation of EUR35,750 on the Office, Amsterdam
facility and GBP797,389 on the Heron Tower, London facility have
been received. In addition, repayments of EUR2,363,980 from
theRetail Portfolio, Finland facility have been received.
Board of Directors
Stephen Smith (non-executive Chairman - Chairman of the
Board)
Stephen is currently a Director of Gatehouse Bank Plc (appointed
in June 2013) and a Director of Tritax Big BoxREIT Plc, which
floated on the London Stock Exchange in December 2013. Previously,
he was the Chief Investment Officer of British Land Company PLC,
the FTSE 100 real estate investment trust from January 2010 to
March 2013 with responsibility for the group's property and
investment strategy, leaving at the end of June 2013. Hewas
formerly Global Head of Asset Management and Transactions at AXA
Real Estate Investment Managers, where he was responsible for the
asset management of a portfolio of more than EUR40 billion on
behalf of life funds, listed property vehicles, unit linked and
closed end funds. Prior to joining AXA in 1999 he was Managing
Director at Sun Life Properties for five years. Stephen is a UK
resident.
Jonathan Bridel (non-executive Director - Management Engagement
Committee Chairman)
Jonathan is currently a non-executive Chairman or Director of
listed and unlisted companies comprised mainly of investment funds
and investment managers. These include Alcentra European Floating
Rate Income Fund Limited, The Renewables Infrastructure Group
Limited and Sequoia Economic Infrastructure Income Fund Limited,
which are listed on the main market of the London Stock Exchange
and Aurora Russia Limited, DP Aircraft I Limited, Fair Oaks Income
Fund Limited and Altus Global Gold Limited. He was previously
Managing Director of Royal Bank of Canada's investment business in
the Channel Islands. Prior to this, after working at Price
Waterhouse Corporate Finance in London, Jonathan served in senior
management positions in the British Isles and Australia in banking,
specialising incredit and in private businesses as Chief Financial
Officer. Graduating from the University of Durham with a degree of
Master of Business Administration in 1988, Jonathan also holds
qualifications from the Institute of CharteredAccountants in
England and Wales where he is a Fellow, the Chartered Institute of
Marketing and the Australian Institute of Company Directors.
Jonathan is a Chartered Marketer and a member of the Chartered
Institute of Marketing, the Institute of Directors and Chartered
Fellow of the Chartered Institute for Securities and Investment.
Jonathan is a resident of Guernsey.
John Whittle (non-executive Director - Audit Committee
Chairman)
John is a chartered accountant and holds the Institute of
Directors Diploma in Company Direction. He is a non- executive
Director of International Public Partnerships Limited (FTSE 250),
India Capital Growth Fund Limited, Globalworth Real Estate
Investments Limited and Advance Frontier Markets Fund Limited (all
listed on AIM) andalso acts as non-executive Director to several
other Guernsey investment funds. Hewas previously Finance Director
of Close Fund Services, a large independent fund administrator,
where he successfully initiated a restructuring of client financial
reporting services and was a key member of the business transition
team. Prior to moving to Guernsey he was at Price Waterhouse in
London before embarking on a career in business services,
predominantly telecoms. He co-led the business turnaround of
Talkland International (now Vodafone Retail) and was directly
responsible for the strategic shift into retail distribution and
its subsequent implementation; he subsequently worked on the
GBP20million private equity acquisition of Ora Telecom. John is
also a resident of Guernsey.
Report of the Directors
Principal Activities and Investment Objective
The investment objective of the Group is to provide its
shareholders with regular dividends and an attractive total return
while limiting downside risk, through the origination, execution,
acquisition and servicing of a diversified portfolio of real estate
debt investments (including debt instruments) inthe UK and wider
European Union's internal market. Whilst investment opportunities
in the secondary market are considered, the Group's main focus is
to originate direct primary real estate debt investments.
The Group attempts to limit downside risk by focusing on secured
debt with both quality collateral and contractual protection. The
typical loan term is between three and seven years and at least 75
per cent of total loans by value are for a term of seven years or
less.
The Group is and intends to remain appropriately diversified by
geography, real estate sector and loan type and counterparty. The
Group pursues investments across the commercial real estate debt
asset class through senior loans, subordinated loans and mezzanine
loans, bridge loans, selected loan-on-loan financings and other
debt instruments.
Structure
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008, as amended, on 9 November
2012 with registered number 55836, and has been authorised by the
Guernsey Financial Services Commission ("GFSC") as an authorised
closed-ended investment company. The Company's Ordinary Shares were
admitted to the premium segment of the UK Listing Authority's
Official List and to trading on the Main Market of the London Stock
Exchange as part of its IPO which completed on 17 December 2012.
The issued capital during the year comprises the Company's Ordinary
Shares denominated in Sterling.
The Company makes its investments through Starfin Lux S.à.r.l
("Luxco"), an indirect wholly-controlled subsidiary not subject to
regulation in Luxembourg or elsewhere. The Company's interest in
Luxco is held through a Guernsey limited partnership, Starfin
Public LP ("the Partnership") of which Starfin Public GP Limited
("the GP") is the general partner. The GP is wholly owned and
controlled by the Company. Starfin Carry LP ("the Special Limited
Partner") is the only other limited partner of the Partnership and
is majority owned by the Starwood Capital Group ("Starwood") and
has no control over the GP. References to the Group refer to the
Company, the GP, the Partnership and Luxco.
Dividend Policy
At launch, the Company had targeted a dividend of 7.0 pence per
Ordinary Share upon full investment, based on quarterly dividend
payments. The Company declared a dividend of 1.25 pence per
Ordinary Share for the first quarter of 2014, a dividend of 1.35
pence per Ordinary Share for the second quarter of 2014, a dividend
of 1.5 pence for the third quarter of 2014, and a dividend of 1.7
pence per Ordinary Share for the fourth quarter.
Dividends Paid
The Company has paid a total of GBP12,381,200 (2013:
GBP1,904,800) during the year (5.2 pence (2013: 0.8 pence) per
Ordinary Share).
Business Review
The Group's performance during the year to 31 December 2014, its
position at that date andthe Group's future developments are
detailed in the Chairman's Statement, the Strategic Report and the
Investment Manager's Report on pages 12 to 18.
Capital
As part of the Company's IPO completed on 17 December 2012,
228,500,000 Ordinary Shares of the Company, with an issue price of
100 pence per share, were admitted to the premium segment of the UK
Listing Authority's Official List and to trading on the Main Market
of the London Stock Exchange.
Shortly after the IPO and in order to meet market demand,
principally following the Company's inclusion in the FTSE UK Index
Series and to manage the higher share price premium over the NAV
per share at that time, the Company issued an additional 9,600,000
Ordinary Shares within the limits imposed by the Prospectus
Rules.
Following these issues, the Company now has issued share capital
consisting of 238,100,000 Ordinary Shares. Details of the Company's
capital are provided in more detail in note 15 of the consolidated
financial statements.
Substantial Interests
As of 20March 2015, the Company is aware of thefollowing
material shareholdings:
Name Ordinary Shares % holding of
purchased Ordinary Shares
at 31 December
2014
--------------------------------------- ---------------- -----------------
Quilter Cheviot Investment Management 22,687,657 9.53
--------------------------------------- ---------------- -----------------
Schroder Investment Management 17,542,610 7.37
--------------------------------------- ---------------- -----------------
SG Private Banking 17,092,754 7.18
--------------------------------------- ---------------- -----------------
Thames River Capital 15,600,000 6.55
--------------------------------------- ---------------- -----------------
Schroder & Co, London (PB) 14,162,007 5.95
--------------------------------------- ---------------- -----------------
Rathbones 12,905,807 5.42
--------------------------------------- ---------------- -----------------
Premier Asset Management 11,405,000 4.79
--------------------------------------- ---------------- -----------------
East Riding of Yorkshire 10,000,000 4.20
--------------------------------------- ---------------- -----------------
Starwood Property Trust 9,140,000 3.84
--------------------------------------- ---------------- -----------------
Smith & Williamson 8,038,518 3.38
--------------------------------------- ---------------- -----------------
Reliance Mutual 7,875,000 3.31
--------------------------------------- ---------------- -----------------
Directors' Interests in Shares
The Directors' interests in shares are shown below:
Name Ordinary Shares Ordinary Shares Ordinary Shares
at purchased at 31 December
Company's Launch 2014
---------------------------- ------------------ ---------------- ----------------
Stephen Smith 40,000 40,000
---------------------------- ------------------ ---------------- ----------------
John Whittle 7,000 7,000
---------------------------- ------------------ ---------------- ----------------
Jonathan Bridel and Spouse 7,000 7,000
---------------------------- ------------------ ---------------- ----------------
The Directors have adopted a code of Directors' dealings in
Ordinary Shares, which is based on the Model Code for Directors'
dealings contained in the Listing Rules (the "Model Code"). The
Board is responsible for taking all proper and reasonable steps to
ensure compliance with the Model Code by the Directors, and review
the Model Code on a regular basis.
Events After the Reporting Period
On 23 January 2015, the Maybourne facilities were amended and
restated with the effect of increasing the senior financing by
GBP40 million and the mezzanine facilities being reduced by a
corresponding amount. This restructure was an alternative to a
complete refinancing of the debt and enabled the Group to retain an
investment (albeit lower) notwithstanding the improvement in the
debt markets since the time of the original transaction. Following
the amendments, the Group's participation has been reduced to
GBP11,244,898 and a lower interest rate is now being received. The
returns are, however, commensurate with a transaction of this
nature.
Since the year end, additional drawdowns of EUR2,233,117 under
the W Hotel, Amsterdam facility, GBP147,006 under the Aldgate
Tower, London facility, GBP2,042,056 under the Centre Point, London
facility and GBP378,943 under the FC200 London facility have been
made. Scheduled amortisation of EUR35,750 on the Office, Amsterdam
facility and GBP797,389 on the Heron Tower, London facility have
been received. In addition, repayments of EUR2,363,980 from the
Retail Portfolio, Finland facility have been received.
IndependentAuditors
The Board of Directors elected to appoint PricewaterhouseCoopers
CI LLP as Auditors to the Company at the inaugural meeting of the
Company on 22 November 2012. PricewaterhouseCoopers CI LLP has
indicated their willingness to continue as Auditors.
Investment Manager and Service Providers
The Investment Manager during the year was Starwood European
Finance Partners Limited (the "Investment Manager"), 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 ("FCA"), to provide investment advice pursuant to
an Investment Advisory Agreement.
The administration of both the Company and Investment Manager
was delegated to Ipes (Guernsey) Limited (the"Administrator")
during the year.
Discount ManagementStrategy
The Discount Management Strategy, which has three elements, is
summarised as follows:
A discount-triggered realisation mechanism that would apply if
the Ordinary Shares trade at an average discount of 5 per cent or
more during the last six months of the financial year ending 31
December 2017 and would provide for the realisation of up to 75 per
cent of the outstanding Ordinary Share capital by means of the
orderly realisation over time of the relevant proportion of the
Company's assets and related phased distributions of capital to
shareholders who make the relevant election;
Save where the discount-triggered realisation mechanism has been
activated, a realisation vote by no later than 28 February 2018 to
implement a realisation of up to 75 per cent of the outstanding
capital on substantially the same basis as described above; and
Share repurchase powers that allow the Company to repurchase
Ordinary Shares in the market up to 14.99 per cent of the share
capital, subject to annual renewal of the shareholder
authority.
Directors' Remuneration Report
Remuneration Policy & Components
The Board endeavours to ensure the remuneration policy reflects
and supports the Company's strategic aims and objectives throughout
the year under review. Ithas been agreed that, due to the small
size and structure of the Company, a separate Remuneration
Committee would be inefficient; therefore the Board as a whole is
responsible for discussions regarding remuneration. Noexternal
remuneration consultants were appointed during the year under
review.
As per the Company's Articles of Association, all Directors are
entitled to such remuneration as is stated in the Company's
Prospectus or as the Company may determine by ordinary resolution;
to not exceed the aggregate overall limit of GBP200,000. Subject to
this limit, it is the Company's policy to determine the level of
Directors' fees, having regard for the level of fees payable to
non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of responsibilities related
to the Board, Management Engagement Committee and Audit Committee
and the time dedicated by each Director to the Company's affairs.
Base fees areset out below.
2014
Base Fees GBP
----------------------- --------
Chairman 45,000
Audit Committee Chairman 35,000
Non-Executive Director 32,500
---------------------------------
Total Directors' Fees 112,500
---------------------------------
As outlined in the Articles of Association, the Directors may
also be paid for all reasonable travelling, accommodation and other
out-of-pocket expenses properly incurred in the attendance of Board
or Committee meetings, general meetings, or meetings with
shareholders or debentures of the Company or otherwise in discharge
of their duties; and all reasonable expenses properly incurred by
them seeking independent professional advice on any matter that
concerns them in the furtherance of their duties as Directors of
the Company.
No Director has any entitlement to pensions, paid bonuses or
performance fees, has been granted share options or been invited to
participate in long-term incentive plans. Noloans have been
originated by the Company for the benefit of any Director.
None of the Directors has a service contract with the Company.
Each of the Directors has entered into a letter of appointment with
the Company dated 22 November 2012 subject to re-election every
three years thereafter at the Annual General Meetings ("AGM"). Any
Director who has served on the Board for longer than nine years
will be subject to annual re-election. The Directors do not have
any interests in contractual arrangements with the Company or its
investments during the year under review, or subsequently. Each
appointment can be terminated in accordance with the Company's
Articles and without compensation. Asoutlined in the letters of
appointment, each appointment can be terminated at the will of both
parties with one month's notice either by (i) written resignation;
(ii) unauthorised absences from Board meetings for 12 months or
more; (iii) written request of theother Directors; or (iv) a
resolution of theshareholders.
Directors' and Officers' liability insurance cover is maintained
by the Company but isnot considered a benefit in kind nor
constitutes a part of the Directors' remuneration. The Company's
Articles indemnify each Director, secretary, agent and officer of
the Company, former or present, out of assets of the Company in
relation to charges, losses, liabilities, damages and expenses
incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
Directors' Fees
The Directors received the following fees during the year under
review, with a total of GBP112,500:
Director 2014
GBP
--------------- -------
Stephen Smith 45,000
John Whittle 35,000
Jonathan Bridel 32,500
------------------------
Aggregate Fees 112,500
------------------------
Corporate Governance Statement
As a regulated Guernsey incorporated company with a Premium
Listing on the Official List and admission to trading on the Main
Market for Listed Securities of the London Stock Exchange, the
Company is required to comply with the principles of theUK
Corporate Governance Code dated September 2012 ("UK Code").
