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Starwood European Real Estate Finance Ltd (SWEF)
Starwood European Real Estate Finance Ltd: Annual Financial Report year
ended 31 December 2016
29-March-2017 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
*29 March 2017*
*Starwood European Real Estate Finance Limited*
*Annual Financial Report year ended 31 December 2016*
The Company has today published its annual financial report for the year
ended 31 December 2016 and has made it available online at
www.starwoodeuropeanfinance.com [1].
Starwood European Real Estate Finance Limited is an investment company
listed on the main market of the London Stock Exchange with an investment
objective to 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 in the UK and the wider European Union's internal
market.
The Group is the largest London-listed vehicle to provide investors with
pure play exposure to real estate lending.
The Group's assets are managed by Starwood European Finance Partners
Limited, an indirect wholly-owned subsidiary of the Starwood Capital Group.
+----------------------------------+-------------+-------------+
|*Key Highlights* | *Year ended*| *Year ended*|
| |*31 Dec 2016*|*31 Dec 2015*|
+----------------------------------+-------------+-------------+
|NAV per Ordinary Share | 101.58 p| 100.43 p|
+----------------------------------+-------------+-------------+
|Share Price | 109.00 p| 107.63 p|
+----------------------------------+-------------+-------------+
|NAV total return | 8.02%| 7.58%|
+----------------------------------+-------------+-------------+
|Share Price total return | 6.82%| 8.22%|
+----------------------------------+-------------+-------------+
|Total Net Assets | GBP381.0m| GBP305.5 m|
+----------------------------------+-------------+-------------+
|Loans Advanced (including accrued | GBP359.9 m| GBP307.7 m|
|income) | | |
+----------------------------------+-------------+-------------+
|Cash and Cash Equivalents | GBP31.0 m| GBP0.5 m|
+----------------------------------+-------------+-------------+
|Amount drawn under Revolving | GBP0.0 m| GBP8.2 m|
|Credit Facility | | |
+----------------------------------+-------------+-------------+
|Dividends per Ordinary Share (1) | 6.5 p| 7.0 p|
+----------------------------------+-------------+-------------+
|Portfolio yield (2) | 8.5%| 8.7%|
+----------------------------------+-------------+-------------+
|On-going charges percentage (3) | 1.0%| 1.1%|
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV to | 26.7%| 16.0%|
|Group first GBP (4) | | |
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV to | 66.0%| 65.3%|
|Group last GBP (4) | | |
+----------------------------------+-------------+-------------+
(1) Figure disclosed is the sum of the dividend declared in relation to each
quarter of the financial year. This will not equal the dividend recognised
in the financial statements and actually paid in the financial year as
dividends are recognised and paid one quarter in arrears.
(2) Calculated on amounts outstanding at the period end, excluding undrawn
commitments, and assuming all currently drawn loans are outstanding for the
full contractual term. Twelve of the loans are floating rate (partially or
in whole and some with floors) and returns are based on an assumed profile
for future interbank rates but the actual rate received may be higher or
lower. Calculated only on amounts funded at the period end and excluding
committed amounts and cash un-invested. 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
Statement of Financial Position date. LTV to first Group GBP means the
starting point of the loan to value range of the loan commitments (when
aggregated with any other indebtedness ranking senior to it). For Centre
Point and the mixed use development, South East UK, the calculation includes
the total facility available and is calculated against the market value on
completion of the project.
*For further information, please contact:*
Duncan MacPherson - Starwood Capital - 020 7016 3655
Robert Peel - Dexion Capital - 020 7832 0900
*Full text of annual financial report for the year ended 31 December 2016*
*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 Company invests 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 for sale. 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 the Company's Net Asset
Value, calculated at the time of investment.
*Corporate Borrowings*
Company or investment level recourse borrowings may be used from
time-to-time on a short term basis for bridging investments, financing
repurchases of Shares or managing working capital requirements, including
foreign exchange hedging facilities and on a longer term basis for the
purpose of enhancing returns to Shareholders and/ or to facilitate the
underwriting of whole loans with a view to syndication at a later point. In
this regard, the Company is limited to aggregate short and long term
borrowings at the time of the relevant drawdown in an amount equivalent to a
maximum of 30 per cent of NAV but longer term borrowings will be limited to
20 per cent of NAV in any event.
*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 against material
movements in the exchange rate between Sterling, being the Company's
reporting currency, and the currency in which 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 swap agreements, 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. The Company 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 in
either 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 proposed transaction 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 2015 issued by the Guernsey
Financial Services Commission (the 'Commission') under The Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and, where required
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 in relation 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 and it 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
its investment 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; and
- the 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.
*Financial Highlights*
+----------------------------------+-------------+-------------+
|*Key Highlights* | *Year ended*| *Year ended*|
| |*31 Dec 2016*|*31 Dec 2015*|
+----------------------------------+-------------+-------------+
|NAV per Ordinary Share | 101.58 p| 100.43 p|
+----------------------------------+-------------+-------------+
|Share Price | 109.00 p| 107.63 p|
+----------------------------------+-------------+-------------+
|NAV total return | 8.02%| 7.58%|
+----------------------------------+-------------+-------------+
|Share Price total return | 6.82%| 8.22%|
+----------------------------------+-------------+-------------+
|Total Net Assets | GBP381.0m| GBP305.5 m|
+----------------------------------+-------------+-------------+
|Loans Advanced (including accrued | GBP359.9 m| GBP307.7 m|
|income) | | |
+----------------------------------+-------------+-------------+
|Cash and Cash Equivalents | GBP31.0 m| GBP0.5 m|
+----------------------------------+-------------+-------------+
|Amount drawn under Revolving | GBP0.0 m| GBP8.2 m|
|Credit Facility | | |
+----------------------------------+-------------+-------------+
|Dividends per Ordinary Share (1) | 6.5 p| 7.0 p|
+----------------------------------+-------------+-------------+
|Portfolio yield (2) | 8.5%| 8.7%|
+----------------------------------+-------------+-------------+
|On-going charges percentage (3) | 1.0%| 1.1%|
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV to | 26.7%| 16.0%|
|Group first GBP (4) | | |
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV to | 66.0%| 65.3%|
|Group last GBP (4) | | |
+----------------------------------+-------------+-------------+
(1) Figure disclosed is the sum of the dividend declared in relation to each
quarter of the financial year. This will not equal the dividend recognised
in the financial statements and actually paid in the financial year as
dividends are recognised and paid one quarter in arrears.
(2) Calculated on amounts outstanding at the period end, excluding undrawn
commitments, and assuming all currently drawn loans are outstanding for the
full contractual term. Twelve of the loans are floating rate (partially or
in whole and some with floors) and returns are based on an assumed profile
for future interbank rates but the actual rate received may be higher or
lower. Calculated only on amounts funded at the period end and excluding
committed amounts and cash un-invested. 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
Statement of Financial Position date. LTV to first Group GBP means the
starting point of the loan to value range of the loan commitments (when
aggregated with any other indebtedness ranking senior to it). For Centre
Point and the mixed use development, South East UK, the calculation includes
the total facility available and is calculated against the market value on
completion of the project.
*NAV AND SHARE PRICE PERFORMANCE*
As at 31 December 2016 the NAV was 101.58 pence per Ordinary Share (2015:
100.43 pence) and the share price was 109.00 pence (2015: 107.63 pence).
*Chairman's Statement*
*OVERVIEW*
2016 was an excellent year for the Group and a rewarding one for
Shareholders. We achieved our gross return and dividend objectives and
continued to deliver on our investment strategy through an increased volume
of lending, notwithstanding the greater than usual volume of loan
repayments. The Group declared an aggregate dividend for the year of 6.5
pence per Ordinary Share. NAV total return was 8.02 per cent and share price
total return across the financial year was 6.82 per cent.
As at 31 December 2016, the Group had investments and commitments of GBP363.4
million (of which GBP6.9 million was unfunded as at the year end). The average
maturity of the Group's loan book was 3.3 years with GBP31.0 million of cash
and substantial liquidity lines of GBP60.0 million available to use for new
investments. The gross annualised total return of the invested loan
portfolio is an attractive 8.5 per cent. The Net Asset Value ('NAV') was
GBP381 million, being 101.58 pence per Ordinary Share.
With GBP175.9m of new lending commitments extended to borrowers, 2016 was the
most successful origination year since launch. As was expected, 2016 was
also a big year for repayments and so the net position showed relatively
modest growth in the overall loan book. The table below shows the loan
commitments and repayment profile over the last four years.
+-----------------------------+-------+-------+-------+--------+
| | *2013*| *2014*| *2015*| *2016*|
+-----------------------------+-------+-------+-------+--------+
|New loans to borrowers |GBP139.0m|GBP143.2m|GBP118.7m| GBP175.9m|
|(commitment) | | | | |
+-----------------------------+-------+-------+-------+--------+
|Loan repayments and | -|-GBP48.8m|-GBP49.0m|-GBP129.3m|
|amortisation | | | | |
+-----------------------------+-------+-------+-------+--------+
|Net Investment |GBP139.0m| GBP94.4m| GBP69.7m| GBP46.6m|
+-----------------------------+-------+-------+-------+--------+
The strategy to grow the overall size of the Company by equity issuance with
a corresponding expansion in the loan book will continue to be approached
with a view to minimising cash drag from any potential repayments and
utilising the revolving credit facility where appropriate. This was
successfully managed during 2016 when, notwithstanding that GBP129.3 million
of the Group's loan book was repaid, these repayments were substantially
reinvested alongside the GBP71.5 million of net Placing Programme proceeds
raised in the same period.
*SHARE ISSUANCE AND SHARE PRICE PERFORMANCE*
The year end share price was 109.00 pence reflecting a 7.3 per cent premium
to NAV and throughout 2016 the Ordinary Shares consistently traded at a
premium to NAV.
On 10 August 2016, the Company issued 70,839,398 New Ordinary Shares
pursuant to the Placing Programme, to raise GBP73 million before expenses. The
Issue Price was 103.05 pence per Ordinary Share, representing a premium of
2.7 per cent to the Net Asset Value per Ordinary Share as at 31 July 2016 of
100.30 pence (ex-dividend). The net proceeds of the Placing Programme were
used to finance the acquisition by the Group of a GBP75 million mezzanine loan
secured over a portfolio of regional budget hotels in the UK.
The August 2016 placing was the last under the Prospectus published in
September 2015. We decided not to renew this Prospectus during the last
quarter of the year given the amount of equity already raised and the
likelihood of further repayments needing reinvestment. It is, however, the
intention of the Board to seek authority at the Annual General Meeting to
reset and continue with a new Placing Programme for an amount of up to
300,000,000 new Ordinary Shares, for which the Company expects to publish a
Prospectus later in the year. In addition, the Board will seek authority at
the Annual General Meeting for the issuance of a further 10 per cent of the
existing share capital.
*DIVIDS*
Total dividends of 6.5 pence per Ordinary Share were declared in relation to
the year ending 31 December 2016.
+--------------------------+-----------+-----------+-----------+
|*Period* | *Dividend*| *Payment*| *Amount*|
| | *declared*| *date*|*per share*|
+--------------------------+-----------+-----------+-----------+
|1 January 2016 to 31 March|26 Apr 2016|19 May 2016| 1.625p|
|2016 | | | |
+--------------------------+-----------+-----------+-----------+
|1 April 2016 to 30 June |25 Jul 2016|25 Aug 2016| 1.625p|
|2016 | | | |
+--------------------------+-----------+-----------+-----------+
|1 July 2016 to 30 |21 Oct 2016| 4 Nov 2016| 1.625p|
|September 2016 | | | |
+--------------------------+-----------+-----------+-----------+
|1 October 2016 to 31 |23 Jan 2017|17 Feb 2017| 1.625p|
|December 2016 | | | |
+--------------------------+-----------+-----------+-----------+
|*Total* | | | *6.5p*|
+--------------------------+-----------+-----------+-----------+
*REVOLVING CREDIT FACILITY*
The revolving credit facility is an important tool in liquidity management,
ensuring new investments can be warehoused in the short term in order to
cover expected loan repayments or, once cash drag risk is minimised,
facilitate additional equity raises.
During the year the Group extended the GBP60 million revolving credit facility
from the existing maturity of 4 December 2016 to 31 March 2017. We will be
looking to extend this facility further during the first half of 2017 to
reflect the increased NAV of the Group.
*FOREIGN EXCHANGE HEDGING*
The Company had approximately GBP105.8 million of hedged notional exposure
with two UK banks at 31 December 2016 (converted at 31 December 2016 FX
rates).
Given the slide of Sterling relative to the Euro and Danish Krona during the
year, as at 31 December 2016 the hedges with one of the counterparties were
out of the money in an amount of GBP8.4 million. If at any time this mark to
market exceeds GBP15 million, the Company is required to post collateral,
subject to a minimum transfer amount of GBP1 million. Whilst this situation is
monitored closely, the Company had GBP31 million of available liquidity and
GBP60 million available credit on the revolving credit facility and hence this
is not seen as a material concern.
The mark to market with the other hedging counterparty is significantly
lower than the threshold amount available and use of this facility will
enable us to continue to proceed with non-Sterling transactions. Detail is
shown in Note 12 to the Consolidated Financial Statements.
In addition, two loans with associated hedging liabilities of GBP6.4 million
at the year-end repaid during March 2017 which has created further capacity.
*REALISATION VOTE*
At the Initial Public Offering ('IPO') in 2012, the Board undertook to put
forward a realisation vote (as an ordinary resolution) no later than 28
February 2018. If Shareholders vote in favour of this resolution then the
Company will procure that a Realisation Offer is made to Shareholders.
Under the Realisation Offer, all Shareholders will be able to elect to
redeem up to 75 per cent. of their Ordinary Shares. Following the receipt of
all elections, if either: (i) more than 75 per cent of the Ordinary Shares
then in issue were elected for realisation; or (ii) the NAV of the Company
following the realisation would be less than GBP100 million, the Directors may
exercise their discretion not to proceed with the proposed Realisation Offer
and instead put forward an alternative which is no less favourable to
electing Shareholders and which may include the reorganisation or winding up
of the Company. Any realisation of the Company's portfolio required as a
result of the implementation of a Realisation Offer will be conducted in the
orderly manner described in the Report of the Directors through the
discount-triggered realisation mechanism.
If Shareholders do not vote for the realisation then the Company will
continue in existence as currently constituted.
The Board intends to put forward an ordinary resolution at an Extraordinary
General Meeting to be called during 2017 to continue the Company in its
current form and to waive the requirement to put forward the realisation
vote. If this resolution is not passed then the Company will put forward
realisation proposals as outlined above.
*OUTLOOK*
The strategy to grow the overall size of the Group whilst minimising cash
drag from any potential repayments and utilising the revolving credit
facility where appropriate will continue to guide us during 2017.
We anticipate that we will build on the successes of 2016 and the directors
enter the year optimistic about the prospects and opportunities available to
the Group.
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
detailed more fully 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 'Commission'). 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 are
established industry measures to show the progress and performance of the
Group and are as follows:
- The portfolio yield;
- The payment of targeted dividends;
- 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 average loan to value for the portfolio.
Details of the KPIs are shown in the Financial Highlights.
*RISK MANAGEMENT*
It is the role of the Board to review and manage all risks associated with
the Group, both those impacting the performance and the prospects of the
Group and those which threaten the ongoing viability. It is the role of the
Board to mitigate these either directly or through the delegation of certain
responsibilities to the Audit Committee and Investment Manager. The Board
performs a review of a risk matrix at each Board meeting.
The Board considers the following principal risks could impact the
performance and prospects of the Group but do not threaten its ability to
continue in operation and meet its liabilities. As a consequence, it has put
in place mitigation plans to manage those identified risks.
*Long Term Strategic Risk*
The Group's targeted returns are based on estimates and assumptions that are
inherently subject to significant business and economic uncertainties and
contingencies and, as a consequence, the actual rate of return may be
materially lower than the targeted returns. In addition, the pace of
investment has in the past and may in the future be slower than expected or
loans may be repaid earlier than anticipated, causing the return on affected
investments on the assets as a whole to be less than expected. Furthermore,
if repayments are not promptly reinvested this may result in cash drag,
which may lower portfolio returns. As a result, the level of dividends to be
paid by the Company may fluctuate and there is no guarantee that any such
dividends will be paid. This may increase the propensity for the shares to
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 Investment Adviser provides the Investment Manager and the Board with a
weekly report on pipeline opportunities, which includes an analysis of the
strength of the pipeline and the returns available. The Directors also
regularly receive information on the performance of the existing loans,
including the performance of the underlying assets and the likelihood of any
early repayments which may impact returns.
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 (should the situation arise) 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. Please see the Report
of the Directors for further information on the discount management
mechanisms.
The Board monitors the investment strategy and performance on an on-going
basis and regularly reviews the Investment Objective and Investment Policy
in light of the prevailing investor sentiment and market opportunity to
ensure the Company remains attractive to its shareholders.
*Interest Rate Risk*
The Group is subject to the risk that the loan income and income from the
cash and cash equivalents will fluctuate due to movements in interbank
rates.
At 31 December 2016 32.7 per cent of the loans in place were fixed rate,
which provides protection from downward interest rate movements to the
overall portfolio (but also prevents the Group from benefitting from any
interbank rate rises on these positions). In addition, whilst the remaining
67.3 per cent was classified as floating, all of these loans are subject to
interbank rate floors such that the interest cannot drop below a certain
level, and this offers some protection against downward interest rate risk.
When reviewing future investments, the Investment Manager will continue to
review such opportunities to protect against downward interest rate risk.
The Board considers that the following principal risks could impact both the
performance and prospects of the Group and could also threaten its ability
to continue its operations and meet its liabilities but has identified the
mitigating actions in place to manage them.
*Foreign Exchange Risk*
The Group has investments in Euros and Danish Krona and may make investments
in other non-Sterling currencies. The Group is subject to the risk that the
exchange rates move unfavourably and that a) foreign exchange losses on the
loan principal are incurred and b) that interest payments received are lower
than anticipated when converted back to Sterling and therefore returns are
lower than the underwritten returns.
The Group manages this risk by entering into forward contracts to hedge the
currency risk. All non-Sterling loan principal is hedged back to Sterling to
the maturity date of the loan. Interest payments are hedged for the period
for which prepayment protection is in place. However, the risk remains that
loans are repaid earlier than anticipated and forward contracts need to be
broken early. In these circumstances the forward curve may have moved since
the forward contracts were placed which can impact the rate received. In
addition, if the loan repays after the prepayment protection, interest after
the prepayment protected period may be received at a lower rate than
anticipated leading to lower returns for that period. Conversely the rate
could have improved and returns may increase.
As a consequence of the hedging strategy employed as outlined above, the
Group is subject to the risk that it will need to post cash collateral
against a mark to market liability on foreign exchange hedges which could
lead to liquidity issues or leave the Group unable to hedge new non-Sterling
investments.