As an AIC member, the Board has also considered the principles
and recommendations of the AIC Code of Corporate Governance dated
February 2013 ("AIC Code") by reference to the AIC Corporate
Governance Guide for Investment Companies ("AIC Guide"). The AIC
Code addresses all the principles set out in the UK Code, as well
as setting out additional principles
and recommendations on issues of specific relevance to the
Company. The AIC Code was updated in 2013 to include the new
provisions of the UK Code announced in 2012, and has been
endorsed by the Financial Reporting Council as ensuring
investment company Boards fully meet their obligations to the UK
Code and LR 9.8.6 of the Listing Rules. Having adopted
the AIC Code with effect from Admission (17 December 2012), the
Board has therefore assessed itself, the Committees and performance
of the Directors against the parameters and principles outlined
within the AIC Code on a regular basis throughout
2014. The Board is of the view that throughout the year ended 31
December 2014, the Company has been fully compliant
with the AIC Code's provisions. Key issues affecting the
Company's corporate governance responsibilities, how they are
addressed by the Board and application of the AIC Code are
presented below. An explanation is provided in the event that
certain provisions have not been complied with.
Chairman
Appointed to the permanent position of Chairman of the Board on
22 November 2012, Stephen Smith is responsible for leading the
Board in all areas, including determination of strategy, organising
the Board's business and ensuring the
effectiveness of the Board and individual Directors. He also
endeavours to produce an open culture of debate within the
Board.
Prior to the Chairman's appointment, a job specification was
prepared which included an assessment of the time commitment
anticipated for the role. Discussions were undertaken to ensure the
Chairman was sufficiently aware of the time needed
for his role, and agreed to upon signature of his letter of
appointment. Other significant business commitments of the Chairman
were disclosed to the Company prior to appointment to the Board,
and were publicly disclosed in the Company's
Prospectus dated 28 November 2012. Any subsequent changes have
been declared. Certain of these commitments, and
their subsequent changes, can be identified in his biography on
page 19.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation;
the Audit Committee Chairman is tasked with collating feedback and
discussing with the Chairman on behalf of the rest of theBoard.
As per the Company's Articles, all Directors, including the
Chairman, must disclose any interest in a transaction that the
Board and Committees will approve. To ensure all Board decisions
are independent, the said conflicted Director is notentitled to
vote in respect of anyarrangement connected to the interested
party.
Board
Independenceand Disclosure
The Board and Chairman confirm that they were selected prior to
the Company's launch and were able to assume all responsibilities
at an early stage, independent of the Investment Manager and
Investment Adviser. TheBoard is composed entirely of non-executive
Directors, who meet as required without the presence of the
Investment Manager or service providers to scrutinise the
achievement of agreed goals and objectives, and monitor
performance. Through the Audit Committee and the Management
Engagement Committee they are able to ascertain the integrity of
financial information and confirm that all financial controls and
risk management systems are robust, and analyse the performance of
the Investment Manager and other service providers on a regular
basis.
Following the annual performance evaluation, it was deemed that
the Directors had been proven to challenge the Investment Manager
throughout the year under review, as minuted and recorded,
therefore for the purposes of assessing compliance with the AIC
Code, the Board as a whole considers that each Director is
independent of the Investment Manager and free from any business or
other relationship that could materially interfere with the
exercise of his independent judgment. If required, the Board is
able to access independent professional advice. The Investment
Manager is also requested to declare any potential conflicts
surrounding votes, share dealing and soft commissions on an annual
basis to the Board to help with the assessment of investments.
Open communication between the Investment Manager and the Board
is facilitated by regular Board meetings, to which the Investment
Manager is invited to attend and update the Board on the current
status of the Company's investments, along with ad hoc meetings as
required.
Coming to mutual agreement on all decisions, it was agreed the
Board had acted in the best interests of the Company to the extent
that, if deemed appropriate that a Director abstain or have his
objection noted, it is minuted.
Similar to the process outlined above for the appointment of the
Chairman, a job specification was prepared for each Directorship
which included an assessment of the time commitment anticipated for
the role to ensure each Director wasaware of the time commitment
needed for the role. The Directors' other significant business
commitments were disclosed to the Company prior to appointment to
the Board, and were publicly disclosed in the Company's Prospectus
dated 28 November 2012. Any subsequent changes have been declared.
Certain of these commitments can be identified in each Director's
biography on page 19. Details of the skills and experience provided
by each Director can also be found in their biographies, alongside
identification of the role each Director currently holds in the
Company.
The terms and conditions of appointment for non-executive
Directors are outlined in their letters of appointment, andare
available for inspection by any person at the Company's registered
office during normal business hours and at the AGM for fifteen
minutes prior to andduring the meeting.
There is no executive Director function in the Company; all
day-to-day functions are outsourced to external service
providers.
Development
The Board believes that the Company's Directors should develop
their skills and knowledge through participation at relevant
courses. The Chairman is responsible for reviewing and discussing
the training and development of each Director according to
identified needs. Upon appointment, all Directors participate in
discussions with the Chairman and other Directors to understand the
responsibilities of the Directors, in addition to the Company's
business andprocedures. The Company also provides regular
opportunities for the Directors to obtain a thorough understanding
of the Company's business by regularly meeting members of the
senior management team from the Investment Manager, Investment
Adviser and other service providers, both in person and by
phone.
Balance of the Board and Diversity Policy
It is perceived that the Board is well-balanced, with a wide
array of skills, experience and knowledge that ensures it functions
correctly and that no single Director may dominate the Board's
decisions. Having three Directors appointed ensures that during any
transition period, there are at least two Directors to provide
stability.
The Board's position on diversity can be seen within the
Strategic Report.
All Directors currently sit on all the Committees; each Director
also fills one Chairmanship post only.
Annual Performance Evaluation
The Board's balance is reviewed on a regular basis as part of a
performance evaluation review. Using a pre - determined template
based on the AIC Code's provisions as a basis for review, the Board
undertook an evaluation of its performance, in addition, an
evaluation focusing on individual commitment, performance and
contribution of each Director was conducted. The Chairman then met
with each Director to fully understand their views of the Company's
strengths andto identify potential weaknesses. If appropriate, new
members are proposed to resolve the perceived issues, or a
resignation sought. Following discussions and review of the
Chairman's evaluation by the other Directors, the Audit Committee
Chairman reviewed the Chairman's performance. Training and
development needs are identified as part of this process, thereby
ensuring that all Directors are able to discharge their duties
effectively.
Given the Company's size and the structure of the Board, no
external facilitator or independent third party was usedin the
performance evaluation.
Re-election and Board Tenure
There is currently no Nominations Committee for the Company as
it is deemed that the size, composition and structure of the
Company would mean the process would be inefficient and
counter-productive. The Board therefore undertakes a thorough
process of reviewing the skill set of the individual Directors, and
proposes new, or renewal of current, appointments to the Board.
Each Director is required to be elected by shareholders at the
Annual General Meeting following his appointment by the Board, and
to be re-elected once every three years thereafter. Mr Whittle is
therefore submitting himself for re-election at the AGM on 8 May
2015. Any Director who has served on the Board for more than nine
years is required to submit himself for re-election annually.
The Audit Committee Members and Chairman of the Board confirm
that Mr Whittle has proven his ability to fulfil alllegal
responsibilities and to provide effective independent judgment on
issues of strategy, performance, resources and conduct. The Board
therefore has no hesitation in recommending to Shareholders that Mr
Whittle be re-elected.
Appointment Process
As no new Director has been appointed since the Company's launch
and the Board believes there is no gap that currently needs to be
filled, no appointment process has been formalised. Itis
anticipated, however, that the process will involve identifying
gaps and needs in the Board's composition, then reviewing the skill
set of potential candidates. For renewal of current appointments,
all Directors except the individual in question are entitled to
vote at the meeting. Similarly, no new nominations have been made
for the role of Chairman of the Board since prior to launch.
Board and Committees
Board
Matters reserved for the Board include review of the Company's
overall strategy and business plans; approval of the Company's
half-yearly and annual report; review and approval of any
alteration to the Group's accounting policies or practices and
valuation of investments; approval of any alteration to the
Company's capital structure; approval of dividend policy;
appointments to the Board and constitution of Board Committees;
observation of relevant legislation and regulatory requirements;
and performance review of key service providers. The Board also
retains ultimate responsibility for Committee decisions; every
Committee is required
to refer to the Board, who will make the final decision.
Terms of reference that contain a formal schedule of matters
reserved forthe Board of Directors and its duly authorised
Committee for decision has been approved and can be reviewed at the
Company's registered office.
The meeting attendance record is displayed within the Corporate
Governance statement. The Company Secretary acts as the secretary
to the Board.
Audit Committee
The Board has established an Audit Committee composed of all the
independent members of the Board. The Chairman of the Board is
included as a Committee member to enable a full understanding of
the issues facing the Company, but cannot be Audit Committee
Chairman. The Audit Committee, its membership andits terms of
reference are kept under regular review by the Board, and it is
perceived all members have sufficient financial skills and
experience. John Whittle is Audit Committee Chairman.
The Audit Committee met three times during 2014 (2013: twice);
the meeting attendance record is displayed on page 28. The Company
Secretary acts as the secretary to the Audit Committee.
Owing to the size and structure of the Company, there is no
internal audit function. The Audit Committee has reviewed the need
for an internal audit function, and perceived that the internal
financial and operating control systems in place within the Company
and its service providers, as evidenced by the internal control
reports provided by the Administrator, give sufficient assurance
that a sound system of internal control is maintained that
safeguards shareholders' investment and Company assets.
The Audit Committee is intended to assist the Board in
discharging its responsibilities for the integrity of the Company's
financial statements, as well as aiding the assessment of the
Company's internal control effectiveness and objectivity of the
external Auditors. Furtherinformation on the Audit Committee's
responsibilities is given in the report ofthe Audit Committee.
Formal terms of reference for the Audit Committee are available
at the registered office, and are reviewed on a regular basis.
Management Engagement Committee
The Company has established a Management Engagement Committee
which comprises all the Directors, with Jonathan Bridel as the
Chairman of the Committee. The Management Engagement Committee's
main function is to review and make recommendations on any proposed
amendment to the Investment Management Agreement and keep under
review the performance of the Investment Manager; and undertake an
assessment of the Investment Manager's scope and responsibilities
as outlined in the service agreement and prospectus on a formal
basis every year. Discussions on Investment Manager performance are
also conducted regularly throughout the year by the Board. Reviews
of engagements with other service providers to ensure all parties
are operating satisfactorily are also undertaken by the Management
Engagement Committee so as to ensure thesafe and accuratemanagement
and administration of the Company's affairs and business and that
they are competitive and reasonable for shareholders.
Formal terms of reference for the Management Engagement
Committee are available at the registered office, and are reviewed
on a regular basis.
The Management Engagement Committee met once during 2014 (2013:
once); themeeting attendance record is displayed in the table
below. The Company Secretary acts as the secretary to the
Management Engagement Committee.
Board and Committee Meeting Attendance
Individual attendance at Board and Committee meetings is set out
below:
Scheduled Ad hoc Board(1) Audit Committee Management
Board Engagement
Committee
------------------ ---------- ---------------- ---------------- ------------
Stephen Smith(1) 4 3 1
------------------ ---------- ---------------- ---------------- ------------
John Whittle 4 3 3 1
------------------ ---------- ---------------- ---------------- ------------
Jonathan Bridel 4 3 3 1
------------------ ---------- ---------------- ---------------- ------------
Total Meetings
for year 4 3 3 1
------------------ ---------- ---------------- ---------------- ------------
1The ad hoc Board meetings are convened at short notice to deal
with administrative matters. It is not therefore always
logistically feasible, or a necessity, for the Chairman of the
Board to attend such meetings.
In addition to the scheduled quarterly and additional offshore
ad hoc meetings, the Directors and the Investment Manager have been
provided with a number of telephone and face to face investment
briefings by the Investment Adviser in order to keep the Directors
and the Investment Manager fully appraised and up to date with the
current investment status and progress.
Board Remuneration
As outlined in the Prospectus, Directors are paid in accordance
with agreed principles aimed at focusing on long-term performance
of the Company. Further information can be found in the Directors'
Remuneration Report
Company Secretary
Reports and papers, containing relevant, concise and clear
information, are provided to the Board and Committees in a timely
manner to enable review and consideration prior to both scheduled
and ad-hoc specific meetings. This ensures that Directors are
capable of contributing to, and validating, the development of
Company strategy and management. The regular reports also provide
information that enables scrutiny of the Company's Investment
Manager and other service providers' performance. When required,
the Board has sought further clarification of matters with the
Investment Manager and other service providers, both by means of
further reports and in-depth discussions, in order to make more
informed decisions for the Company.
Under the direction of the Chairman, the Company Secretary
facilitates the flow of information between the Board, Committees,
Investment Manager and other service providers through the
development of comprehensive, detailed meeting packs, agendas and
other media. These are circulated to the Board and other attendees
in sufficient time to review the data.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising on all governance matters through the
Chairman. The Articles and schedule of matters reserved for the
Board indicate the appointment and resignation of the Company
Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on
a regular basis.
Financial and Business Information
An explanation of the Directors' role and responsibility in
preparing the Annual Report and Accounts for the year ended 31
December 2014 is provided in the Statement of Directors'
Responsibilities.
For the purposes solely of the audit of the financial
statements, the Auditors have reviewed the Company's compliance
with the AIC Code's provisions, the UK Listing Authority's Listing
Rules and other applicable rules of the Financial Conduct Authority
as reported within the Independent Auditors' Report. This is in
compliance with International Standards on Auditing ("ISAs").
Further information enabling shareholders to assess the
Company's performance, business model and strategy canbe sourced in
the Chairman's Statement, the Strategic Report andthe Report of the
Directors.
Going Concern
The consolidated financial statements includes the Group's
objectives, policies and processes for managing its capital, its
financial risk management objectives, details of financial
instruments and exposure to credit risk and liquidity risk. The
Directors have undertaken a rigorous review of the Group's ability
to continue as a going concern including reviewing the on-going
cash flows and the level of cash balances and available liquidity
facilities as of the reporting date as well as taking forecasts of
future cash flows into consideration.
The Group currently has sufficient cash to manage any liquidity
issues. In addition, the Group has theability to borrow up to 20
per cent of NAV in order to manage any liquidity issues that may
arise. The Company has arranged a revolving credit facility with a
major UK clearing bank in the sum of GBP50 million. This is
currently undrawn.
After making enquiries of the Investment Manager and the
Administrator, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. The Board is therefore of the opinion
that the going concern basis should be adopted in the preparation
of the Consolidated Financial Statements. Furthermore, asper the
Prospectus, the Company is subject to a five year realisation vote
on theOrdinary Shares redeemable at no parvalue.
Risk Management and Risk Control
The Board is required annually to review the effectiveness of
the Company's key internal controls such as financial, operational
and compliance controls and risk management. The controls are
designed to ensure that the risk of failure to achieve business
objectives is minimised, andare intended to provide reasonable
assurance against material misstatement or loss. This is not
absolute assurance that all risks are eliminated. Through regular
meetings and meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial,
regulatory and operational issues. The Board maintains an
organisational and committee structure with clearly defined lines
of responsibility and delegation of authorities.
As part of the compilation of the risk register for the Company,
appropriate consideration has been given to the relevant control
processes and that risk is considered, assessed and managed as an
integral part of the business. The Company's system of internal
control includes inter alia the overall control exercise,
procedures for the identification and evaluation of business risk,
the control procedures themselves and the review of these internal
controls by the Audit Committee on behalf of the Board. Each of
these elements that make up the Company's system of internal
financial and operating control is explained in further detail as
follows:
(i) Control Environment
The Company is ultimately dependent upon the quality and
integrity of the staff and management of its Investment Manager,
its Investment Adviser and its Fund Administration & Company
Secretarial service provider, Ipes (Guernsey) Limited. In each
case, qualified and able individuals have been selected at all
levels. The staff of both the Investment Manager and Administrator,
are aware of the internal controls relevant to their activities and
are also collectively accountable for the operation of those
controls. Appropriate segregation and delegation of duties is
inplace.
The Audit Committee undertakes a review of the Company's
internal financial and operating controls on a regular basis. The
Auditors of the Company, PricewaterhouseCoopers CI LLP, considers
internal control relevant to the Company's preparation and fair
presentation of the financial statements in order to design their
audit procedures, but not for the purpose of expressing an audit
opinion on the effectiveness of the Company's internal
controls.
In its role as a third-party fund administration services
provider, the Ipes Group, of which Ipes (Guernsey) Limited is a
part, producesan annual AAF 01/06 Assurance Report on the internal
control procedures in place within the Ipes Group, and this is
subject to review by the Audit Committee and the Board.
(ii) Identification and Evaluation of Business Risks
Another key business risk is the performance of the Company's
investments. This is managed by the Investment Manager, which
undertakes regular analysis and reporting of business risks in
relation to the loan portfolio, and then proposes appropriate
courses of action to the Board for their review.
(iii) Key Procedures
In addition to the above, the Audit Committee's key procedures
include a comprehensive system for reporting financial results to
the Board regularly, as well as quarterly impairment reviews of
loans (including reports on the underlying investment
performance).
Although no system of internal control can provide absolute
assurance against material misstatement or loss, the Company's
system is designed to assist the Directors in obtaining reasonable
assurance that problems are identified on a timely basis and dealt
with appropriately. The Company, given its size, doesnot have an
internal audit function. Itis the view of the Board that the
controls in relation to the Company's operating, accounting,
compliance and IT risks performed robustly throughout the year. In
addition, all have been in full compliance with the Company's
policies and external regulations, including:
-- Investment policy, as outlined in the IPO documentation, and
subsequently amended by EGM's held on 2 May 2014 and 9 March
2015;
-- Personal Account Dealing, as outlined in the Model Code;
-- Whistleblowing Policy;
-- Anti-Bribery Policy;
-- Applicable Financial Conduct Authority Regulations;
-- Listing Rules, and Disclosure and Transparency Rules;
-- Treatment and handling of confidential information;
-- Conflicts of interest;
-- Compliance policies; and
-- Anti-MoneyLaundering Regulations.
There were no protected disclosures made pursuant to the
Company's whistleblowing policy, or that of service providers in
relation to the Company, during the year to 31 December 2014.
In summary, the Board considers that the Company's existing
internal financial and operating controls, coupled with the
analysis of risks inherent in the business models of the Company
and its subsidiaries, continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.
Dialogue with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Company's Chairman, Investment Manager and
the Brokers, Jefferies International Limited and Dexion Capital
plc, aim to meet with large shareholders at least annually,
together with the Investment Adviser, and calls are undertaken on a
regular basis with shareholders. The Board also receives regular
reports from the Brokers on shareholder issues.
Publications such as the Annual Report and Financial Statements
and quarterly factsheets are reviewed and approved by the Board
prior to circulation, and are widely distributed to other parties
who have an interest in the Company's performance, and are
available on the Company's website.
All Directors are available for discussions with the
shareholders, in particular the Chairman and the Audit
Committee Chairman, as and when required.
Constructive use of AGM
The Notice of AGM is sent out at least 20 working days in
advance of the meeting. All shareholders have the opportunity to
put questions to the Board or Investment Manager, either formally
at the Company's AGM, informally following the meeting, or in
writing at any time during the year via the Company Secretary. The
Company Secretary is also available to answer general shareholder
queries at any time throughout the year.
Report of the Audit Committee
The Board is supported by the Audit Committee, which comprised
all the Directors during the year under review (including the
Chairman of the Board, to enable his greater understanding of the
issues facing the Company). The Board has considered the
composition of the Audit Committee and are satisfied it has
sufficient recent and relevant skills and experience.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are
outlined in the Audit Committee's terms of
reference, available at the registered office, including:
-- Monitoring the integrity of the financial statements of the
Company and any formal announcements relating to the Company's
financial performance, and reviewing significant financial
reporting judgements contained within said statements and
announcements;
-- Reviewing the Company's internal financial controls, and the
Company's internal control and risk management systems;
-- Monitoring the need for an internal audit function annually;
-- Monitoring and reviewing the independence, objectivity and
effectiveness of the external Auditors, taking into consideration
relevant regulatory and professional requirements;
-- Making recommendations to the Board in relation to the
appointment, re-appointment and removal of the external Auditors
and approving their remuneration and terms of engagement, which in
turn can be placed before the shareholders for their approval at
the AGM;
-- Development and implementation of the Company's policy on the
provision of non-audit services by the external Auditors, as
appropriate;
-- Reviewing the arrangements in place to enable Directors and
staff of service providers to, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters insofar as they mayaffect the Company;
-- Providing advice to the Board on whether the annual financial
statements, taken as a whole, are fair, balanced and understandable
andprovide the information necessary for shareholders to assess the
Company's performance, business model and strategy; and
-- Reporting to the Board on how the Committee discharged all
relevant responsibilities at each Board meeting.
The Committee met three times during the year under review. The
main matters discussed at those meetings were:
-- Approval of the 2013 Annual Accounts and discussion of Final Audit Findings document;
-- Detailed review of the Half Year Report and Accounts and
recommendation for approval by the Board;
-- Discussion of reports from the external Auditors following
their interim and annual reviews;
-- Review and approval of the annual audit plan of the external Auditors;
-- Discussion and approval of the fee for the external Audit;
-- Review and approval of the interim review plan of the external Auditors;
-- Assessment of theeffectiveness of the Auditors as described below;
-- Assessment of theindependence of the external Auditors;
-- Review of the Company's key risks and internal controls; and
-- Consideration of the 2012 UK Corporate Governance Code,
Guidance on Audit Committees and other regulatory guidelines, and
the subsequent impact upon the Company.
The Committee has also reviewed and considered the
whistleblowing policy in place for the Administrator and other
service providers, and is satisfied the relevant staff can raise
concerns in confidence about possible improprieties in matters of
financial reporting or other matters insofar as they may affect the
Company.
The Committee has also made arrangements to carry out a review
of internal controls within the major service providers during
2015.
Significant Issues in Relation to the Financial Statements
During the year, the Audit Committee identified a number of
significant issues in respect of the Annual Report and Financial
Statements. The Audit Committee reviewed the external audit plan at
an early stage and concluded that the appropriate areas of audit
risk relevant to the Company had been identified and that suitable
audit procedures had been put in place to obtain reasonable
assurance that the Accounts as a whole would be free of material
misstatements. Thetable on page 33 sets out the Audit Committee's
view of the key areas of risk and how they have addressed the
issues.
Significant Issue
Recoverability and impairment to thecarrying values of loan
investments
Actions to Address Issue
The Audit Committee reviews the investment process of the
Investment Manager and Investment Adviser including the controls in
place around deal sourcing, investment analysis, due diligence and
the role of the Investment Adviser's investment committee and the
Investment Manager's Board. The Audit Committee also reviews the
controls in place around the effective interest loan models and is
notified regularly by the Investment Manager of any changes to
underlying assumptions made in theloan models. The Audit Committee
receives regular updates on the performance of each loan and
discusses whether there are any indicators of impairment with the
Investment Manager and Investment Adviser. Formal, detailed
impairment reviews are also prepared by the Investment Adviser and
Investment Manager which are reviewed at each Audit Committee
meeting and the Audit Committee considers whether thereare any
indicators of impairment.
Significant Issue
Accounting treatment of loans syndicated during the period
Actions to Address Issue
During the period the Company syndicated two loans (FC200,
London and Industrial Portfolio, Netherlands). The Audit Committee
discussed the substance of the two transactions with the Investment
Manager and Investment Adviser and confirmed that substantially
allof the risks and rewards of ownership of the syndicated loans
had been transferred to the new lenders on each loan and confirmed
that the appropriate accounting treatment would be to derecognise
the syndicated portion of each loan from the financial statements.
This accounting treatment has been adopted for the loans syndicated
during the period.
The Audit Committee also confirmed that the transaction costs of
the syndication had been appropriately recognised in the
Consolidated Statement of Comprehensive Income when incurred.
Review of ExternalAudit Process Effectiveness
The Audit Committee communicated regularly with the Investment
Manager, Investment Adviser and Administrator to obtain a good
understanding of the progress and efficiency of the audit process.
Similarly, feedback in relation to the efficacy of the Investment
Manager, Investment Adviser and other service providers
inperforming their relevant roles was sought from relevant involved
parties, including the audit partner and team. The external Auditor
is invited to attend the Audit Committee meetings at which the
semi-annual and annual accounts are considered, also enabling the
Auditors to meet and discuss any matters with the Audit Committee
without the presence of the Investment Manager or the
Administrator.
During the year, the Audit Committee reviewed the external
Auditors' performance, considering a wide variety of factors
including:
-- The quality of service, the Auditors' specialist expertise,
the level of audit fee, identification and resolution
-- of any areas of accounting judgement, and quality and
timeliness of papers analysing these judgements;
-- Review of the audit plan presented by the Auditors, and when
tabled, the final audit findings report;
-- Meeting with the Auditors regularly to discuss the various papers and reports in detail;
-- Furthermore, interviews of appropriate staff in the
Investment Manager, Investment Adviser and Administrator to receive
feedback on the effectiveness of the audit process from their
perspective; and
-- Compilation of a checklist with which to provide a means to
objectively assess the Auditors' performance.
The Audit Committee is satisfied with the Auditors'
effectiveness, and therefore does not consider it necessary to
require the Auditors to tender for the audit work.
Auditors' Tenure and Objectivity
The Company hasdeveloped an audit tender policy which the Board
will re-consider after five years from the appointment date of the
current Auditor. A review of policy will therefore occur in the
second half of 2017, subject to regular reviews by the Board and
shareholder approval.
The Company's current Auditors, PricewaterhouseCoopers CI LLP,
have acted in this capacity since the Company's inaugural meeting
on 22 November 2012. The Committee reviews the Auditors'
performance on a regular basis to ensure the Company receives an
optimal service. Subject to annual appointment by shareholder
approval at the AGM, the appointment of the Auditor is formally
reviewed by the Audit Committee on an annual basis. The Auditors
are required to rotate the audit partner every five years, and the
current partner has been in place since the Company's launch.
PricewaterhouseCoopers CI LLP regularly updates the Audit
Committee on the rotation of audit partners, staff, level of fees,
details of any relationships between the Auditors, the Company and
its loan portfolio, and also provides overall confirmation of its
independence and objectivity. There are no contractual obligations
that restrict the Company's choice of Auditors.
The Auditors did not provide the Company with any non-audit
services during the year under review. Any non- audit work would be
reviewed by the Audit Committee and approved by the Audit Committee
Chairman prior to theAuditors undertaking any work, if the fees are
over GBP12,500. This threshold is reviewed periodically to ensure
it is set at an appropriate value.
As a result of its review, the Audit Committee is satisfied that
PricewaterhouseCoopers CI LLP is independent of the Company, the
Investment Manager and other service providers and recommends the
continuing appointment of the Auditors by the Board.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and
Financial Statements is a comprehensive process requiring input
from a number of different contributors. In order to reach a
conclusion on whether the Company's financial statements are fair,
balanced and understandable, as required under the UK Code and the
AICCode, the Board has requested that the Audit Committee advise on
whether it considers that the Annual Report and Financial
Statements fulfils these requirements. Inoutlining its advice, the
Audit Committee has considered the following:
-- The comprehensive documentation that is in place outlining
the controls in place for the production of the Annual Report,
including the verification processes in place to confirm the
factual content;
-- The detailed reviews undertaken at various stages of the
production process by the Investment Manager, Investment Adviser,
Administrator, Auditors and the Audit Committee that are intended
to ensure consistency and overall balance;
-- Controls enforced by the Investment Manager, Investment
Adviser, Administrator and other third party service providers to
ensure complete and accurate financial records and security of the
Company's assets; and
-- The existence and content of a satisfactory control report
produced by the Ipes Group that has been reviewed and reported upon
by the Administrator's external Auditors to verify the
effectiveness of the internal controls of the Administrator, such
as the Audit and Assurance Faculty (AAF) Report.
As a result of the work performed, the Committee has concluded
and reported to the Board that the Annual Report for the year ended
31 December 2014, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
andstrategy. The Board's conclusions in this respect are set out in
the Statement of Directors' Responsibilities
Statement of Directors' Responsibilities
The Directors are responsible for preparing financial statements
for each financial year which give a true and fair view, in
accordance with applicable laws and regulations, of the state of
affairs of the Company and of the profit and loss of the Company
for that year.