The Company had approximately GBP105.8 million of hedged notional exposure
with two UK banks at 31 December 2016 (converted at 31 December 2016 FX
rates).
Given the devaulation of Sterling relative to the Euro and Danish Krona
during the year, as at 31 December 2016 the hedges with one of the
counterparties were out of the money in an amount of GBP8.4 million. If at any
time this mark to market exceeds GBP15 million, the Company is required to
post collateral, subject to a minimum transfer amount of GBP1 million. This
situation is monitored closely, however, and as at 31 December 2016, the
Company had GBP31 million of available liquidity and GBP60 million available
credit on the revolving credit facility.
The current mark to market with the other hedging counterparty was
significantly lower than the threshold amount available and use of this
facility will enable us to continue to proceed with non-Sterling
transactions.
In addition, two loans with associated hedging liabilities of GBP6.4 million
at the year-end repaid during March 2017 which has created further capacity.
*Market Deterioration Risk*
The Group's investments are comprised principally of debt investments in the
UK, and the wider European Union's internal market and it is therefore
exposed to economic movements and changes in these markets. Any
deterioration in the global, UK or European economy could have a significant
adverse effect on the activities of the Group
and may result in significant loan defaults or impairments.
In the event of a loan default in the portfolio, the Group is generally
entitled to accelerate the loan and enforce security, but the process may be
expensive and lengthy and the outcome is dependent on sufficient recoveries
being made to repay the borrower's obligations and associated costs. Some of
the investments held would rank behind senior debt tranches for repayment in
the event that a borrower defaults, with the consequence of greater risk of
partial or total loss. In addition, repayment of loans by the borrower at
maturity could be subject to the availability of refinancing options,
including the availability of senior and subordinated debt and is also
subject to the underlying value of the real estate collateral at the date of
maturity.
In mitigation, the average weighted loan to value of the portfolio is 66 per
cent (with a range from 45.3 per cent to 75.9 per cent). Therefore, the
portfolio should be able to withstand a significant level of deterioration
before credit losses are incurred.
The Investment Adviser also mitigates the risk of credit losses by
undertaking 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, and,
where necessary, mechanical and engineering surveys, accounting and tax
reviews and know your customer checks.
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 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 for
signs of impairment by the Investment Adviser. The results of the impairment
review are discussed with the Investment Manager and the Board.
*Risk of Default Under the Revolving Credit Facility*
The Group is subject to the risk that a borrower could be unable or
unwilling to meet a commitment that it has entered into with the Group as
outlined above under market deterioration risk. As a consequence of this,
the Group could breach the covenants of its revolving credit facility, and
fall into default itself.
A number of the measures the Group takes to mitigate market deterioration
risk as outlined above, such as portfolio diversification and rigorous due
diligence on investments and monitoring of borrowers, will also help to
protect the Group from the risk of default under the revolving credit
facility as this is only likely to occur as a consequence of borrower
defaults or loan impairments.
The Board regularly reviews the balances drawn under the revolving credit
facility against commitments and pipeline and reviews the performance under
the agreed covenants. The loan covenants are also stress tested to test how
robust they are to withstand default of the Group's investments.
*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 shareholders' interests 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.
*Investment Manager's Report - Investment Highlights*
The Investment Manager and Investment Adviser are both part of the Starwood
Capital Group, a leading global real estate investment group.
*PORTFOLIO STATISTICS*
The Investment Manager and the Board of the Company considers that the Group
is engaged in a single segment of business, being the provision of a
diversified portfolio of real estate backed loans. The analysis presented in
this report is presented to demonstrate the level of diversification
achieved within that single segment. The Board does not believe that the
Group's investments constitute separate operating segments.
As at 31 December 2016, the portfolio was invested in line with the Group's
investment policy and is summarised below.
+----------------------------------+-------------+-------------+
| |*31 Dec 2016*|*31 Dec 2015*|
+----------------------------------+-------------+-------------+
|Number of investments | 16| 15|
+----------------------------------+-------------+-------------+
|Percentage of invested portfolio | 67.3%| 48.4%|
|in floating rate loans (1) | | |
+----------------------------------+-------------+-------------+
|Portfolio Yield (2) | 8.5%| 8.7%|
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV - | 26.7%| 16.0%|
|to Group first GBP (3) | | |
+----------------------------------+-------------+-------------+
|Weighted average portfolio LTV - | 66.0%| 65.3%|
|to Group last GBP (3) | | |
+----------------------------------+-------------+-------------+
|Average loan term (stated maturity| 4.7 Years| 4.1 Years|
|at inception) | | |
+----------------------------------+-------------+-------------+
|Net Asset Value | GBP381.0 m| GBP305.5 m|
+----------------------------------+-------------+-------------+
|Amount drawn under Revolving | GBP0.0 m| GBP8.2 m|
|Credit Facility (excl. accrued | | |
|interest) | | |
+----------------------------------+-------------+-------------+
|Portfolio value (including accrued| GBP359.9 m| GBP307.7 m|
|income) | | |
+----------------------------------+-------------+-------------+
|Cash | GBP31.0 m| GBP0.5 m|
+----------------------------------+-------------+-------------+
|Other net assets (including the | -GBP9.9 m| GBP5.5 m|
|value of FX hedges) | | |
+----------------------------------+-------------+-------------+
(1) Calculated on loans drawn at the reporting date using the exchange rates
applicable when the loans were funded.
(2) Calculated on amounts outstanding at the reporting date excluding
undrawn commitments, and assuming all drawn loans at the reporting date are
outstanding for the full contractual term. Twelve of the loans are floating
rate (partially or in whole and some with floors) and returns are based on
an assumed profile for future interbank rates but the actual rate received
may be higher or lower. Calculated only on amounts funded to date and
excluding committed amounts and cash un-invested. The calculation excludes
the origination fee payable to the Investment Manager.
(3) LTV to Group last GBP means the percentage which the total loan commitment
less any amortisation received to date (when aggregated with any other
indebtedness ranking alongside and/or senior to it) bears to the market
value determined by the last formal lender valuation received by the date of
publication of these financial statements. LTV to first Group GBP means the
starting point of the loan to value range of the loan commitments (when
aggregated with any other indebtedness ranking senior to it). For Centre
Point and the mixed use development, south east UK, the calculation includes
the total facility available and is calculated against the market value on
completion of the project.
*PORTFOLIO DIVERSIFICATION*
+---------------------+---------------+
|*Country* |*% of invested*|
| | *assets*|
+---------------------+---------------+
|UK - Regional England| 52.1|
+---------------------+---------------+
|UK - Central London | 15.0|
+---------------------+---------------+
|Netherlands | 9.3|
+---------------------+---------------+
|Denmark | 8.5|
+---------------------+---------------+
|Channel Islands | 7.8|
+---------------------+---------------+
|Ireland | 7.3|
+---------------------+---------------+
+-----------+--------------+
|*Loan type*|*% of invested|
| | assets*|
+-----------+--------------+
|Whole Loans| 47.6|
+-----------+--------------+
|Mezzanine | 52.4|
+-----------+--------------+
+--------------------+---------------+
|*Sector* |*% of invested*|
| | *assets*|
+--------------------+---------------+
|Hospitality | 36.4|
+--------------------+---------------+
|Light Industrial | 24.9|
+--------------------+---------------+
|Residential for sale| 12.0|
+--------------------+---------------+
|Retail | 7.5|
+--------------------+---------------+
|Healthcare | 7.2|
+--------------------+---------------+
|Office | 4.5|
+--------------------+---------------+
|Residential for rent| 3.8|
+--------------------+---------------+
|Logistics | 3.4|
+--------------------+---------------+
|Other | 0.3|
+--------------------+---------------+
+------------+--------------+
|*Loan type* |*% of invested|
| | assets*|
+------------+--------------+
|Sterling | 74.9|
+------------+--------------+
|Euro | 16.6|
+------------+--------------+
|Danish Krona| 8.5|
+------------+--------------+
*CAPITAL MARKET ACTIVITIES AND LIQUIDITY FACILITY*
On 10 August 2016, the Company issued 70,839,398 New Ordinary Shares
pursuant to the Placing Programme, to raise GBP73 million before expenses and
the net proceeds of the Placing were used to finance the acquisition by the
Group of a GBP75 million mezzanine loan secured over a portfolio of regional
budget hotels in the UK.
During the final quarter of 2016 the Group extended the GBP60 million
revolving credit facility from the previous maturity of 4 December 2016 to
31 March 2017. The Group is looking to extend this facility during the first
half of 2017 to reflect the increased NAV of the Group. This facility was
originally arranged in December 2014 and, being multi-currency, helps
mitigate FX risks on new non-sterling commitments (particularly where a
syndication is envisaged) and also cash drag through the short term
warehousing of new investments prior to refinancing with loan repayment
receipts or additional equity. The facility was undrawn at 31 December 2016.
*FOREIGN EXCHANGE*
The Group continues to recognise unrealised foreign exchange gains or losses
relating to investment activity. The Group has fully hedged the principal of
each individual non-sterling denominated loan with forward contracts,
together with interest receipts during the period of prepayment protection.
If the loans repay at their scheduled repayment date, the Group expects that
this policy will be effective in protecting against realising FX losses on
capital invested.
However, the accounting treatment for the non-sterling loans is to value the
loan at the foreign exchange rate at the relevant Statement of Financial
Position date, and to 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 relevant forward curves. 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 non-sterling denominated
loans repay early, and the Group has no alternative use for the 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 relevant forward curve at the point at which the relevant hedge is
broken. In general, a steeper curve would result in greater gains/losses.