Company law requires the Directors to prepare financial
statements for each financial year. The financial statements have
been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("IFRS"). In preparing
the financial statements, the Directors are required to:
-- Select suitable accounting policies and apply them consistently;
-- Make judgments and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work conducted by the Auditors
does not involve consideration of the maintenance andintegrity of
the website and, accordingly, the Auditors accept no responsibility
for any changes that may have occurred to the financial statements
since they are initially presented on the website. Legislation in
Guernsey governing the preparation anddissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements comply with The Companies
(Guernsey) Law, 2008. They are also responsible for safeguarding
the assets of the Company and the Group andhence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Each of the Directors confirms that, to the best of their
knowledge:
-- They have complied with the above requirements in preparing the financial statements;
-- There is no relevant audit information of which the Company's Auditors are unaware;
-- All Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the Auditors are aware of said
information;
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- The Chairman's Statement, Strategic Report, Investment
Manager's Report, Report of the Directors and Corporate Governance
Statement include a fair review of the development and the position
of the Company and the Group, together with a description of the
principal risks and uncertainties that they face.
The UK Code, as adopted through the AIC Code by the Company,
also requires Directors to ensure that the Annual Report and
Financial Statements are fair, balanced and understandable. In
order to reach a conclusion on this matter, the Board has requested
that the Audit Committee advise on whether it considers that the
Annual Report and Financial Statements fulfill these requirements.
The process by which the Committee has reached these conclusions is
set out in the report of the Audit Committee. Furthermore, the
Board believes that the disclosures set out withinthe Annual Report
provide the information necessary for shareholders to assess the
Company's performance, business model and strategy.
Having taken into account all the matters considered by the
Board and brought to the attention of the Board during the year
ended 31 December 2014,as outlined in the Corporate Governance
Statement, Strategic Report and the Report of the Audit Committee,
theBoard has concluded that the Annual Report and Financial
Statements for the year ended 31 December 2014, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model andstrategy.
Independent Auditors' Report to the Members of Starwood European
Real Estate Finance Limited
Report on the Financial Statements
We have audited the accompanying consolidated financial
statements (the "financial statements") of Starwood European Real
Estate Finance Limitedwhich comprise the consolidated Statementof
Financial Positionas of 31 December 2014 and the consolidated
Statement of Comprehensive Income, the consolidated Statement of
Changes in Equity and the consolidated Statement of Cash Flows for
the year then ended and a summary of significant accounting
policies and other explanatory information.
Directors' Responsibility for the Financial Statements
The Directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial ReportingStandards as adopted by the
European Union and with the requirements of Guernseylaw. The
Directors are also responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these
financialstatements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. ThoseStandards
require that we complywith ethical requirements and plan and
perform the audit to obtain reasonable assurance whether the
financial statements are free from materialmisstatement.
An audit involves performingprocedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selecteddepend on the Auditors' judgment,including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error.In making those risk
assessments, the Auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by the Directors, as well as evaluating the overall presentation of
the financial statements.
We believethat the audit evidence we have obtained is
sufficientand appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair
view ofthe financial position of the Group as of 31 December 2014,
and of the financialperformance and cash flows of the Group for the
year then ended in accordance with International FinancialReporting
Standards as adopted by the EuropeanUnion and have beenproperly
prepared in accordance with the requirements of The Companies
(Guernsey) Law, 2008.
Report on other Legaland Regulatory Requirements
We read the other information contained in the AnnualReport and
considerthe implications for our reportif we become aware of any
apparentmisstatements or material inconsistencies with the
financial statements. The otherinformation comprises the other
itemslisted in the Index to the AnnualReport.
In our opinion:
-- the information given in the Report of the Directors is
consistent with the financial statements; and
-- the information given in the CorporateGovernance Statement
with respect to internal control and risk management systemsis
consistent with the financial statements.
This report,including the opinion,has been prepared for and only
for the Company's members as a body in accordance with Section 262
of The Companies(Guernsey) Law, 2008 and for no other purpose. We
do not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom thisreport is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Matters on which we are requiredto Report by Exception
We have nothing to report in respect of the followingmatters
which we are required to review under the Listing Rules:
-- the Directors' statement in relation to going concern;
-- the part of the Corporate Governance Statement relating to
the Company'scompliance with the ten provisions of the UK Corporate
Governance Code specified for our review;and
-- certain elementsof the report to shareholders by the Boardon Directors' remuneration.
Other Matter
As explained within the notes to the financial statements, in
addition to our responsibility to audit and express an opinion on
the financial statements in accordance with International
Standardson Auditing and Guernseylaw we have been requested by the
Directorsto express an opinion on the financialstatements in
accordance with auditing standards generally accepted in the United
States of America as issued by the AICPA, in order to meet the
requirements of Rule 206(4)-2 under the Investment Advisors Act
(the "Custody Rule").We have reported separately in this
respect
We have audited the accompanying consolidated financial
statements of Starwood EuropeanReal Estate Finance Limited and its
subsidiaries (the "Group"), which comprise the consolidated
Statement of Financial Position as of 31 December2014 and the
consolidated Statement of Comprehensive Income,the consolidated
Statement of Changes in Equity and the consolidated Statement of
Cash Flows for the year then ended.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for thepreparation and fair
presentation of the consolidated financial statements in accordance
with International Financial Reporting Standards as adopted by the
European Union; this includes the design, implementation and
maintenance of internal control relevant to the preparation and
fair presentation of consolidated financialstatements that are free
from material misstatement, whether due to fraudor error.
Auditors' Responsibility
Our responsibility is to express an opinion on the consolidated
financialstatements based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whetherthe
consolidated financial statements are free from material
misstatement.
An audit involves performingprocedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selecteddepend on our judgment,
includingthe assessment of the risks of material misstatement of
the consolidated financial statements, whetherdue to fraud or
error. Inmaking those risk assessments, we consider internalcontrol
relevant to the Company's preparation and fair presentation of the
consolidated financial statementsin order to design audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company's internalcontrol. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting
policiesused and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe
that the audit evidence we have obtainedis sufficient and
appropriate to providea basis for our audit opinion.
Opinion
In our opinion, the consolidated financialstatements referred to
above present fairly, in all materialrespects, the financial
position of Starwood European Real Estate Finance Limited and its
subsidiaries at 31 December 2014, and the results of their
operations, changes in their net assets, and their cash flows for
the year then ended, in accordance with International Financial
Reporting Standards as adopted by the EuropeanUnion.
Other Matters
Our audit was conducted for the purpose of forming an opinionon
the consolidated financial statements taken as a whole. The other
items listed in the Index to the Annual Report are presented for
purposes of additional analysis and are not a required part of the
consolidated financial statements. The information is the
responsibility of managementand was derived from and relates
directly to the underlying accounting and other records used to
preparethe consolidated financialstatements. The information has
been subjected to the auditing procedures applied in the audit of
the consolidated financial statementsand certain additional
procedures, includingcomparing and reconciling such information
directlyto the underlying accounting and otherrecords used to
prepare the consolidated financialstatements or to the consolidated
financial statements themselves and other additional procedures, in
accordance with auditing standardsgenerally accepted in the United
States of America. In our opinion, the information is fairly
stated, in all materialrespects, in relationto the consolidated
financial statements taken as a whole.
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2014
1 January 2014 9 November 2012
to to
31 December 31 December 2013
2014
Notes GBP GBP
Income
Income from loans advanced 16,050,220 5,336,230
Income from cash and cash equivalents 130,311 635,797
--------------------------------------- ------- --------------- ------------------
Total income from investments 16,180,531 5,972,027
--------------------------------------- ------- --------------- ------------------
Expenses
Investment management fees 3(a) 1,528,333 417,951
Directors' fees and travel expenses 4 115,283 132,267
Administration fees 3(c) 220,999 225,071
Auditors' fees 5 157,619 88,150
Broker's fees 3(e) 97,736 104,110
Legal and professional fees 112,691 130,341
Insurance 60,564 61,205
Net foreign exchange (gains)
/ losses 6 (881,125) 639,461
Revolving credit facility fees 16,990 -
amortised
Revolving credit facility commitment 25,278 -
fees
Other expenses 80,344 86,656
--------------------------------------- ------- --------------- ------------------
Total operating expenses 1,534,712 1,885,212
--------------------------------------- ------- --------------- ------------------
Operating profit for the year
before tax 14,645,819 4,086,815
--------------------------------------- ------- --------------- ------------------
Taxation 20 2,662 2,718
--------------------------------------- ------- --------------- ------------------
Operating profit for the year
and total comprehensive income 14,643,157 4,084,097
--------------------------------------- ------- --------------- ------------------
Weighted average number of shares
in issue 7 238,100,000 235,655,145
Basic and diluted earnings per
Ordinary Share (pence) 7 6.15 1.73
Consolidated Statement of Financial Position for the year ended
31 December 2014
As at As at
31 December 31 December 2013
2014
Assets
Cash and cash equivalents 8 13,172,978 79,706,084
Other receivables and prepayments 9 31,962 287,470
Revolving credit facility capitalised
cost 10 443,010 -
Loans advanced 11 220,954,400 156,381,277
Financial assets at fair value
through profit and loss 12 5,023,584 87,180
--------------------------------------- ----- -------------- ------------------
Total assets 239,625,934 236,462,011
--------------------------------------- ----- -------------- ------------------
Liabilities
Trade and other payables 13 1,341,518 439,552
--------------------------------------- ----- -------------- ------------------
Total liabilities 1,341,518 439,552
Net assets 238,284,416 236,022,459
--------------------------------------- ----- -------------- ------------------
Capital and reserves
Share capital 15 233,843,162 233,843,162
Retained earnings 4,441,254 2,179,297
--------------------------------------- ----- -------------- ------------------
Total equity 238,284,416 236,022,459
--------------------------------------- ----- -------------- ------------------
Number of Ordinary Shares in
issue 238,100,000 238,100,000
Net asset value per Ordinary
Share (pence) 100.08 99.13
Consolidated Statement Changes of Equity for the year ended 31
December 2014
Year ended 31 December 2014 Share Capital Retained earnings Total equity
GBP GBP GBP
Balance at 1 January 2014 233,843,162 2,179,297 236,022,459
------------------------------------------ -------------- ------------------ -------------
Dividends paid - (12,381,200) (12,381,200)
Operating profit and total comprehensive
income - 14,643,157 14,643,157
------------------------------------------ -------------- ------------------ -------------
Balance at 31 December 2014 233,843,162 4,441,254 238,284,416
------------------------------------------ -------------- ------------------ -------------
Period ended 31 December 2013 Share Capital Retained earnings Total equity
Balance at 9 November 2012 GBP GBP GBP
------------------------------------------ -------------- ------------------ -------------
Issue of share capital 238,509,000 238,509,000
Cost of issues (4,665,838) (4,665,838)
Dividends paid (1,904,800) (1,904,800)
Operating profit and total comprehensive
income 4,084,097 4,084,097
------------------------------------------ -------------- ------------------ -------------
Balance at 31 December 2013 233,843,162 2,179,297 236,022,459
------------------------------------------ -------------- ------------------ -------------
Consolidated Statement of Cash Flows For the year ended 31
December 2014
1 January 2014 9 November
to 2012 to
31 December 31 December
2014 2013
GBP GBP
Operating activities:
Operating profit for the year/period and
total comprehensive income 14,643,157 4,084,097
Adjustments
Loan effective interest income (16,050,220) (5,336,230)
Interest income earned on cash and cash
equivalents (130,311) (635,797)
Decrease/(Increase) in prepayments and
receivables 246,776 (287,470)
Increase in trade and other payables 197,394 439,552
Net gain on financial instruments held
at fair value through profit and loss (4,936,404) (87,180)
Net foreign exchange losses 3,689,527 726,641
Other non-cash items (188,247) 205,237
------------------------------------------------- --------------- --------------
(2,528,328) (891,150)
------------------------------------------------- --------------- --------------
Loans advanced (1) (115,070,574) (152,864,924)
Loans repaid 49,981,644 -
Origination fees paid (646,574) (1,171,890)
Origination expenses paid (5,454) (75,413)
Interest, commitment and exit fee income
from loans advanced 14,468,574 2,140,736
Syndication expenses paid (180,690) -
------------------------------------------------- --------------- --------------
Net cash outflow from operating activities (53,981,402 (152,862,641)
------------------------------------------------- --------------- --------------
Cash flows from investing activities
Interest income from cash and cash equivalents 139,043 627,065
------------------------------------------------- --------------- --------------
Net cash outflow from investing activities 139,043 627,065
------------------------------------------------- --------------- --------------
Cash flows from investing activities
Net share issue proceeds received (2) - 234,878,549
Cost of share issues - (1,035,387)
Revolving credit facility cost paid (315,064) -
Dividends paid (12,381,200) (1,904,800)
------------------------------------------------- --------------- --------------
Net cash (outflow)/inflow from financing
activities (12,696,264) 231,938,362
------------------------------------------------- --------------- --------------
Net (decrease)/increase in cash and cash
equivalents (66,538,623) 79,702,786
Cash and cash equivalents at the start
of the year / period 79,706,084 -
Net foreign exchange (loss)/gain on cash
and cash equivalents 5,517 3,298
------------------------------------------------- --------------- --------------
Cash and cash equivalents at the end of
the year / period 13,172,978 79,706,084
------------------------------------------------- --------------- --------------
(1) Net of arrangement fees of GBP 2,184,680 (2013:GBP
1,674,212) withheld.
(2) Gross shareproceeds net of fees and expenses of GBP nil
(2013: GBP 3,630,451) withheldby Brokers.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2014
1. GeneralInformation
Starwood EuropeanReal Estate Finance Limited("the Company") was
incorporated with limited liabilityin Guernsey under the Companies
(Guernsey) Law, 2008, as amended, on 9 November 2012 with
registered number 55836, and has been authorised by the GFSC as an
authorised closed-ended investment company. The registered office
and principalplace of business of the Company is 1,Royal Plaza,
Royal Avenue,St Peter Port, Guernsey, ChannelIslands, GY1 2HL.
On 12 December 2012, the Companyannounced the resultsof its IPO,
which raisednet proceeds of GBP223.9 million. The Company'sOrdinary
Shares were admitted to the premium segment of the UK Listing
Authority's Official List and to tradingon the Main Market of the
LondonStock Exchange as part of its IPO which completed on 17
December 2012. A furtherGBP9.9 million of net proceeds was raised
via tap issues throughout the period ended 31 December 2013. No tap
issues occuredduring the year ended 31 December 2014.
The consolidated financial statementscomprise the
financialstatements of the Company, Starfin Public GP Limited (the
"GP"), StarfinPublic LP (the "Partnership") and Starfin Lux S.à.r.l
("Luxco")(together "the Group") as at 31 December 2014.