During the year, we reported that the hedges with one of the counterparties
were out of the money in an amount of GBP12.8 million. If at any time this
mark to market exceeds GBP15 million, the Company is required to post
collateral, subject to a minimum transfer amount of GBP1 million. This
exposure was reduced to GBP8.4 million at the year end. We continue to closely
monitor this but the Company has sufficient available liquidity in the event
of a cash collateral call and this is not currently a significant concern.
The Company also has sufficient available credit with the other hedging
counterparty to continue to make non-Sterling investments. In addition, two
loans with associated hedging liabilities of GBP6.4 million at the year-end
repaid during March 2017 which has created further capacity.
*INVESTMENT OUTLOOK*
The Group started 2017 with a portfolio that is achieving an annualised
return that enables it to meet the dividend target of 6.5 pence per annum.
The Group is well diversified in terms of geography and sector and the
loan-to-value is lower than anticipated at IPO due, in part, to a higher
proportion of whole loans compared to mezzanine loans. The Investment
Manager and Investment Adviser continue to find interesting opportunities to
advance whole loans with attractive risk adjusted returns.
Since the launch of the Group at the end of 2012, origination activity has
always been more challenging during the first few months of any given year.
Having said this, the transaction pipeline continues to evolve and we are
seeing a variety of opportunities which will allow the Group to achieve good
risk adjusted returns from whole and mezzanine loans.
In the December factsheet, the Group advised that it was in advanced
discussions on a number of opportunities that were expected to move into
execution in the coming weeks. These have now either closed shortly before
publication of these financial statements or are expected to close shortly
thereafter. A number of other opportunities are now in advanced discussions
(but still subject to contract).
The Group has also received two repayments since the year end. It is worth
noting that one of the loans that repaid after the year end for an amount of
approximately GBP30 million benefited from 'make whole' interest payment
protection until July 2017.
Over the 2017 financial year the Investment Manager and Investment Adviser
will be focussed on managing the repayments which can be expected from some
of the loans originated early in the life of the Group and seeking to
minimise any resulting cash drag risk. The Group is able to use the
revolving credit facility to help manage this risk.
It is expected that sufficient new opportunities will be identified to
enable the Group to raise further equity under a renewed placing programme,
but there can be no assurances on this.
*DIVID POLICY*
Dividend policy is a matter reserved for the Board. The Company declared
dividends of 6.5 pence per Ordinary Share in respect of the year ended 31
December 2016 (2015: 7.0 pence per Ordinary Share). These dividends are
recognised in the Consolidated Statement of Changes in Equity when declared,
which is usually within one month after the end of the financial period to
which they relate. Dividends are usually paid within one month of the
declaration date. As such the amount declared in respect of each financial
year does not always reconcile to the amounts disclosed in the financial
statements.
The Company may pay dividends out of reserves provided that the Board of
Directors is satisfied on reasonable grounds that the Company will,
immediately after payment, satisfy the solvency test (as defined in the
Companies (Guernsey) Law, 2008, as amended), and satisfy any other
requirement in its memorandum and articles.
*MARKET SUMMARY*
In the factsheets released during the year we highlighted some expected
consequences for the UK market in light of the uncertainties created by the
Brexit vote. In particular we noted a tendency for decreased transaction
volumes and an increased caution in the mainstream commercial real estate
lending market in the UK. As we start 2017, we can now see these themes
coming through in the market data.
UK total commercial real estate transaction volumes are down by 37 per cent
from GBP71 billion to GBP45 billion for 2016 versus 2015 according to Property
Data. Lending volumes are typically made up approximately equally between
refinancing and acquisition financing so, as a consequence of lower
transaction volumes, lending activity volumes are also down.
According to the latest information available from the De Montfort
commercial real estate lending survey, UK commercial real estate lending
volumes were down by 13.7 per cent from GBP24.8 billion to GBP21.4 billion
between the first half of 2015 and the first half of 2016. The latest survey
by Laxfield Capital shows this trend continuing with financing request
volumes for quarters two and three of 2016 down by 27.2 per cent compared to
the previous period.
Despite the decreased market activity in the UK as a whole in 2016, the
Group was able to continue to achieve a strong level of new lending as the
Group benefitted from a combination of its flexible mandate and improved
lending market terms, while applying a consistent approach to underwriting
risk on a case by case basis.
In addition to a reduction in lending volumes, the data is also showing
changes in general lending terms. The Laxfield survey highlights that
average pricing expectations are up by 24bps for investment financing and
62bps for development financing compared to the previous period, while the
De Montfort report indicates that the average maximum senior debt LTV
provided by respondents reduced from 65 per cent to 59 per cent between
year-end 2015 and end of the first half of 2016.
Post the Brexit referendum, economic news has generally been more positive
than experts had predicted and some sectors are receiving a boost from the
weaker pound. According to Credit Suisse's hospitality research, the UK
hotel market is likely to benefit from an increase in demand both from
international visitors and 'staycationers' in 2017 as a result of the
depreciation in the pound against most currencies. Historically, there is a
correlation between net outbound travel from the UK to Europe and the
GBP/EUR exchange rate, with the highest correlation when the exchange rate
data is lagged by 9 months. This means that this impact should be most
clearly felt in the middle of 2017. However, the longer term effects of
Brexit remain unclear and the Group will continue to be vigilant on the many
risks which may result.
With the combination of these uncertainties and a more conservative
mainstream lending environment, we do expect the Group to continue to
benefit from the opportunities such an environment presents and achieve good
risk adjusted returns.
Outside of the UK we continue to place a particular focus on Ireland and
Spain as two of the markets with the best potential opportunities for the
Group. In addition, we are also seeing an increasing number of potentially
interesting lending opportunities in the central and eastern European
markets.
In terms of asset classes, we are seeing an increased interest from
investors in alternative asset classes outside of the traditional mainstream
real estate sectors of office, retail and logistics, with purchasers looking
for opportunities in hospitality, education, healthcare and datacentres. The
Group is well positioned to capitalise on these lending opportunities given
the Investment Adviser's wide experience across the real estate spectrum.
*Investment Manager's Report - Portfolio Review*
+---------------------+-------------------+--------------------+
|*Loan portfolio at* | *Sterling|*Sterling equivalent|
|*31 December 2016* |equivalent balance*| unfunded|
| | | commitments*|
+---------------------+-------------------+--------------------+
|Centre Point, London | GBP45.0 m| -|
+---------------------+-------------------+--------------------+
|5 Star Hotel, London | GBP13.0 m| -|
+---------------------+-------------------+--------------------+
|Center Parcs Bonds, | GBP9.5 m| -|
|UK | | |
+---------------------+-------------------+--------------------+
|Industrial Portfolio,| GBP31.8 m| -|
|UK | | |
+---------------------+-------------------+--------------------+
|Hospitals, UK | GBP25.0 m| -|
+---------------------+-------------------+--------------------+
|Hotel, Channel | GBP26.9 m| -|
|Islands | | |
+---------------------+-------------------+--------------------+
|Varde Partners mixed | GBP24.6 m| -|
|portfolio, UK | | |
+---------------------+-------------------+--------------------+
|Mixed use | GBP8.1 m| GBP6.9 m|
|development, South | | |
|East UK | | |
+---------------------+-------------------+--------------------+
|Regional Budget Hotel| GBP75.0 m| -|
|Portfolio, UK | | |
+---------------------+-------------------+--------------------+
|*Total Sterling | *GBP258.9 m*| *GBP6.9 m*|
|Loans* | | |
+---------------------+-------------------+--------------------+
|Industrial Portfolio,| GBP22.3 m| -|
|Netherlands | | |
+---------------------+-------------------+--------------------+
|Office, Amsterdam | GBP11.9 m| -|
+---------------------+-------------------+--------------------+
|Retail & Residential | GBP3.4 m| -|
|Portfolio, Ireland | | |
+---------------------+-------------------+--------------------+
|Residential | GBP5.2 m| -|
|Portfolio, Cork, | | |
|Ireland | | |
+---------------------+-------------------+--------------------+
|Residential | GBP6.7 m| -|
|Portfolio, Dublin, | | |
|Ireland | | |
+---------------------+-------------------+--------------------+
|Logistics, Dublin, | GBP12.8 m| -|
|Ireland | | |
+---------------------+-------------------+--------------------+
|*Total Euro Loans* | *GBP62.3 m*| *GBP0.0 m*|
+---------------------+-------------------+--------------------+
|Industrial Portfolio,| GBP35.3 m| -|
|Denmark | | |
+---------------------+-------------------+--------------------+
|*Total Danish Krona | *GBP35.3 m*| *-*|
|Loans* | | |
+---------------------+-------------------+--------------------+
|*Total Portfolio* | *GBP356.5 m*| *GBP6.9 m*|
+---------------------+-------------------+--------------------+
*INVESTMENT DEPLOYMENT*
With GBP170.8 million of new lending extended to borrowers (against GBP175.9
million of new commitments made), 2016 was the most successful origination
year since launch. As at 31 December 2016 the Group had investments and
commitments of GBP363.4 million (Sterling equivalent at year end exchange
rates). See table opposite.
During the financial year, the following new loans were originated:
*Hotel, Channel Islands*
On 12 February 2016 the Group advanced a GBP26.95 million whole loan in
relation to a hotel in the Channel Islands. This specific hospitality
submarket is demonstrating solid performance and the asset financed is the
market leader. The fixed rate facility has a term of 5 years and the Group
expects to earn an attractive risk-adjusted return in line with its stated
investment strategy.