The Company's investment objective is to provideits shareholders
with regular dividendsand an attractive total return while limiting
downsiderisk, through the origination, execution, acquisition and
servicing of a diversified portfolio of real estate debt
investments (including debt instruments) in the UK and wider
European Union's internal market.To pursue its investment
objective, the Company, through the Partnership, invests in the
Luxco through both equity and profit participation instruments or
other funding instruments. The Luxco then grants or acquire loans
(or other debt instruments) to borrowers in accordance with the
Group's investment policy. Some investments may be made via
specialpurpose vehicles wholly owned by the Luxco or the
Company.The Group expects all of its investments to be debt
obligations of corporate entities domiciledor with significant
operations in the United Kingdom and wider European Union's
internal
market.
The Companyhas appointed Starwood European FinancePartners
Limited as the Investment Manager ("the Investment Manager"), a
company incorporated in Guernsey and regulatedby the GFSC. The
Investment Manager has appointed Starwood Capital Europe Advisers,
LLP ("the Investment Adviser"), an English limitedliability
partnership authorised and regulated by the FinancialConduct
Authority, to provide investment advice pursuantto an Investment
Advisory Agreement. The administration of the Company is delegated
to Ipes (Guernsey) Limited("the Administrator").
Basis of Preparation and Principal Accounting Policies
The principalaccounting policies appliedin the preparation of
these financial statements are set out below. These policies have
been consistently applied to the year presented, unless otherwise
stated.
a) Statementof compliance
The Companyhas prepared its consolidated financial statements in
accordance with The Companies (Guernsey) Law, 2008 (as amended) and
International Financial Reporting Standards as adopted by the
European Union ("IFRS"), which comprise standardsand
interpretations approvedby the International Accounting Standards
Boards ("IASB") togetherwith the interpretations of the IFRS
Interpretations Committee ("IFRIC") as approved by the
International Accounting StandardsCommittee ("IASC") which remain
in effect. The Directors of the Company have taken the exemptionin
Section 244 of The Companies (Guernsey) Law, 2008 (as amended)and
have thereforeelected to only prepare consolidated financial
statements for the year.
2. Basis of Preparation and Principal Accounting Policies
(CONTINUED)
Standards, Amendments and Interpretations in issue and effective
on or after 1 January2014:
New standards Effective date
IFRS 9 Financial Instruments - Classifications and Measurement 1 January 2018
IFRS 15 Financial Instruments - Revenue from Contracts 1 January 2017
from Customers
Revised and amended standards
IAS 32 Financial Instruments - Presentation (amendment 1 January 2014
on offsetting financial assets and liabilities)
Unless statedotherwise the Directors do not considerthe changes
will have a material impact.
b) Basis of preparation
These consolidated financial statements have been preparedon a
going concern basis and under the historical cost convention as
modified by the revaluation of certain assets and liabilities to
fair value.
Critical accounting judgments and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requiresthe use of certain critical accounting estimates. It also
requiresmanagement to exerciseits judgment in the process of
applying the Company's accounting policies.The areas involving a
higher degree of judgment or complexity, or areaswhere assumptions
and estimates are significant to the consolidated financial
statements relateto:
-- the impairment of financial assets held as loans advanced,the
key area of judgmentbeing, as to whether there is any indication
that a loan may be impaired (see note 2(g));
-- the functional currency of subsidiary undertakings of the
Company, which is considered by the Directors to be Sterling(see
notes 2(d) and 2(j));
-- the operatingsegments, of which the Directorsare currently of
the opinion that the Company and its subsidiaries are engaged in a
single segment of business, which is based on the loans advancedas
at the reporting date (see note 2(e)); and
-- the receipt of and estimated timing of scheduledand
unscheduled pre-payments of loans advanced and the impact on
liquidity risk and the interest income(see note 17); and
-- the syndication of loans, and the assessment of how the
syndicated facility should be treated under therelevant accounting
standards.The key area of judgementbeing whether substantially all
of the risksand rewards of ownership have transferred to the
transferee and whether the syndicated loan is derecognised or not
(see note 2(f)).
c) Basis of consolidation
The consolidated financial statements incorporate the
financialstatements of the Company and entities controlled by the
Company (its subsidiary undertakings) made up to the consolidated
Statementof Financial Position date. Control is achieved wherethe
Company has the power to governthe financial and operating policies
of an investee entity so as to obtain benefits directly from its
activities. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Companycontrols another entity.The Company
also assesses existenceof control where it does not have more than
50 per cent of the voting power but is able to govern the financial
and operating policies by virtue of de-facto control.
Ownership Country of Principal place
of
Subsidiary undertakings Date of Control % Incorporation business
------------------------ --------------- --------- ------------- ---------------
Starfin Public GP 20/11/12 100 Guernsey Guernsey
Limited
Starfin Public LP 22/11/12 100 Guernsey Guernsey
Starfin Lux S.à.r.l 30/11/12 100 Luxembourg Luxembourg
Subsidiary undertakings are fully consolidated from the date on
which control is transferred to the Group. They are de-consolidated
from the date that controlceases.
The Group applies the acquisition methodto account for business
combinations.
Acquisition-related costs are expensed as incurredunless
directly attributable to the acquisition. No consideration, other
than for the par value of any share capital or capital
contributions, has been paid in respect of the acquisition of
subsidiary undertakings. The Company acquired the subsidiaries at
the time of their initial establishment and hence they had no net
assetsat the date of the acquisition.
Intercompany transactions, balances, income and expenseson
transactions between Group companies are eliminated on
consolidation. Profits and lossesresulting from intercompany
transactions that are recognised in assets are also eliminated.
d) Functional and presentation currency
Items includedin the financial statements of each of the
Group'sentities are measuredusing the currency of the primary
economicenvironment in which the entity operates ("the functional
currency"). Therefore the Directors have considered in accessing
the functional currencyof each of the Group'sentities:
-- the sharecapital of all members of the Group is denominated in Sterling;
-- the dividends are paid in Sterling;
-- the majorityof loans advancedare denominated in Sterling; and
-- Euro transactions represent only a small proportion of
transactions in the Luxembourg entity.
The consolidated financial statements for the Company are
presented in Sterling, which is the Group's presentation
currency.
e) Segmentreporting
Operating segmentsare reported in a manner consistent with the
internalreporting provided to the chief operating decision-maker.
The chiefoperating decision-maker, who is responsible for
allocating resources and assessing performance of the
operatingsegments, has been identified as the Board, as the Board
makes strategic decisions. The Directors, after having considered
the way in which internal reportingis provided to them, are of the
opinion that the Company and its subsidiaries are engaged in a
single segment of business, being the provision of a diversified
portfolio of real estate backed loans. Equally, based on the
internal reporting provided, the Directors do not analyse the
portfolio based on geographical segments.
f) Financialassets
Classification
The Group classifies its financial assets in the following
categories: at fair value through profit or loss, loans and
receivables, and available for sale. The classification depends on
the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets at
initial recognition.
Financial assets at fair value throughprofit or loss
Financial assets at fair value throughprofit or loss comprise
derivatives not designated as hedges.
Loans and receivables
Loans and receivables are non-derivative financialassets with
fixed or determinable payments that are not quoted in an active
market. The Group's loans and receivables comprise secured loans
advanced, trade and other receivables and cash and cash
equivalents.
Available-for-sale financial assets
Available-for-sale financialassets are non-derivatives that are
either designated in this categoryor not classified in any of the
other categories. They are included in non-current assets unless
the investment matures or management intendsto dispose of it
within12 months of the end of the reporting period.
Recognition and measurement
Regular purchasesand sales of financial assets are recognised on
the trade date, the date on which the Groupcommits to purchaseor
sell the asset. Investments are initially recognised at fair value
plus transaction costs for all financial assets not carriedat fair
value through profit or loss. Financial assets carried at fair
value through profit or loss are initially recognised at fair
value, and transaction costs are expensed in the consolidated
Statementof Comprehensive Income. Financialassets are derecognised
when the rights to receive cash flows from the investments have
expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership.
Available-for-sale financial assets and financialassets at fair
value through profit or loss are subsequently carriedat fair value.
Loans and receivables are subsequently carriedat amortised cost
using the effective interest method less provisions for any
impairments.
Loans syndication
Loans and receivables measuredat amortised cost are derecognised
following syndication if risk and rewards of ownership have
substantially transferred to the counterparty. Transaction costs of
syndications are recognised in the consolidated Statement of
Comprehensive Income when incurred.
g) Impairment of financial assets
Impairments for specific bad and doubtfuldebts are made against
loans and receivables, by an evaluation of the exposure on a
case-by-case basis. An assessmentis made, on a quarterly basis, as
to whether there is any indication that a loan may be impaired;if
any such indication exists and where the carrying value exceeds the
estimated recoverable amount based on revised future cash flows,
the loan will be reduced by the estimated impairment loss. The
impairmentloss is calculated as the difference between the present
value of futurecash flows, discounted at the loan'soriginal
effective interestrate, and the loan's current carrying value. The
amount of any impairmentloss, if any, would be recorded in the
consolidated Statement of Comprehensive Income.No impairment has
been recognised to date.
h) Cash and cash equivalents
In the consolidated statementof cash flows, cash and cash
equivalents includes cash in hand, deposits held at call with banks
and othershort-term highly liquidinvestments with
originalmaturities of three months or less.
i) Share capital
Ordinary Sharesare classified as equity. Incremental costs
directly attributable to the issue of new
Ordinary Shares are shown in equityas a deduction, net of tax,
from the proceeds.
j) Foreign currency translation
Transactions and balances
Foreign currencytransactions are translated into the functional
currency using the exchangerates prevailing at the dates of the
transactions or valuation where items are re-measured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetaryassets and liabilities denominated in foreign currencies
are recognised in the consolidated statement of comprehensive
income, except when deferred in other comprehensive income as
qualifying cash flow hedgesand qualifying net investment
hedges.Foreign exchange gains and losses that relate to borrowings
and cash and cash equivalents and all other foreign exchange gains
and losses are presentedin the consolidated Statement of
Comprehensive Income within "net foreign exchange
gains/(losses)".
Group companies
The resultsand financial positionof all the Group entitiesthat
have a functional currencydifferent from the presentation currency
of the Group are translated into the presentation currency of the
Group as follows:
-- assets and liabilities for each Statement of
FinancialPosition presented are translated at the closing rate at
the date of that Statement of Financial Position;
-- income and expenses for each Statementof Comprehensive Income
are translated at average exchange rates (unlessthis average is not
a reasonable approximation of the cumulative effect of the
ratesprevailing on the transaction dates, in which case income and
expensesare translated at the rate on the dates of the
transactions); and
-- all resulting exchange differences are recognised in other comprehensive income.
None of the Group entities have a functional currency different
to presentation currency.
k) Interestincome
Interest income on loans advanced is recognised using the
effectiveinterest rate method. If a loan and receivable is
impaired, the Group reduces the carrying amount to its recoverable
amount, being the estimated future cash flow discounted at the
originaleffective interest rate of the instrument, and continues
unwinding the discountas interest income. Interest income on
impairedloans and receivables is recognised using the original
effective interest rate to the extent that the Group expects to
recover the interest receivable.
Interest on cash and cash equivalents is recognised on an
accrualsbasis.
l) Origination, exit and loan arrangement fees
Origination fees paid to the Investment Manager and exit and
direct loan arrangement fees received will berecognised using the
effective interestrate method underloans advanced and amortised
over the lifetime of the related financialasset through income from
loans advanced in the consolidated Statement of Comprehensive
Income. Syndication costs are recognised in the consolidated
Statementof Comprehensive Income when incurred.
m) Expenses
All other expenses are included in the consolidated Statement of
Comprehensive Income on an accruals basis.
n) Taxation
The Companyis a tax-exempt Guernsey limitedliability company as
it is domiciled and registered for taxation purposes in
Guernseywhere it pays an annualexempt status fee under The Income
Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as
amended).Accordingly, no provisionfor Guernsey tax ismade.
The Partnership is transparent for both Guernsey and Luxembourg
tax purposes,and therefore no provision for taxes has been
made.
The Luxco is subject to the applicable general tax regulations
in Luxembourgand taxation is provided based on the results for the
period(see note 20).
o) Other receivables
Trade and other receivables are amounts due in the ordinary
course of business. They are classified as assets.Trade and other
receivables are recognised initiallyat fair value and subsequently
measured at amortised cost using the effective interestmethod, less
provisionfor impairment.
p) Other payables
Trade and other payablesare obligations to pay for services that
have been acquired in the ordinary course of business. They are
classified as liabilities. Trade and other payables are recognised
initiallyat fair value and subsequently measuredat amortised cost
using the effective interestrate method.
q) Dividenddistributions
Dividend distributions to the Company'sshareholders are
recognised as a liabilityin the Company's financial statements in
the periodin which the dividends are declared by the Boardof
Directors.
r) Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount
reported on the consolidated Statement of Financial Positionwhen
there is a legallyenforceable right to offset the recognised
amountsand there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously.
3. MaterialAgreements
a) Investment management agreement
The Company and the Investment Manager have entered into an
investment management agreement, dated 28 November2012 (the
"Investment Management Agreement"), pursuant to which the
Investment Manager has been given overallresponsibility for the
discretionary management of the Company's assets (including
uninvested cash) in accordance with the Company's investment
objectives and policy.
The InvestmentManager is entitledto a management fee which is
calculated and accrued monthly at a rate equivalent to 0.75 per
cent per annum of NAV (excluding any cash balancesuntil such time
as 75 per centof the Net Issue Proceeds are invested.The Company
and Investment Manager agreed to increase the 75 per cent threshold
to 90 per cent during the year. The 90 per cent threshold was
reached in May
2014.). The management fee is payablequarterly in arrears.
In addition,the Investment Manager isentitled to an asset
origination fee of 0.75 per cent of the value of all new loan
investments made or acquired by the Company(see note 22). The asset
origination fee to be paidby the Company is expectedto be paid upon
receiptby the Company of loan arrangement fees received on the
deployment of the Company's funds.
The Investment Management Agreement is terminable by either the
Investment Manageror the Company giving to the other not less than
12 months' written notice, such notice not to be given before the
fourth anniversary of Admission (17 December 2016).
The Investment Manager has appointed Starwood Capital Europe
Advisers,LLP ("the Investment Adviser"), an English
limitedliability partnership authorised and regulated by the
FinancialConduct Authority, to provideinvestment advice pursuantto
an Investment Advisory Agreement.
b) Partnership agreement
As per the Amended and RestatedLimited Partnership
Agreementrelating to StarfinPublic LP, dated 28 November 2012, the
Company commitssubstantially all of the net issue proceedsplus
proceeds from subsequent tap issues to the Partnership. That
commitment is drawn down as requiredby the GP for the funding of
investments. 0.01 per cent of the Company's commitment was paid as
a capital contribution shortly after admission to trading on the
London Stock Exchange ("Admission") and the balanceof 99.99 per
cent, is committed and is paid over when requested by the GP.