*Residential Portfolio, Dublin*
On 2 March 2016 the Group advanced a EUR7.9 million whole loan relating to
the acquisition of 44 apartments in South Dublin. The sponsor is a highly
regarded local investor and an existing borrower of the Group. The
transaction represented the Group's third loan secured by rented residential
units in Ireland, an attractive asset class due to its consistent demand,
stable income profile, and Ireland's growing economy. The floating rate
facility has a term of 4 years and the Group expects to earn an attractive
risk adjusted return in line with its stated investment strategy.
*Varde Partners mixed portfolio*
On 16 May 2016, the Group arranged a 3 year GBP158.1 million floating rate
facility for certain affiliated companies of Varde Partners to refinance a
portfolio of 141 retail, office and industrial assets located throughout the
UK. With 393 tenants the portfolio reflects very strong diversification in
terms of tenant, geography and sector. The Group worked closely with a major
investment bank which provided the borrower with a GBP123 million senior loan
facility, leaving the Group to advance a GBP35.1 million mezzanine facility on
which it expects to earn an attractive risk-adjusted return in line with its
stated investment strategy. Significant amortisation of the loan has been
received since origination, in line with business plan, and the balance at
the year end is was GBP24.6 million.
*Mixed use development, South East UK*
On 2 June 2016, the Group, together with other Starwood affiliates,
committed to a GBP75 million whole loan in relation to three mixed use
development projects in the south east of England. In total the Group will
fund a GBP15 million participation in the whole loan. The borrower's aim is to
deliver strong mixed use schemes in the centre of high growth commuter
locations providing private residential for sale, retail, office, hotel and
serviced apartments. These markets are demonstrating consistent, moderate
growth given the long term structural shortages of much needed new real
estate supply. A large element of the schemes had already been presold to
institutional investors ensuring the Group has a lower exposure on a debt
per square foot basis. The floating rate facility has a term of 3 years with
a single extension option of one year and the Group expects to earn an
attractive risk-adjusted return in line with its stated investment strategy.
*Logistics, Dublin, Ireland*
On 13 June 2016 the Group committed to a EUR31.2 million five year floating
whole loan to support the acquisition of a portfolio of fully let prime
logistics assets in Dublin. Much of the portfolio is let on a long term
basis to a strong covenant which uses the assets as its national
headquarters. The loan had an initial drawdown of EUR17.6 million in June
with a further drawdown of EUR4.4 million on 8 July 2016. Post-closing the
additional loan uses proved to be unnecessary and the remaining commitment
will not be drawn and has been cancelled. In addition, a prepayment of EUR7
million was received on 18 July 2016, leaving a net position remaining of
EUR15 million.
*Regional Budget Hotel Portfolio, UK*
On 23 August 2016, the Group acquired the mezzanine component of a package
of loan facilities recently provided by internationally recognised banks to
fund the acquisition of a portfolio of UK budget hotels. The portfolio is a
homogeneous portfolio of UK regional limited-service hotels that is
geographically diversified, benefits from strong branding and management by
an international operator and is now owned by an experienced hotel investor.
The loan is a GBP75 million five year floating rate loan, and the Group
expects to earn an attractive risk-adjusted return in line with its stated
investment strategy.
During the financial year, the following loans were repaid:
*Aldgate Tower, London*
On 22 April 2016 the Group received full repayment of its exposure in the
GBP42.0 million loan for the Aldgate Tower, London as a result of the sale of
the property. A number of loans in the portfolio benefit from prepayment
protection in their early years providing a level of income protection
should the loan repay whilst in that protected period. The Aldgate Tower
loan was originated in December 2014 and the Group benefitted from such a
provision.
*Salesforce Tower, London*
On 7 April 2016 the Group received full repayment of its participation of
GBP9.9 million in the Salesforce Tower, London loan as a result of the
refinancing of the property following its successful lease up. The Group had
always anticipated that this loan would be repaid once the sponsor had
achieved its business plan.
*Retail Portfolio, Finland*
On 26 April 2016 the Group received full repayment of the loan as a result
of the sale of the portfolio. This loan was one of the first loans
originated by the Group and it was due to mature this year.
*Lifecare Residences, London*
The Group started to receive repayments of the loan in April as the borrower
started to sell the residential properties in line with its business plan.
Full and final repayment was received in early June.
*W Hotel, Netherlands*
On 29 July 2016 the group received full repayment of the W Hotel Amsterdam
loan as a result of the refinancing of the loan following completion of the
refurbishment and a period of trading.
*EVENTS AFTER THE REPORTING PERIOD*
The following new investment commited since the year end, up to 28 March
2017:
+--------------+-------------+
| | *Local*|
| | *Currency*|
+--------------+-------------+
|School, Dublin|EUR18,850,000|
+--------------+-------------+
*School, Dublin:* The Group committed to provide an EUR18.85 million whole
loan to support the acquisition and conversion of an office building to a
premium international school in South Dublin, Ireland. The sponsor is a
highly regarded local investor with extensive experience in the education
sector. The loan represents an attractive opportunity to diversify by
investing in a growing asset class backed by a strong and experienced
sponsor and operator. The floating rate facility has a term of 3 years.
GBP156,734 has been drawn under the outstanding commitments on the mixed-use
development, UK.
The following loan amortisation (both scheduled and unscheduled) has been
received since the year-end up to 28 March 2017:
+---------------------------------------+----------+
| | *Local*|
| |*Currency*|
+---------------------------------------+----------+
|5 Star Hotel, London | GBP13,173|
+---------------------------------------+----------+
|Varde Partners mixed portfolio, UK |GBP6,386,999|
+---------------------------------------+----------+
|Office, Amsterdam | EUR35,750|
+---------------------------------------+----------+
|Retail & Residential Portfolio, Ireland|EUR693,431|
+---------------------------------------+----------+
|Residential Portfolio, Dublin, Ireland | EUR27,000|
+---------------------------------------+----------+
|Logistics, Dublin, Ireland | EUR38,967|
+---------------------------------------+----------+
The following loans have been repaid in full since the year-end up to 28
March 2017:
+---------------------------------+--------------+
| | *Local*|
| | *Currency*|
+---------------------------------+--------------+
|Industrial Portfolio, Netherlands| EUR26,064,480|
+---------------------------------+--------------+
|Industrial Portfolio, Denmark |Kr.307,133,384|
+---------------------------------+--------------+
On 23 January 2017 the Company declared a dividend of 1.625 pence per
Ordinary Share payable to shareholders on the register on 17 February 2016.
*Board of Directors*
STEPHEN SMITH | non-executive Chairman - Chairman of the Board
Stephen is currently a Director of Gatehouse Bank Plc, a Director of Tritax
Big Box REIT 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. He was formerly Global Head of Asset Management and Transactions
at AXA Real Estate Investment Managers, where he was responsible for the
asset management of a portfolio of more than EUR40 billion on behalf of life
funds, listed property vehicles, unit linked and closed end funds. Prior to
joining AXA in 1999 he was Managing Director at Sun Life Properties for five
years. Stephen is a UK resident.
JONATHAN BRIDEL | non-executive Director - Management Engagement Committee
Chairman
Jonathan is currently a non-executive Chairman or director of listed and
unlisted companies comprised mainly of investment funds and investment
managers. These include The Renewables Infrastructure Group Limited (FTSE
250), Alcentra European Floating Rate Income Fund Limited, Sequoia Economic
Infrastructure Income Fund Limited and Funding Circle SME Income Fund
Limited which are listed on the main market of the London Stock Exchange and
DP Aircraft I Limited and Fair Oaks Income Fund Limited. He was previously
Managing Director of Royal Bank of Canada's investment business in the
Channel Islands. Prior to this, after working at Price Waterhouse Corporate
Finance in London, Jonathan served in senior management positions in the
British Isles and Australia in banking, specialising in credit and in
private businesses as Chief Financial Officer. Graduating from the
University of Durham with a degree of Master of Business Administration in
1988, Jonathan also holds qualifications from the Institute of Chartered
Accountants in England and Wales where he is a Fellow, the Chartered
Institute of Marketing and the Australian Institute of Company Directors.
Jonathan is a Chartered Marketer and a member of the Chartered Institute of
Marketing, the Institute of Directors and a Chartered Fellow of the
Chartered Institute for Securities and Investment. Jonathan is a resident of
Guernsey.
JOHN WHITTLE | non-executive Director - Audit Committee Chairman
John is a Fellow of the Institute of Chartered Accountants in England and
Wales and holds the Institute of Directors Diploma in Company Direction. He
is a non-executive Director of International Public Partnerships Limited
(FTSE 250), India Capital Growth Fund Limited, Globalworth Real Estate
Investments Limited and Aberdeen Frontier Markets Fund Limited (all listed
on AIM), Toro Limited (listed on SFS), and also acts as non- executive
Director to several other Guernsey investment funds. He was previously
Finance Director of Close Fund Services, a large independent fund
administrator, where he successfully initiated a restructuring of client
financial reporting services and was a key member of the business transition
team. Prior to moving to Guernsey he was at Price Waterhouse in London
before embarking on a career in business services, predominantly telecoms.
He co-led the business turnaround of Talkland International (now Vodafone
Retail) and was directly responsible for the strategic shift into retail
distribution and its subsequent implementation; he subsequently worked on
the GBP20 million private equity acquisition of Ora Telecom. John is also a
resident of Guernsey.
*Report of the Directors*
*PRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE*
The investment objective of the Company 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 wider European Union's internal market, focusing
on Northern and Southern Europe. Whilst investment opportunities in the
secondary market are considered, the Group's main focus is to originate
direct primary real estate debt investments.
The Group 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, 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 Commission as a
registered 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. Further issues have taken
place since IPO and are listed under 'Capital' below. 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.
*DIVID POLICY*
The Company has a target dividend of 6.5 pence per Ordinary Share, based on
quarterly dividend payments.
*DIVIDS PAID*
The Company declared dividends of 1.625 pence for each of the calendar
quarters of 2016. The Company has paid a total of GBP21,303,065 during the
year (6.5 pence per Ordinary share) (2015:GBP18,120,500: 7.0 pence per
Ordinary Share).
*BUSINESS REVIEW*
The Group's performance during the year to 31 December 2016, its position at
that date and the Group's future developments are detailed in the Chairman's
Statement, the Strategic Report and the Investment Manager's Report.
*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.
The following issues of ordinary shares have been made since IPO:
+-----------------+-----------------+------------------+
|*Admission Date* | *Number of*|*Price (pence per*|
| |*Ordinary Shares*| *Ordinary Share)*|
+-----------------+-----------------+------------------+
|21 March 2013 | 8,000,000| 104.25|
+-----------------+-----------------+------------------+
|9 April 2013 | 1,000,000| 104.50|
+-----------------+-----------------+------------------+
|12 April 2013 | 600,000| 104.00|
+-----------------+-----------------+------------------+
|23 July 2015 | 23,780,000| 103.00|
+-----------------+-----------------+------------------+
|29 September 2015| 42,300,000| 102.75|
+-----------------+-----------------+------------------+
|12 August 2016 | 70,839,398| 103.05|
+-----------------+-----------------+------------------+
Following these issues, the Company now has issued share capital consisting
of 375,019,398 Ordinary Shares. Details of the Company's capital are
provided in more detail in note 16 of the consolidated financial statements.
*SUBSTANTIAL INTERESTS*
Information provided to the Company by major shareholders pursuant to the
FCA's Disclosure and Transparency Rules (DTR) is published via a Regulatory
Information Service and is available on the Company's website. The Company
had been notified under Rule 5 of the DTR of the following holdings of
voting rights in its shares as at 31 December 2016 and as at the date of
this report:
+----------------------+-----------------+---------------------+
| | *% of issued| |
|*Shareholder* | share capital as| *% of issued share*|
| | at *| *capital as at *|
| | *31 December| *the date of this|
| | 2016*| report*|
+----------------------+-----------------+---------------------+
|Old Mutual Plc | 17.1| 17.1|
+----------------------+-----------------+---------------------+
|Schroder & Co. Limited| 15.1| 15.1|
+----------------------+-----------------+---------------------+
|BlackRock Inc. | 11.8| 11.8|
+----------------------+-----------------+---------------------+
|FIL Limited | 5.1| 5.1|
+----------------------+-----------------+---------------------+
*DIRECTORS' INTERESTS IN SHARES*
The Directors' interests in shares are shown opposite:
+--------------------+--------------------+--------------------+
|*Name* | *Ordinary Shares at|*Ordinary Shares at*|
| | 31 December 2016*| *31 December 2015*|
+--------------------+--------------------+--------------------+
|Stephen Smith | 78,929| 78,929|
+--------------------+--------------------+--------------------+
|John Whittle | 11,866| 11,866|
+--------------------+--------------------+--------------------+
|Jonathan Bridel and | 11,866| 11,866|
|Spouse | | |
+--------------------+--------------------+--------------------+
The Directors have adopted a code of Directors' dealings in Ordinary Shares.
The Board is responsible for taking all proper and reasonable steps to
ensure compliance with the the dealing Code, and reviewing the relevant
regulation on a regular basis.
*EVENTS AFTER THE REPORTING PERIOD*
Details of events after the reporting period are contained in note 24 to the
consolidated financial statements.
*INDEPENT AUDITORS*
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 and they have been re-appointed at each Annual General Meeting
held since. PricewaterhouseCoopers CI LLP has indicated their willingness to
continue as Auditors. The Directors will place a resolution before the
Annual General Meeting to re-appoint them as independent Auditors for the
ensuing year, and to authorise the Directors to determine their
remuneration.
*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 CONTROL*
The Company's discount management strategy has three elements, summarised as
follows and explained in greater detail below:
- a discount-triggered realisation mechanism that would apply if the
Ordinary Shares trade at an average discount of five 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.
*DISCOUNT-TRIGGERED REALISATION*
If the Ordinary Shares trade at an average discount to Net Asset Value per
Share (calculated daily in accordance with the methodology set out below) of
five per cent or more during the six-month period ending 31 December 2017,
the Directors at their absolute discretion may put a realisation offer to
Shareholders, subject to applicable law including the requirements of the
Companies (Guernsey) Law, 2008 (a 'Realisation Offer').
*REALISATION VOTE*
In the event that the discount-triggered realisation mechanism is not
activated, the Directors shall exercise their discretion under the Articles
to put forward a realisation vote (as an ordinary resolution) to
Shareholders by no later than 28 February 2018. If Shareholders vote in
favour of this resolution then the Company will procure that a Realisation
Offer on substantially the same terms as that described above is offered to
Shareholders. Under the Realisation Offer all Shareholders will be able to
elect to redeem up to 75 per cent. of their Ordinary Shares. Following the
receipt of all elections, if either: (i) more than 75 per cent. of the
Ordinary Shares then in issue were elected for realisation; or (ii) the NAV
of the Company following the realisation would be less than GBP100 million,
the Directors may exercise their discretion not to proceed with the
Realisation Offer and instead put forward alternative proposals which are no
less favourable to electing Shareholders and which may include the
reorganisation or winding up of the Company. Any realisation of the
Company's portfolio required as a result of the implementation of a
Realisation Offer will be conducted in the orderly manner described above in
relation to the discount-triggered realisation mechanism.
If Shareholders vote against the realisation vote then the Company will
continue in existence as it is then constituted without any liquidity event
for Shareholders.
The Board intends to put forward an ordinary resolution at an Extraordinary
General Meeting to be called during 2017 to continue the Company in its
current form and to waive the requirement to put forward the realisation
vote. If this resolution is not passed then the Company will put forward
realisation proposals as outlined above.
*SHARE BUYBACKS*
The Directors have the authority to purchase in the market up to 14.99 per
cent of the Ordinary Shares in issue on 6 May 2016 at a price not exceeding:
(i) five per cent. above the average of the mid-market values of the
Ordinary Shares for the five Business Days before the purchase is made; or
(ii) the higher of the last independent trade or the highest current
independent bid for the Ordinary Shares.
The Directors will give consideration to repurchasing Shares under this
authority, but are not bound to do so, where the market price of an Ordinary
Share trades at more than 7.5 per cent below the Net Asset Value per Share
for more than 3 months, subject to available cash not otherwise required for
working capital purposes or the payment of dividends in accordance with the
Company's dividend policy.
If not previously used, this authority shall expire at the conclusion of the
Company's Annual General Meeting ('AGM') in 2017. The Directors intend to
seek annual renewal of this buyback authority from Shareholders each year at
the Company's AGM.
*Directors' Renumeration 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. It has 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.
No external 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 are set out
in the table above.
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.
No loans 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
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. As outlined 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 the other Directors; or (iv)
a resolution of the shareholders.
Directors' and Officers' liability insurance cover is maintained by the
Company but is not 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.
+-----------------------+----------------+----------------+
|*Director* |*Total Fee 2016*|*Total Fee 2015*|
| | *GBP*| *GBP*|
+-----------------------+----------------+----------------+
|Stephen Smith | 47,500| 46,250|
+-----------------------+----------------+----------------+
|John Whittle | 40,000| 37,500|
+-----------------------+----------------+----------------+
|Jonathan Bridel | 35,000| 33,750|
+-----------------------+----------------+----------------+
|Aggregate Fees | 122,500| 117,500|
+-----------------------+----------------+----------------+
|Aggregate Expenses | 2,307| 6,341|
+-----------------------+----------------+----------------+
|Placing programme fees1| -| 15,000|
+-----------------------+----------------+----------------+
|*Total* | *124,807*| *138,841*|
+-----------------------+----------------+----------------+
1 Includes GBP5,000 per Director in respect of the additional work involved in
respect of the Placing Programme in 2015 which was invested into 4,866
shares each
*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 the UK Corporate Governance Code dated September 2014
('UK Code').
As an AIC member, the Board has also considered the principles and
recommendations of the AIC Code of Corporate Governance dated February 2015
('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 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 during the year.
Except as disclosed within the report, the Board is of the view that
throughout the year ended 31 December 2016, the Company complied with the
recommendations of the AIC Code and the relevant provisions of the UK Code.
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.
The Code includes provisions relating to: the role of the chief executive;
executive Directors' remuneration; and the need for an internal audit
function which are not considered by the Board to be relevant to the
Company, being an externally managed investment company. The Company has
therefore not reported further in respect of these provisions.
The Guernsey Financial Services Commission Finance Sector Code of Corporate
Governance ('GFSC Code') came into force in Guernsey on 1 January 2012. The
Company is deemed to satisfy the GFSC Code provided that it continues to
conduct its governance in accordance with the requirements of the UK Code.
*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 in the Board of
Directors.
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 the Board.
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 not entitled to vote in respect of any arrangement connected to
the interested party.
*BOARD*
*Independence and 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. The
Board 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, a Director would abstain or have his objection noted, which
would be reflected within the minutes.