Each amount of income and capitalproceeds received by the
Partnership will be distributed in the following order of
priority:
-- First, to the GP until the GP has received distributions
equal to the GP's Share,the GP will be entitled to receive and
there will be allocatedto the GP in each accounting period a sum of
GBP1,000;
-- Second, to the extentof any excess, to the Company until the
Company has achieved the hurdle total return; and
-- Third, 20 per cent of the excess to Starfin CarryLP ("the
Special Limited Partner")and 80 per cent of theexcess to the
Company.
The hurdletotal return will be achievedwhen the NAV of the
Company, plus the total of all dividends declared and paid to
ordinaryshareholders, is equal to the NAV of the Companyas at
Admission as increased by 8 per cent per annum, on a simple
interestbasis (but excluding actual carried interest accrued and
deemed as a creditor on the Statementof Financial Position). To the
extent that the Company makes further issues of OrdinaryShares, the
hurdle total return will be adjusted accordingly, by reference to
the issueprices of such further issues and dividends declared
subsequent to such issues.
c) Administration agreement
The Companyhas engaged the services of Ipes (Guernsey) Limited
("the Administrator") to act as Administrator and Company
Secretary. Under the terms of the administration agreement dated 28
November 2012, the Administrator is entitled to a fee of no less
than GBP135,000 per annum with an additional amountchargeable of
0.035 per cent per annum on the amount by which the Company'sNAV
exceeds GBP140,000,000 and further amounts as may be agreed in
relation to any additional services provided by the Administrator.
The Administrator is, in addition,entitled to recover third party
expenses and disbursements.
d) Registrar's agreement
The Company and Computershare Investor Services(Guernsey)
Limited ("the Registrar") entered into a Registrar agreement dated
28 November 2012, pursuant to which the Company appointedthe
Registrar to act as Registrar of the Companyfor a minimum annual
fee payable by the Companyof GBP7,500 in respect of basic
registration.
e) IPO Sponsor's and placing agreement
In connection with the IPO, the Companyengaged the servicesof
Dexion Capitalplc ("Dexion") and Jefferies International Limited
("Jefferies") (collectively "the Joint Bookrunners") to act as
joint global co- ordinators, bookrunners, placementagents,
arrangers and sponsors in connection with the issue of the Ordinary
Shares ("the Issue")and the application for Admission.
The total expenses of the Issue paid by the Company (including
customary commissions and expenses payable to the Joint
Bookrunners, certain fees, costs and expensesof Starwood Capital
Group Management, LLC and its affiliates ("Starwood")) relating to
the establishment of the Company and the feesof all other advisers
and services providersto the Company and the Joint Bookrunners are
equal to 2 per cent of the grossSterling proceeds of the Issueand
were cappedat this level.
The Sponsorand Placing Agreement is governed by the laws of
Englandand Wales.
On 5 February 2013, the Companyappointed Dexion and Jefferies as
joint Brokers to the Group. Dexion and Jefferies are each entitled
to receive a fee of GBP50,000 per annum plus expenses.
f) Licence agreement
The Company and Starwood Capital Group Management, LLC ("the
Licensor")have entered into a trade marklicence agreement dated 28
November2012 ("the LicenceAgreement"), pursuant to which the
Licensor has agreed to grant to the Company a royalty-free,
non-exclusive worldwide licence for the use of the "Starwood" name
for the purposes of the Company's business.
Under the terms of the LicenceAgreement, it may be terminated by
the Licensor;(i) if the Investment Management Agreement or any
other similar agreementbetween the Company and the Investment
Manager (or either of their respective affiliates) is terminated
for any reason whatsoever or expires: (ii) if the Company suffersan
insolvency event or breachesany court order relating to the Licence
Agreement; or (iii) upon two months' writtennotice without
cause.
g) Lock up agreement
The Company, the Joint Bookrunners, Starwood and Starwood
Property Trust Inc ("STWD") enteredinto a lock up agreement dated
28 November2012 ("the Lock Up Agreement"), pursuant to which (i)
STWD agreed not to transfer, disposeof or grant any optionsover any
of the OrdinaryShares acquired by STWD under the Placing; and (ii)
Starwood has agreed to procure that any Starwood personnel to whom
any Ordinary Shares are transferred by Starwood do not
transfer,dispose of or grant any options over any of the Ordinary
Shares to be acquired by Starwood under the Placing, in each case
for a period of 6 months following Admission.
h) Hedgingagreements
The Companyand Lloyds Bank plc enteredinto an international
forward exchangemaster agreement dated 5 April 2013 and on 7
February 2014 the Company enteredinto a Professional Client
Agreement with Goldman Sachs, pursuantto which the parties can
enter into foreign exchange transactions with the intention of
hedging against fluctuations in the exchange rate between
Sterlingand other currencies. Both agreements are governed by the
laws of Englandand Wales.
i) Revolvingcredit facility
On 4 December 2014, the Company entered into a GBP50 million
revolving credit facility with a major UK clearing bank which is
intended for short-term liquidity. Under its investment policy,the
Company is limited to borrowing an amount equivalentto a maximum of
20 per cent of its NAV at the time of drawdown.In calculating the
Company'sborrowings for this purpose, any liabilities incurred
under the Company's foreign exchangehedging arrangements shall be
disregarded. The interest rate payable will depend on how long the
loanis outstanding: LIBOR plus 2.50 per cent per annum at
initialdraw down and increasing for loans outstanding for morethan
six months.The facility is secured by a pledgeover the bank
accounts of the Company, its interests in Starfin Public LP and the
intercompany fundingprovided by the Company to Starfin Public LP.
Starfin PublicLP also acts as guarantor of the facilityand has
pledged its bank accounts as collateral. The undertakings and
events of default are customary for a transaction of this nature.
Nothingis outstanding at 31 December2014.
4. Directors' Fees
31 December 31 December
2014 2013
GBP GBP
----------------------- ------------ ------------
Directors' emoluments 112,500 128,334
Other fees 2,783 3,933
----------------------- ------------ ------------
115,283 132,267
----------------------- ------------ ------------
5. Auditors'Remuneration
31 December 31 December
2014 2013
GBP GBP
---------------------------- ------------ ------------
Audit and related services 157,619 88,150
Non-audit services - 9,750
---------------------------- ------------ ------------
157,619 97,900
---------------------------- ------------ ------------
6. Net Foreign Exchange(Gains) / Losses
31 December 31 December
2014 2013
GBP GBP
-------------------------------- ------------ ------------
Loans advanced (unrealised) 3,689,527 705,122
Forward contracts (unrealised) (4,936,404) (87,180)
Other 365,752 21,519
-------------------------------- ------------ ------------
(881,125) 639,461
-------------------------------- ------------ ------------
7. EarningsPer Share and Net AssetValue Per Share
The calculation of basic earningsper Ordinary Share is based on
the operating profit of GBP14,643,157 (2013: GBP 4,084,097) and on
the weighted average number of Ordinary Shares in issue during the
year of 238,100,000 (2013: 235,655,145) OrdinaryShares.
The calculation of NAV per Ordinary Share is based on a NAV of
GBP238,284,416 (2013: GBP 236,022,459) and the actual number of
Ordinary Shares in issue at 31 December 2014 of 238,100,000 (2013:
238,100,000).
8. Cash and Cash Equivalents
Cash and cash equivalents comprise the 31 December 31 December
following: 2014 2013
GBP GBP
---------------------------------------- ------------ ------------
Fixed deposits 8,194,296 50,853,621
Cash at bank 4,978,682 28,852,463
13,172,978 79,706,084
---------------------------------------- ------------ ------------
Cash and cash equivalents comprises cash held by the Group and
short term deposits held with various banking institutions with
original maturitiesof three months or less. The carrying amount of
these assets approximates their fair value.For further information
and the associated risks refer to note 17.
9. Other Receivables and Prepayments
31 December 2014 31 December 2013
GBP GBP
---- --------------------------------------- ---------------- ----------------
Bank interest receivable - 8,732
Prepayments 31,962 73,501
Loan interest receivable - 205,237
--------------------------------------------- ---------------- ----------------
31,962 287,470
--------------------------------------------- ---------------- ----------------
10. RevolvingCredit Facility Capitalised Costs
The revolvingcredit facility capitalised costs are
directlyattributable costs incurredin relation to the establishment
of the GBP 50 million loan facility, refer to note 3(i).
11. Loans Advanced
The Group'saccounting policy on the measurement of financial
assetsis discussed in note 2(f).
31 December 31 December
2014 2013
GBP GBP
------------------------------- ------------- -------------
UK
Maybourne Hotel Group, London 19,430,056 19,594,651
West End Development, London 10,137,575 10,140,091
Lifecare Residences, London 13,311,980 11,215,462
Heron Tower, London 15,186,783 18,420,006
Centre Point, London 40,305,815 40,211,361
FC200, London 9,252,934 -
Aldgate, London 37,575,749 -
5 Star Hotel, London 6,871,376 -
Netherlands
Office 11,104,334 -
Industrial 15,873,838 18,245,998
W Hotel 9,198,302 -
Finland
Retail Portfolio 32,705,658 38,553,708
------------------------------- ------------- -------------
220,954,400 156,381,277
------------------------------- ------------- -------------
No element of loans advanced are past due or impaired.For
further information and the associated risks see the Investment
Manager's Report and note 17.
The table below reconciles the movement of the carryingvalue of
loans advanced in the year.
31 December 2014 31 December
GBP 2013
GBP
------------------------------------- ------------------- -----------
Loans advanced at start of the year
/ period 156,381,277 -
------------------------------------- ------------------- -----------
Loans advanced 117,255,254 154,539,136
Loans repaid (49,981,644) -
Arrangement fees earned (2,184,680) (1,674,212)
Commitment fees earned (57,413) (16,085)
Exit fees earned (75,522) -
Origination fees paid 1,072,949 1,171,890
Origination expenses paid - 75,413
Syndication expenses paid / accrued 313,888 -
Effective interest income earned 16,050,220 5,336,230
Interest payments received / accrued (14,130,402) (2,345,973)
Foreign exchange losses (3,689,527) (705,122)
------------------------------------- ------------------- -----------
Loans advanced at end of the year /
period 220,954,400 156,381,277
------------------------------------- ------------------- -----------
Loans advanced at fair value 231,280,183 165,736,511
-------------------------------------------- ------------ -----------
For furtherinformation on the fair valueof loans advanced, refer
to note 18.
12. FinancialAssets at Fair Value throughProfit and Loss
Financial assets at fair value throughprofit and loss
comprisecurrency forward contractswhich represent contractual
obligations to purchase domesticcurrency and sell foreign
currencyon a future date at a specified price. The underlying
instruments become favourable (assets)or unfavourable (liabilities)
as a result of fluctuations of foreign exchangerelative 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 aggregatefair values of
derivative financialassets and liabilities, can fluctuate
significantly from time to time. The fair value of derivative
instruments held are set out below:
Goldman Sachs:
Notional contract Fair Values
amount(1)
Assets Liabilities Total
31 December 2014 GBP GBP GBP GBP
----------------------------- ------------------- ----------- ------------ ---------
Foreign exchange derivatives
Currency forwards 20,952,906 983,938 - 983,938
----------------------------- ------------------- ----------- ------------ ---------
Total 20,952,906 983,938 - 983,938
---------------------------------- -------------- ----------- ------------ ---------
Lloyds Bank plc:
Notional contract Fair Values
amount(1)
Assets Liabilities Total
31 December 2014 GBP GBP GBP GBP
----------------------------- ------------------- ----------- ------------ -----------
Foreign exchange derivatives
Currency forwards 52,791,971 4,039,646 - 4,039,646
----------------------------- ------------------- ----------- ------------ -----------
Total 52,791,971 4,039,646 - 4,039,646
---------------------------------- -------------- ----------- ------------ -----------
Total:
Notional contract Fair Values
amount(1)
Assets Liabilities Total
31 December 2014 GBP GBP GBP GBP
----------------------------- ------------------- ----------- ------------ -----------
Foreign exchange derivatives
Currency forwards 73,744,877 5,023,584 - 5,023,584
----------------------------- ------------------- ----------- ------------ -----------
Total 73,744,877 5,023,584 - 5,023,584
---------------------------------- -------------- ----------- ------------ -----------
Lloyds Bank plc:
Notional contract Fair Values
amount(1)
Assets Liabilities Total
31 December 2013 GBP GBP GBP GBP
----------------------------- ------------------- ----------- ------------ --------
Foreign exchange derivatives
Currency forwards 62,758,485 225,453 (138,273) 87,180
----------------------------- ------------------- ----------- ------------ --------
Total 62,758,485 225,453 (138,273) 87,180
---------------------------------- -------------- ----------- ------------ --------
(1) Euro amounts are translated at the year / period end
exchange rate
13. Trade and Other Payables
31 December 2014 31 December 2013
GBP GBP
------------------------------------- ---------------- ----------------
Investment management fees payable 446,949 255,107
Administration fees payable 52,515 67,700
------------------------------------- ---------------- ----------------
Audit fees payable 54,644 33,417
------------------------------------- ---------------- ----------------
Broker fees payable 25,009 29,110
------------------------------------- ---------------- ----------------
Other expenses payable 8,449 35,013
------------------------------------- ---------------- ----------------
Syndication costs payable 133,200 -
------------------------------------- ---------------- ----------------
Origination fees payable 426,375 -
------------------------------------- ---------------- ----------------
Legal and professional fees payable 169,099 19,205
------------------------------------- ---------------- ----------------
Revolving credit facility commitment
fees payable 25,278 -
------------------------------------- ---------------- ----------------
1,341,518 439,552
------------------------------------- ---------------- ----------------
14. Commitments
The Companyand the GP (acting in its capacityas General
Partnerof the Partnership) entered into a loan agreement ("the
loan") dated 17 December2012 committing the principal amount of
GBP223,930,000 to the Partnership. The arrangement is based on the
understanding that the commitmentwill be used primarily to fund the
advancing of loans, and as such the commitment will only be drawn
down once loans have been approved for issue by the Investment
Manager. On 27 October 2014,the loan was extended to
GBP233,843,162, to account for the additional equity raised from
the tap issues during 2013.
As at 31 December2014 GBP223,366,509 (2013: GBP152,411,756) had
been drawn by the GP (acting in its capacity as General Partner of
the Partnership under the loan agreement).
As at 31 December2014 the Company had outstanding commitments in
respect of loans not fully drawn ofGBP28,048,863 (31 December2013:
GBP1,372,169).
As at 31 December2014 the Companyhas entered into forward
contracts under the HedgingMaster Agreement with LloydsBank plc to
sell EUR67,534,823 (2013: EUR75,096,907) and receive Sterling. At
the year end,these forward contracts have a fair value of
GBP4,039,646 (2013: GBP87,180)
As at 31 December2014 the Company has entered into forward
contracts under the Professional Client Agreement with Goldman
Sachs to sell EUR26,804,280 (2013: EUR nil) and receive Sterling.
At the year end, these forward contracts have a fair valueof
GBP983,938 (2013: GBPnil).
15. Share Capital
The share capital of the Companyconsists of an unlimited number
of redeemable Ordinary Shares of no parvalue which upon issue the
Directors may classify into such classesas they may determine. The
Ordinary Shares are redeemable at the discretion of the Board.
At the year / period end the Companyhad issued and fully paid up
share capital as follows:
31 December 2014 31 December 2013
-------------------------------- ---------------- ----------------
Ordinary Shares of no par value
Issued and fully paid 238,100,000 238,100,000
-------------------------------- ---------------- ----------------
Rights attachedto shares
The Company'sshare capital is denominated in Sterling. At any
generalmeeting of the Company each ordinary share carriesone vote.
The Ordinary Shares also carrythe 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
incomeshall be dividedpari passu among the holdersof Ordinary
Sharesin proportion to the number of Ordinary Shares held by
them.
Significant share movements
1 January2014 to 31 December 2014:
Ordinary shares Number GBP
-------------------------------- ------------ ------------
Balance at start of the year 238,100,000 238,509,000
-------------------------------- ------------ ------------
Balance at the end of the year 238,100,000 238,509,000
-------------------------------- ------------ ------------
9 November2012 to 31 December 2013:
Ordinary shares Dividend rate GBP
per
Share (pence)
----------------------------------- --------------- ------------
Balance at start of the period - -
Shares issued on 17 December 2012 228,500,000 228,500,000
Shares issued on 21 March 2013 8,000,000 8,340,000
Shares issued on 9 April 2013 1,000,000 1,045,000
Shares issued on 12 April 2013 600,000 624,000
----------------------------------- --------------- ------------
Balance at the end of the period 238,100,000 238,509,000
Issue costs 4,665,838
----------------------------------- --------------- ------------
Net proceeds 233,843,162
----------------------------------- --------------- ------------
16. Dividends
Dividends will be declared by the Directors and paid in
compliance with the solvencytest prescribed by Guernsey law.
Subject to market conditions, the financial position of the
Company and the investment outlook, it is the Directors' intention
to pay quarterly dividends to shareholders (for more information
see Chairman's Statement).
The Companypaid the following dividends in the year to 31
December2014:
Dividend rate Net dividend
Period to: per Share (pence) payable (GBP)
------------------- ------------------- ---------------
31 December 2013 1.10 2,619,100
31 March 2014 1.25 2,976,250
30 June 2014 1.35 3,214,350
30 September 2014 1.50 3,571,500
------------------- ------------------- ---------------
After the end of the year, the Directors declared a dividend in
respect of the financial year ended 31 December 2014
of 1.7 pence per share payable on 27 February 2015 to
shareholders on the register on 6 February 2015.
The Companypaid the following dividends in the period to 31
December2013:
Dividend rate Net dividend
Period to: per Share (pence) payable (GBP)
------------------- ------------------- ---------------
30 September 2013 0.80 1,904,800
------------------- ------------------- ---------------
17. Risk Management Policiesand Procedures
The Group through its investment in whole loans,subordinated
loans and mezzanine loans,bridge loans, loan-on-loan financingsand
other debt instruments is exposed to a varietyof financial risks,
including market risk (including currency risk and interestrate
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'sfinancial performance.
It is the role of the Board to review and manage all risks
associatedwith the Company, 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 proceduresfor 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 Managermonitors and measuresthe
overall risk bearing capacityin relation to the aggregate risk
exposure acrossall risk types and activities. Further details
regardingthese policies are set out below:
i) Marketrisk
Market risk includes market price risk, currency risk and
interest rate risk. If a borrower defaultson a loan and the real
estate marketenters a downturnit could materially and adversely
affect the valueof the collateral over which loans are
secured.However this risk is considered by the Board to constitute
credit risk as it relates to the borrowerdefaulting on the loan and
not directlyto any movements in the real estate market. As such the
Directors do not consider that the Group issubject to market price
risk. The Investment Manager moderatesmarket risk througha careful
selection of loans within specified limits. The Group's overall
marketposition is monitored by the Investment Manager and is
reviewed by the Board of Directors on an on-going basis.
a) Currencyrisk
The Group, via the subsidiaries, operates across Europe and
invests in loans that are denominated in currencies other than the
functional currencyof the Company. Consequently the Group is
exposed to risksarising from foreign exchange rate fluctuations in
respectof these loans and other assets and liabilities which relate
to currency flowsfrom revenues and expenses. Exposure to
foreigncurrency risk is monitored by the Investment Manager on an
on-going basis and is reported to the Boardaccordingly.
The Companyand Lloyds Bank plc enteredinto an international
forward exchangemaster agreement dated 5 April 2013 and on 7
February 2014 the Company enteredinto a Professional Client
Agreement with Goldman Sachs, pursuantto which the parties can
enter into foreign exchange transactions with the intention of
hedging against fluctuations in the exchange rate betweenSterling
and other currencies. The Company does not trade in derivatives but
holds them to hedge specific exposuresand 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 consolidated Statement of Financial Position
date and movements in the fair value are included in the
consolidated Statement of Comprehensive Income under net
foreignexchange gains/(losses). The Company does not adopt hedge
accounting in the financial statements. At the reporting date the
Companyhad 34 (2013: 27) open forward contracts.
As at 31 December2014 the Companyhad the following currency
exposure:
Sterling Euro Total
31 December 2014 GBP GBP GBP
---------------------------------------------- ----------- ---------- -----------
Assets
Loans advanced 152,072,268 68,882,132 220,954,400
Other receivables and prepayments 31,962 - 31,962
Cash and cash equivalents 10,826,808 2,346,170 13,172,978
Financial assets at fair value through profit
and loss 5,023,584 5,023,584
Liabilities
Trade and other payables (1,075,973) (265,545) (1,341,518)
---------------------------------------------- ----------- ---------- -----------
Total net currency exposure 166,878,649 70,962,757 237,841,406
---------------------------------------------- ----------- ---------- -----------
Sterling Euro Total
31 December 2014 GBP GBP GBP
---------------------------------------------- ----------- ---------- -----------
Assets
Loans advanced 99,581,571 56,799,706 156,381,277
Other receivables and prepayments 287,470 - 287,470
Cash and cash equivalents 79,368,687 337,397 79,706,084
Financial assets at fair value through profit
and loss 87,180 - 87,180
Liabilities
Trade and other payables (404,736) (34,816) (439,552)
---------------------------------------------- ----------- ---------- -----------
Total net currency exposure 178,920,172 57,102,287 236,022,459
---------------------------------------------- ----------- ---------- -----------
Currency sensitivity analysis
Should the exchange rate of the Euro against Sterling increase
or decrease by 10 per cent with all other variables held constant,
the net assets of the Group at 31 December 2014 would increaseor
decrease by
GBP7,096,276 (2013: GBP 5,710,229). These percentages have been
determinedbased on potential volatility and deemed reasonable by
the Directors. This does not include the impact of hedges in place
which would be expected to reduce the impact.
In accordance with the Company's policy, the Investment Manager
monitors the Group's currency position, and the Boardof Directors
reviewsthis risk on a regularbasis.
b) Interestrate risk
Interest rate risk is the risk that the value of financial
instruments and related incomefrom loans advanced and cash and cash
equivalents will fluctuate due to changesin market
interestrates.
The majorityof the Group's financial assets are loans advanced,
receivables and cash and cash equivalents. The Group's investments
have some exposureto interest rate risk but this is limited to
interest earned on cash deposits and floating LIBOR/EURIBOR-based
exposure for investments designated as loans advanced. Loans
advanced have been structured to include a combination of fixed and
floatinginterest rates to reduce the overall impact of interest
rate movements.Further protection is provided by including
LIBOR/EURIBOR floors, preventing interestrates from fallingbelow
certain levels.
The following table shows the portfolio profileof the financial
assets at 31 December2014:
31 December 2014 31 December 2013
GBP GBP
------------------------------------------- ---------------- ----------------
Floating rate
Loans advanced(1) 93,280,342 77,408,055
Cash and cash equivalents 4,978,682 28,852,463
Fixed rate
Loans advanced 127,674,058 78,973,222
Cash and cash equivalents 8,194,296 50,853,621
Total financial assets subject to interest
rate risk 234,127,378 236,087,361
------------------------------------------- ---------------- ----------------
(1) Loans advanced at floating rates include loans with LIBOR or EURIBOR floors.
If interest rates had changed by 25 basis points, with all other
variables remainingconstant, the effect on the net profit and
equitywould have been as shown in the table below:
31 December 2014 31 December 2013
---------------------------------
GBP GBP
----- --------------------------------- ------------------- ------------------
Increase of 25 basis points1 245,648 265,651
Decrease of 25 basis points (245,648) (265,651)
---------------------------------------- ------------------- ------------------
1 The calculation assumes no LIBOR /
EURIBOR floors.
These percentages have been determined based on
potentialvolatility and deemedreasonable by the Directors.
ii) Credit risk
Credit risk is the risk that a counterparty will be unableto pay
amounts in full when due. The Group'smain credit risk exposureis in
the loan portfolio,shown as loans advanced, where the Group invests
in whole loans and also subordinated and mezzanine debt which rank
behind seniordebt for repayment in the event that a
borrowerdefaults. There is a reduced concentration risk as at 31
December2014 compared to as at 31 December 2013 due to several
additional loans being advancedin 2014. There is also credit risk
in respect of other financial assets as a portion of the
Group'sassets are cash and cash equivalents or accrued interest.
The banks used to hold cash and cash equivalents have been
diversified to spread the credit risk to which the Group is
exposed. The Group also has creditrisk exposure in its financial
assets through profit and loss which is diversified between hedge
providersin order to spread credit risk to which the Group is
exposed. The total exposureto credit risk arises from default of
the counterparty and the carrying amounts of financial assets best
represent the maximum credit risk exposureat the year end date. As
at 31 December 2014, the maximum credit risk exposure was
GBP239,625,934 (2013:
GBP236,462,011).
The Investment Manager has adoptedprocedures to reducecredit
risk exposureby conducting credit analysis of the counterparties,
their business and reputation which is monitored on an
on-goingbasis. After the advancingof a loan a dedicateddebt asset
manager employed by the Investment Adviser monitors on-going
creditrisk and reports to the Investment Manager, with
quarterlyupdates 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 managersagainst
specific milestones that are typicallyagreed at the time of the
originalloan underwriting, forecasting headroomagainst covenants,
reviewingmarket data and forecast economic trends to benchmark
borrowerperformance and to assist in identifying potentialfuture
stress points. Periodic physical inspections of assets that form
part of the Group's securityare also completed in addition to
monitoring the identified capitalexpenditure requirements
againstactual borrower investment.
The Group maintains its cash and cash equivalents across various
differentbanks to diversifycredit risk which have been all rated A-
or higherby Moody's and thisis subject to the Group'scredit risk
monitoring policies as mentioned above.
Total as at
31 December 2014 Cash 1 month fixed 31 December 2014
GBP deposit GBP
GBP
GBP
------------------------------------- ---------- --------------- ------------------
Barclays Bank plc 3,342,107 7,186,601 10,528,708
Lloyds Bank plc 930 - 930
HSBC Bank plc 205,139 1,007,695 1,212,834
Royal Bank of Scotland International 677 - 677
ING Luxembourg, SA 1,429,829 - 1,429,829
------------------------------------- ---------- --------------- ------------------
Total cash and cash equivalents 4,978,682 8,194,296 13,172,978
------------------------------------- ---------- --------------- ------------------
Total as at
31 December 2013 Cash 1 month fixed 31 December 2013
deposit
GBP GBP GBP
------------------------------------- ---------- --------------- ------------------
Barclays Bank plc 28,261 25,850,000 25,878,261
Santander UK plc 1,789 - 1,789
Lloyds Bank plc 7,968,672 - 7,968,672
HSBC Bank plc - 25,003,621 25,003,621
Royal Bank of Scotland International 18,385,213 - 18,385,213
ING Luxembourg, SA 2,468,528 - 2,468,528
------------------------------------- ---------- --------------- ------------------
Total cash and cash equivalents 28,852,463 50,853,621 79,706,084
------------------------------------- ---------- --------------- ------------------
The carryingamount of cash and cash equivalents approximates
their fair value.
iii) Liquidityrisk
Liquidity risk is the risk that the Group will not have
sufficient resources available to meet its liabilities as theyfall
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
20 per cent of NAV and has entered into a revolving credit facility
of GBP50million.