Similar to the process outlined above for the appointment of the Chairman, a
job specification was prepared for each Director which included an
assessment of the time commitment anticipated for the role to ensure each
Director was aware 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 in the Board of Directors. 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, and are 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 and during 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 and procedures. 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 in 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 predetermined 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 and to identify potential weaknesses. If appropriate, new members
may be proposed to resolve the perceived issues, or a resignation may be
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 used in 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 AGM following
his or her appointment by the Board, and to be re-elected once every three
years thereafter. Stephen Smith is therefore submitting himself for re-
election at the AGM on 11 May 2017. Any Director who has served on the Board
for more than nine years is required to submit himself or herself for
re-election annually.
The Audit Committee Members and the Board confirm that Stephen Smith has
proven his ability to fulfil all legal 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 Stephen Smith 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. It is 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 for
the 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 in 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 and
its 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 2016 (2015: three times); the
meeting attendance record is displayed on the Corporate Governance
Statement. 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 consolidated financial
statements, as well as aiding the assessment of the Company's internal
control effectiveness and objectivity of the external Auditors. Further
information on the Audit Committee's responsibilities is given in the Report
of the Audit Committee.
Formal terms of reference for the Audit Committee are available at the
registered office and on the Company's website, 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 the Investment Manager's performance
are also conducted regularly throughout the year by the Board. Reviews of
engagements with other service providers, such as the Administrator, to
ensure all parties are operating satisfactorily are also undertaken by the
Management Engagement Committee so as to ensure the safe and accurate
management and administration of the Company's affairs and business and that
they are competitive and reasonable for shareholders.
The Management Engagement Committee met twice during 2016 (2015: once) and
undertook a review of the key service providers to the Group and the
Company, utilising a service provider questionnaire. No material weaknesses
were identified and the recommendation to the Board was that the current
arrangements were appropriate and provided good quality services and advice
to the Company and the Group.
Formal terms of reference for the Management Engagement Committee are
available at the registered office and the Company's website, and are
reviewed on a regular basis.
The Company Secretary acts as the secretary to the Management Engagement
Committee.
*BOARD AND COMMITTEE MEETING ATTANCE*
Individual attendance at Board and Committee meetings is set out opposite:
+----------------+------------+-------+-----------+------------+
| |*Scheduled *|*Ad hoc| *Audit*|*Management*|
| | *Board*|Board1*|*Committee*|*Engagement*|
| | | | | *Committee*|
+----------------+------------+-------+-----------+------------+
|Stephen Smith1 | 4| 2| 3| 2|
+----------------+------------+-------+-----------+------------+
|John Whittle | 4| 7| 3| 2|
+----------------+------------+-------+-----------+------------+
|Jonathan Bridel | 4| 6| 3| 2|
+----------------+------------+-------+-----------+------------+
|*Total Meetings | *4*| *8*| *3*| *2*|
|* | | | | |
|*for year* | | | | |
+----------------+------------+-------+-----------+------------+
1 The 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
apprised 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' roles and responsibilities in preparing the
Annual Report and Audited Consolidated Financial Statements for the year
ended 31 December 2016 is provided in the Statement of Directors'
Responsibilities.
For the purposes solely of the audit of the consolidated financial
statements, the Auditors have reviewed the Company's compliance with certain
of the AIC Code's provisions, the UK Listing Authority's Listing Rules and
other applicable rules of the Financial Conduct Authority as reported in the
Independent Auditor's Report.
Further information enabling shareholders to assess the Company's
performance, business model and strategy can be sourced in the Chairman's
Statement, the Strategic Report and the Report of the Directors.
*ASSESSMENT OF PROSPECTS*
The Group's strategy is central to an understanding of its prospects, and
details can be found in the Strategic Report.
The Group's focus is particularly on managing expected loan repayments in
order to minimise any potential for cash drag, and continuing to grow the
Group by sourcing investments with good risk adjusted returns. The Group
does not assume in its planning that the revolving credit facility remains
available to it beyond the current term and assumes that the realisation
vote which must be held no later than February 2018 will not result in a
significant requirement to realise assets.
The Group's prospects are assessed primarily through its strategic review
process which the Board participates fully in. The Directors' have assessed
the prospects of the Group over a period of three years which has been
selected because the strategic review covers a three-year period and this is
also the approximate average remaining loan term.
The Group updates its plan and financial forecasts on a monthly basis and
detailed financial forecasts are maintained and reviewed by the Board
regularly.
*ASSESSMENT OF VIABILITY*
In assessing the viability of the Group, the Board has assumed that the
to-be-proposed ordinary resolution to continue the Company in its current
form and to waive the requirement to put forward the realisation vote is
approved by shareholders. Although the strategic plan reflects the
Directors' best estimate of the future prospects of the business, they have
also tested the potential impact on the Group of a number of scenarios over
and above those included in the plan, by quantifying their financial impact.
These scenarios are based on aspects of the following principal risks, as
described below:
- Foreign exchange risk;
- Market deterioration risk; and
- Risk of default under the revolving credit facility.
These scenarios represent 'severe but plausible' circumstances that the
Group could experience. The scenarios tested included:
- A very high level of loan default meaning that the Group stopped receiving
interest on a substantial part of the portfolio; and
- An analysis of the robustness of the covenants under the revolving credit
facility to withstand default of the underlying investments.
The results of this stress testing showed that the Group would be able to
withstand a very high level of underlying loan default or impairment
resulting from either of the risks identified over the period of the
financial forecasts.
*VIABILITY STATEMENT*
Based on their assessment of prospects and viability above, and subject to
passing the continuation vote, the Directors confirm they have a reasonable
expectation that the Group will continue in operation and meet its
liabilities as they fall due over the three-year period ending 31 December
2019.
In connection with the viability statement the Board confirm that they have
carried out a robust assessment of the principal risks facing the Group,
including those which would threaten its business model, future performance,
solvency or liquidity.
*GOING CONCERN*
The Directors also considered it appropriate to prepare the financial
statements on the going concern basis, as explained in the Basis of
preparation paragraph in Note 2 and in the financial statements.
*RISK CONTROL*
In addition to the earlier assessment of principal risks and uncertainties
contained within the Strategic Report, the Board is required annually to
review the effectiveness of the Group'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, and are intended to provide reasonable assurance
against material misstatement or loss. This is not absolute assurance that
all risks are eliminated.
Through regular 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.
*RISK MANAGEMENT*
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 below.
*(i) Control Environment*
The Company is ultimately dependent upon the quality and integrity of the
staff and management of the Investment Manager, the Investment Adviser and
its Fund Administration & Company Secretarial service provider. 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 in place.
The Audit Committee undertakes a review of the Company's internal financial
and operating controls on a regular basis. The Auditors of the Company,
consider internal controls relevant to the Company's preparation and fair
presentation of the consolidated 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, produces an 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, does not have an internal audit function. It is 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, 9 March 2015 and 6 May 2016;
- Personal Account Dealing, as outlined in the Directors dealing Code;
- Whistleblowing Policy;
- Anti-Bribery Policy;
- Applicable Financial Conduct Authority Regulations; Listing Rules, and
Disclosure Guidance and Transparency Rules;
- Treatment and handling of confidential information;
- Conflicts of interest;
- Compliance policies; and
- Anti-Money Laundering 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 2016.
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.
*ALTERNATIVE INVESTMENT FUND MANAGEMENT DIRECTIVE ('AIFMD')*
The AIFMD, which was implemented across the EU on 22 July 2013 with the
transition period ending 22 July 2014, aims to harmonise the regulation of
Alternative Investment Fund Managers ('AIFMs') and imposes obligations on
managers who manage or distribute Alternative Investment Funds ('AIFs') in
the EU or who market shares in such funds to EU investors.
After seeking professional regulatory and legal advice, the Company was
established in Guernsey such that, upon implementation of AIFMD it would be
a Non-EU AIF, with Starwood European Finance Partners Limited appointed to
act as the Non-EU AIFM. No changes of significance are envisaged in the
management arrangements for the Company as a result of AIFMD.
In accordance with AIFMD disclosure obligations, note 6 provides a summary
of realised gains and losses.
The Investment Manager does not receive an additional fee to that stated in
note 23, as a result of acting as the AIFM. The Board of the Investment
Manager received an aggregate fee of GBP27,500 for the year ended 31 December
2016.
The marketing of shares in AIFs that are established outside the EU (such as
the Company) to investors in an EU member state is prohibited unless certain
conditions are met. Certain of these conditions are outside the Company's
control as they are dependent on the regulators of the relevant third
country (in this case Guernsey) and the relevant EU member state entering
into regulatory co-operation agreements with one another.
The AIFM has given written notification to the United Kingdom Financial
Conduct Authority ('FCA'), pursuant to Regulation 59 of the Alternative
Investment Fund Managers Regulations 2013 (SI 1773/2013) (the 'AIFM
Regulations') of its intention to market the shares to investors in the
United Kingdom in accordance with the AIFM Regulations and the rules and
guidance of the FCA.
The AIFM has given written notification to the Netherlands Authority for the
Financial Markets ('AFM') pursuant to Article 1:13b section 1 and 2 of the
Act on the Financial Supervision (Wet op het financieel toezicht) (the
'AFS') of its intention to market the shares to investors in the Netherlands
in accordance with the AFS, any rules and regulations promulgated pursuant
thereto and the rules and guidance of the AFM.
On 12 February 2016, the AIFM obtained a marketing licence in Sweden in
accordance with Chapter 5, Section 10 of the Swedish Alternative Investment
Fund Managers Act (Sw. lag (2013:561) om förvaltare av alternativa
investeringsfonder). This enables shares in the Company to be marketed to
professional investors in Sweden.