The table below shows the maturityof the Group's non-derivative
financial assets and liabilities arising from the advancement of
loans by remainingcontractual maturities at the date of the
consolidated Statement of Financial Position. The amounts
disclosedunder assets are contractual, undiscounted cash flows and
may differ from the actualcash flows receivedin the future as a
result of early repayments:
31 December 2014 Up to 3 months Between 3 Between 1 and Total
and 12 months 5 years
GBP GBP GBP GBP
--------------------------- --------------- --------------- -------------- -------------
Assets
Loans advanced 828,335 2,586,138 234,289,880 237,704,353
Loan interest receivables 4,108,448 12,534,899 43,897,499 60,540,846
Liabilities
Loan commitments
(1) (8,423,603) (7,347,710) (4,478,306) (20,249,619)
--------------------------- --------------- --------------- -------------- -------------
(3,486,820) 7,773,327 273,709,073 277,995,580
--------------------------- --------------- --------------- -------------- -------------
1 Loan commitments are estimated forecasted drawdowns at year end.
31 December 2013 Up to 3 months Between 3 Between 1 and Total
and 12 months 5 years
GBP GBP GBP GBP
--------------------------- --------------- --------------- -------------- ------------
Assets
Loans advanced 705,894 2,311,579 150,818,628 153,836,101
Loan interest receivables 3,236,256 9,654,250 38,143,119 51,033,625
Liabilities
Loan commitments
(1) (1,372,169) (1,372,169)
--------------------------- --------------- --------------- -------------- ------------
2,569,981 11,965,829 188,961,747 203,497,557
--------------------------- --------------- --------------- -------------- ------------
The table below analyses the Group'sderivative financial
instruments that will be settledon a gross basis into
relevantmaturity Groupings based on the remaining period at the
dateof the consolidated Statement of Financial Position. The
amountsdisclosed are the contractual undiscounted cash flows:
Goldman Sachs:
31 December 2014 Up to 3 months Between 3 Between 1 and Total
and 12 months 5 years
Derivatives held GBP GBP GBP GBP
for trading
------------------- --------------- --------------- -------------- -----------
Foreign exchange
derivatives
Outflow(1) 215,073 636,308 20,101,525 20,952,906
Inflow 213,851 634,869 20,808,632 21,657,352
------------------- --------------- --------------- -------------- -----------
Lloyds Bank plc:
31 December 2014 Up to 3 months Between 3 Between 1 and Total
and 12 months 5 years
Derivatives held GBP GBP GBP GBP
for trading
------------------- --------------- --------------- -------------- -----------
Foreign exchange
derivatives
Outflow(1) 610,240 11,212,834 40,968,897 52,791,971
Inflow 606,854 11,207,872 41,930,826 53,745,552
------------------- --------------- --------------- -------------- -----------
Lloyds Bank plc:
31 December 2013 Up to 3 months Between 3 Between 1 and Total
and 12 months 5 years
Derivatives held GBP GBP GBP GBP
for trading
------------------- --------------- --------------- -------------- -----------
Foreign exchange
derivatives
Outflow(1) 1,330,494 2,514,683 58,913,308 62,758,485
Inflow 1,346,805 2,553,602 60,402,519 64,302,926
------------------- --------------- --------------- -------------- -----------
(1) Euro amounts translated at year / period end exchange rate.
Capital management policies and procedures
The Group'scapital management objectives are:
- To ensure that the Group will be able to continueas a going concern; and
- To maximise the income and capitalreturn to equity
shareholders throughan appropriate balance of equity capital and
long-term debt.
The capitalof the Company is represented by the net assets
attributeto the holders of the Company's shares.
In accordancewith the Group's investment policy, the Group's
principal use of cash (including the proceeds of the IPO and
subsequent tap issues) has been to fund investments in the form of
loans sourced by the Investment Adviserand the Investment
Manager,as well as initial expensesrelated to the issue,on going
operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company's
dividendpolicy.
The Board with the assistance of the Investment Manager monitors
and reviews the broad structureof the
Company's capitalon an on-going basis.
The Companyhas no imposed capital requirements.
The Company's capital at year end comprises:
31 December 2014 31 December 2013
GBP GBP
------------------------------------- ---------------- ----------------
Equity
Equity share capital 233,843,162 233,843,162
Retained earnings and other reserves 4,441,254 2,179,297
Total capital 238,284,416 236,022,459
------------------------------------- ---------------- ----------------
18. Fair Value Measurement
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
- Quoted prices(unadjusted) in activemarkets for identicalassets or liabilities (level 1).
- 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
interestrates, yield curves, volatilities, prepayment speeds,
credit risks and default rates) or other market corroborated inputs
(level 2).
- Inputs for the asset or liability that are not based on
observablemarket data (that is, unobservable inputs) (level 3).
The followingtable analyses within the fair value hierarchy the
Group's financial assets and liabilities (by class) measured at
fair value:
31 December 2014 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Derivative Assets 5,023,584 5,023,584
------------------------------ ---------- -------- ----------
Total 5,023,584 5,023,584
------------------------------ ---------- -------- ----------
31 December 2013 Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Derivative Assets 87,180 87,180
------------------------------ -------- -------- -------
Total 87,180 87,180
------------------------------ -------- -------- -------
There have been no transfers betweenlevels for the year ended 31
December2014 (2013: Nil).
The followingtable summarises within the fair value hierarchy
the Group's assets and liabilities (by class)
not measuredat fair value at 31 December 2014 but for which fair
value is disclosed:
Level 1 Level 2 Level 3 Total fair Total carrying
GBP GBP GBP values amount
GBP GBP
------------------- --------- ----------- ------------ ------------ ---------------
Assets
Cash and cash
Equivalents - 13,172,978 - 13,172,978 13,172,978
Other receivables
And prepayments - 31,962 - 31,962 31,962
Loan advanced - 231,280,183 231,280,183 220,954,400
------------------- --------- ----------- ------------ ------------ ---------------
Total 13,204,940 231,280,183 244,485,123 234,159,340
------------------------------ ----------- ------------ ------------ ---------------
Level 1 Level 2 Level 3 Total fair Total carrying
GBP GBP GBP values amount
GBP GBP
----------------- --------- ---------- -------- ----------- ---------------
Liabilities
Trade and other
payables - 1,341,518 - 1,341,518 1,341,518
Total 1,341,518 1,341,518 1,341,518
---------------------------- ---------- -------- ----------- ---------------
The followingtable summarises within the fair value hierarchy
the Group's assets and liabilities (by class) not measuredat fair
value at 31 December 2013 but for which fair value is
disclosed:
Level 1 Level 2 Level 3 Total fair Total carrying
GBP GBP GBP values amount
GBP GBP
------------------- --------- ----------- ------------ ------------ ---------------
Assets
Cash and cash
Equivalents - 79,706,084 79,706,084 79,706,084
Other receivables
And prepayments - 287,470 287,470 287,470
Loan advanced - - 165,736,511 165,736,511 156,381,277
------------------- --------- ----------- ------------ ------------ ---------------
Total 79,993,554 165,736,511 245,730,065 236,374,831
------------------------------ ----------- ------------ ------------ ---------------
Level 1 Level 2 Level 3 Total fair Total carrying
GBP GBP GBP values amount
GBP GBP
----------------- --------- -------- -------- ----------- ---------------
Liabilities
Trade and other
payables - 439,552 439,552 439,552
Total 439,552 439,552 439,552
---------------------------- -------- -------- ----------- ---------------
The carryingvalues of the assetsand liabilities included in the
above table are considered to approximate their fair values, except
for loans advanced. The fair value of loans advancedhas been
determinedby discounting the expectedcash flows usinga discounted
cash flow model.
Cash and cash equivalents include cash in hand and fixed
deposits held with banks. Other receivables and prepayments
includethe contractual amounts and obligations due to the Group and
consideration for advance payments made by the Group. Trade and
other payables represent the contractual amounts and obligations
due by the Group for contractual payments.
19. Controlling Party
In the opinion of the Directors, on the basis of shareholdings
advised to them,the Company has no immediate or ultimate
controlling party.
20. Taxation
The Companyis exempt from Guernsey taxationunder the IncomeTax
(Exempt Bodies)(Guernsey) Ordinance 1989 for which it pays an
annual fee of GBP600.
The Luxembourg indirect subsidiary of the Companyis subject to
the applicable tax regulations in
Luxembourg. The table below analyses the tax chargesincurred at
Luxembourg level:
31 December 31 December 2013
2014 GBP
GBP
----------------------- --- ------------ -----------------
Current tax
Current tax on profit
for the year - 2,662 2,718
Total current tax 2,662 2,718
------------------------------ ------------ -----------------
The Luxco had no operating gain on ordinaryactivities before
taxationand was therefore for the year ended at 31 December 2014
subjectto the Luxembourg minimum corporateincome taxation at
EUR3,210 (2013: EUR3,210). The Companyis also subjectto the
Luxembourg Net Wealth Tax at a minimum of EUR25 per year.
21. Reconciliation of IFRS to US GAAP
To meet the requirements of Rule 206(4)-2under the Investment
Advisors Act 1940 (the "CustodyRule") the consolidated financial
statements of the Company have also been audited in accordance with
Generally Accepted Auditing Standardsapplicable in the United
States ("US GAAS"). As such two independent Auditors' reportsare
included on pages 36 to 38, one under International Standards on
Auditing as requiredby the Crown Dependencies Audit Rules and
theother under US GAAS. Compliance with the Custody Rule also
requires a reconciliation of the operatingprofit and net assets
under IFRS to US GAAP.
The principaldifferences between IFRS and US GAAP relate to
accounting for financial assets that are carried at amortised cost.
Under US GAAP the calculation of the effective interest rate is
based on contractual cash flows over the asset's contractual life.
International Financial Reporting Standards, however, base the
effectiveinterest rate calculation on the estimatedcash flows over
the expectedlife of the asset.
The Directorshave assessed the operating profitand NAV of the
Companyunder both IFRS and US GAAPand have concludedthat no
material differences were identified and therefore no
reconciliation has beenpresented in these financial statements.
22. RelatedParty Transactions
Parties are considered to be relatedif one party has the ability
to control the other partyor exercise significant influenceover the
other party in making financialor operational decisions. Details on
the Investment Manager and other related party transactions are
included in note 3 to the consolidated financial statements.
Fees, expensesand other payments
Outstanding at For the year ended
December 2014 31 December 2014
GBP GBP
----------------------------------- --------------- -------------------
Directors' fees and expenses paid
Stephen Smith - 45,000
John Whittle - 35,000
Jonathan Bridel - 32,500
Expenses paid - 2,783
Investment Manager
Investment management fees earned 446,949 1,528,333
Origination fees earned 426,375 1,072,949
Expenses 5,216 16,010
StarConsult S.à.r.l (1)
Administrative services - 8,369
----------------------------------- --------------- -------------------
Outstanding at For the year ended
December 2013 31 December 2013
GBP GBP
-------------------------------------- --------------- -------------------
Directors' fees and expenses paid
Stephen Smith - 52,500
John Whittle - 37,917
Jonathan Bridel - 37,917
Expenses paid - 3,933
Investment Manager
Investment management fees earned 255,107 417,951
Origination fees earned - 1,171,890
Expenses 14,259 58,625
StarConsult S.à.r.l (1)
Administrative services - 15,929
Expenses paid - 4,611
StarConsult S.à.r.l (2)
IPO related costs paid - 244,098
Fees received from Joint Bookrunners - 171,735
-------------------------------------- --------------- -------------------
(1) StarConsult S.à.r.lis a Company managed by Thierry
Drinka,who is also a Directorof Luxco.
(2) Under the Sponsor and Placing Agreement, and as disclosed in
the Prospectus, the Joint Bookrunners were entitledto pay part of
the commissions received by them to certaininvestors, including
Starwood and its Affiliates. These fees are part of the initial
expensesincurred on listingand included in the 2 per cent fee
cap.
Shareholdings and dividends paid
Dividends paid
for the period As at
ended 31 December 2014
December 2014 GBP
GBP
----------------------------- ---------------- -------------------
Starwood Property Trust Inc 475,280 9,140,000
SCG Starfin Investor LP 118,820 2,285,000
Stephen Smith 2,080 40,000
John Whittle 364 7,000
Jonathan Bridel 364 7,000
----------------------------- ---------------- -------------------
Dividends paid
for the period As at
ended 31 December 2013
December 2013 GBP
GBP
----------------------------- ---------------- -------------------
Starwood Property Trust Inc 73,120 9,140,000
SCG Starfin Investor LP 18,280 2,285,000
Stephen Smith 320 40,000
John Whittle - 7,000
Jonathan Bridel - 7,000
----------------------------- ---------------- -------------------
Other
The Group participated in a number of loans in the yearin which
StarwoodProperty Trust, Inc. actedas a co--lender.
Starwood CapitalEurope Advisers LLP also act as
InvestmentAdviser to Starfin GP Limited,the General Partner of
StarfinEuropean Debt TC L.P. For the year ended 31 December2014
there were no transactions between the Group and Starfin European
Debt TC L.P., but there have been four loans in which they have
both participated as co-lenders.
23. EventsAfter the Reporting Period
On 23 January 2015,the Maybourne facilities were amended and
restated with the effectof increasing the senior financing by GBP40
million and the mezzanine facilities being reduced by a
corresponding amount. This restructure was an alternative to a
complete refinancing of the debt and enabledthe Group to retain an
investment (albeit lower) notwithstanding the improvement in the
debt marketssince the time of the original transaction. Following
the amendments, the Group's participation has been reduced to
GBP11,244,898 and a lower interestrate is now being received. The
returns are, however, commensurate with a transaction of this
nature.
Since the yearend, additional drawdownsof EUR2,233,117 underthe
W Hotel, Amsterdam facility,GBP147,006 under the Aldgate ower,
London facility, GBP2,042,056 under the Centre Point, London
facilityand GBP378,943 under the FC200 London facility have been
made. Scheduled amortisation of EUR35,750on the Office,
Amsterdamfacility and GBP797,389on the Heron Tower, Londonfacility
have been received. In addition, repayments of EUR2,363,980 from
the RetailPortfolio, Finland facilityhave been received.
Corporate Information
Directors
Stephen Smith (Non-executive Chairman) Jonathan Bridel
(Non-executive Director) John Whittle (Non-executive Director)
(all care of the registered office)
Investment Manager
Starwood European Finance Partners Limited
1, Royal Plaza, Royal Avenue
St Peter Port, Guernsey, GY1 2HL
Solicitors to the Company (as to English law and U.S. securities
law)
Norton Rose LLP
3 More London Riverside
London, SE1 2AQ United Kingdom
Registrar
Computershare Investor Services (Guernsey) Limited
3rd Floor Natwest House Le Truchot
St Peter Port
Guernsey, GY1 1WD
Joint Broker
Dexion Capital plc
1 Tudor Street London, EC4Y 0AH United Kingdom
Administrator, Designated Manager and Company Secretary
Ipes (Guernsey) Limited
1, Royal Plaza, Royal Avenue
St Peter Port, Guernsey, GY1 2HL
Registered Office
1, Royal Plaza, Royal Avenue
St Peter Port, Guernsey, GY1 2HL
Investment Adviser
Starwood Capital Europe Advisers, LLP
2nd Floor, One Eagle Place
St. James`s
London, SW1Y 6AF United Kingdom
Advocates to the Company (as to Guernsey law)
Mourant Ozannes
1 Le Marchant Street StPeter Port Guernsey, GY1 4HP
IndependentAuditors
PricewaterhouseCoopers CI LLP Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey, GY1 4ND
Joint Broker
Jefferies International Limited
Vintners Place
68 Upper Thames Street London, EC4V 3BJ United Kingdom
Principal Bankers
Barclays Private Clients International Limited
PO Box 41
Le Marchant House St Peter Port Guernsey, GY1 3BE
This information is provided by RNS
The company news service from the London Stock Exchange
END
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