Currently, the National Private Placement Regime ('NPPR') provides a
mechanism to market Non-EU AIFs that are not allowed to be marketed under
the AIFMD domestic marketing regimes. The Board is utilising NPPR in order
to market the Company, specifically in the UK, Sweden and the Netherlands.
The Board works with the Company's advisers to ensure the necessary
conditions are met, and all required notices and disclosures are made under
NPPR. Eligible AIFMs will be able to continue to use NPPR until at least 22
July 2018, and at present NPPR remains the sole regime available to market
in the EEA. A non-EEA marketing passport may be introduced, but this depends
on a number of conditions being satisfied (as set out in the AIFMD and its
Regulations).
Any regulatory changes arising from implementation of the AIFMD (or
otherwise) that limit the Company's ability to market future issues of its
shares may adversely affect the Company's ability to carry out its
investment policy successfully and to achieve its investment objective,
which in turn may adversely affect the Company's business, financial
condition, results of operations, NAV and/or the market price of the
Ordinary Shares.
The Board, in conjunction with the Company's advisers, will continue to
monitor the development of the AIFMD and its impact on the Company. The
Company will continue to use NPPR pending further consultation from the
European Securities and Marketing Authority ('ESMA').
The Board has considered the disclosure obligations under Articles 22 and 23
and can confirm that the Company complies with the various organisational,
operational and transparency obligations.
*FOREIGN ACCOUNT TAX COMPLIANCE ACT ('FATCA') AND THE OECD COMMON REPORTING
STANDARDS ('CRS')*
FATCA became effective on 1 January 2013 and is being gradually implemented
internationally. The legislation is aimed at determining the ownership of US
assets in foreign accounts and improving US Tax compliance with respect to
those assets.
More than 90 jurisdictions, including all 34 member countries of the
Organisation for Economic Co-operation and Development ('OECD') and the G20
members, have committed to implement the Common Reporting Standard for
automatic exchange of tax information ('CRS'). Building on the model created
by FATCA, the CRS creates a global standard for the annual automatic
exchange of financial account information between the relevant tax
authorities.
The Board in conjunction with the Company's service providers and advisers
have ensured that the Company will comply with FATCA and CRS's requirements
to the extent relevant to the Company.
*DIALOGUE WITH SHAREHOLDERS*
The Directors place a great deal of importance on communication with
shareholders. The Company's Chairman, Investment Manager and the Broker, 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 Broker on
shareholder issues. Publications such as the Annual Report and Consolidated
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 Group). The
Board has considered the composition of the Audit Committee and is satisfied
it has sufficient recent and relevant skills and experience, in particular,
one member having a background as a chartered accountant.
*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 consolidated financial statements of the
Group and any formal announcements relating to the Group's financial
performance, and reviewing significant financial reporting judgements
contained within said statements and announcements;
- Reviewing the Group's internal financial controls, and the Group's
internal control and risk management systems;
- Monitoring the need for an internal audit function annually;
- Monitoring and reviewing the scope, 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 Group'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 may affect the Group;
- Providing advice to the Board on whether the consolidated financial
statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Group's
performance, business model and strategy; and
- Reporting to the Board on how the Committee discharged all relevant
responsibilities at each Board meeting.
*Financial Reporting*
The primary role of the Audit Committee in relation to the financial
reporting is to review with the Administrator, Investment Manager and the
Auditors the appropriateness of the Annual Report and Audited Consolidated
Financial Statements and Interim Condensed Consolidated Financial
Statements, concentrating on, amongst other matters:
- The quality and acceptability of accounting policies and practices;
- The clarity of the disclosures and compliance with financial reporting
standards and relevant financial and governance reporting requirements;
- Material areas in which significant judgements have been applied or there
has been discussion with the Auditors;
- Whether the Annual Report and Audited Consolidated Financial Statements,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for the shareholders to assess the Group's
performance, business model and strategy; and
- Any correspondence from regulators in relation to the Group's financial
reporting.
To aid its review, the Audit Committee considers reports from the
Administrator and Investment Manager and also reports from the Auditors on
the outcomes of their half-year review and annual audit. The Audit Committee
supports PricewaterhouseCoopers CI LLP in displaying the necessary
professional scepticism their role requires.
The Audit Committee met three times during the year under review; individual
attendance of Directors is outlined in the Corporate Governance Statement.
The main matters discussed at those meetings were:
- Review and approval of the annual audit plan of the external Auditors;
- Discussion and approval of the fee for the external audit;
- Detailed review of the Annual Report and Audited Consolidated Financial
Statements Accounts and recommendation for approval by the Board;
- Review and approval of the interim review plan of the external Auditors;
- Detailed review of the Interim Condensed Consolidated Financial Statements
and recommendation for approval by the Board;
- Discussion of reports from the external Auditors following their interim
review and annual audit;
- Assessment of the effectiveness of the Auditors as described below;
- Assessment of the independence of the external Auditors;
- Review of the Group's key risks and internal controls; and
- Consideration of the 2014 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
that 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.
*Annual General Meeting*
The Audit Committee Chairman, or other members of the Audit Committee
appointed for the purpose, shall attend each AGM of the Company, prepared to
respond to any shareholder questions on the Audit Committee's activities.
*Internal Audit*
The Audit Committee considers at least once a year whether or not there is a
need for an internal audit function. Currently, the Audit committee does not
consider there to be a need for an internal audit function, given that there
are no employees in the Group and all outsourced functions are with parties
/ administrators who have their own internal controls and procedures. This
is evidenced by the internal control reports provided by the providers,
which give sufficient assurance that a sound system of internal control is
maintained.
*SIGNIFICANT ISSUES IN RELATION TO THE CONSOLIDATED FINANCIAL STATEMENTS*
During the year, the Audit Committee considered a number of significant
issues in respect of the Annual Report and Audited Consolidated 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
Group had been identified and that suitable audit procedures had been put in
place to obtain reasonable assurance that the consolidated financial
statements as a whole would be free of material misstatements. The table
below sets out the Audit Committee's view of the key areas of risk and how
they have addressed the issues.
*REVIEW OF EXTERNAL AUDIT 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 efficiency of the Investment Manager, Investment Adviser and
other service providers in performing 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 consolidated financial statements 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.
+---------------------------------+----------------------------+
|*Significant Issues* |*Actions to Address Issue* |
+---------------------------------+----------------------------+
|Recoverability and impairment to |The Audit Committee reviews |
|the carrying values of loan |the investment process of |
|investments. |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 the loan 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 there are any |
| |indicators of impairment. |
+---------------------------------+----------------------------+
|Risk of fraud or error in revenue|The Audit Committee |
|recognition |discusses with the |
| |Investment Manager and |
| |Investment Adviser the |
| |reasons for the changes in |
| |key assumptions made in the |
| |loan models such as changes |
| |to expected drawdown or |
| |repayment dates or other |
| |amendments to expected cash |
| |flows such as changes in |
| |interbank rates on floating |
| |loans. The Audit Committee |
| |ensures that any changes |
| |made to the models are |
| |justifiable based on the |
| |latest available |
| |information. |
| | |
| |A separate income |
| |rationalisation which is |
| |prepared outside of the |
| |detailed loan models is |
| |provided to the Board on a |
| |quarterly basis as a |
| |secondary check on the |
| |revenue being recognised in |
| |the loan models. This is |
| |also reviewed by the Audit |
| |Committee and questions |
| |raised where appropriate. |
+---------------------------------+----------------------------+
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 Group has developed 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 Group'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
Group 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 Group and its loan portfolio, and
also provides overall confirmation of its independence and objectivity.
There are no contractual obligations that restrict the Group's choice of
Auditors.
Any non-audit work would be reviewed by the Audit Committee and approved by
the Audit Committee Chairman prior to the Auditors 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 Group, the Investment
Manager and other service providers and recommends the continuing
appointment of the Auditors by the Board.
*CONCLUSIONS IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTS*
The production and the audit of the Annual Report and Audited Consolidated
Financial Statements is a comprehensive process requiring input from a
number of different contributors. In order to reach a conclusion on whether
the Group's consolidated financial statements are fair, balanced and
understandable, as required under the UK Code and the AIC Code, the Board
has requested that the Audit Committee advise on whether it considers that
the Annual Report and Consolidated Financial Statements fulfils these
requirements. In outlining 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 and Audited Consolidated
Financial Statements, 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 Group'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 Audit Committee has concluded that it
has acted in accordance with its' terms of reference and has ensured the
independence and objectivity of the external Auditors. It has reported to
the Board that the Annual Report for the year ended 31 December 2016, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's performance,
business model and strategy. The Board's conclusions in this respect are set
out in the Statement of Directors' Responsibilities.
The Audit Committee has recommended to the Board that the external auditor
is re-appointed.
*Statement of Directors' Responsibilities*
The Directors are responsible for preparing consolidated 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 consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as adopted by
the European Union ('IFRS'). In preparing the consolidated 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 consolidated
financial statements; and
- Prepare the consolidated 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 and integrity of the website and,
accordingly, the Auditors accept no responsibility for any changes that may
have occurred to the consolidated financial statements since they are
initially presented on the website. Legislation in Guernsey governing the
preparation and dissemination of the consolidated 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 consolidated financial
statements comply with The Companies (Guernsey) Law, 2008. They are also
responsible for safeguarding the assets of the Company and the Group and
hence 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
consolidated 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 consolidated 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 Consolidated 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 Consolidated
Financial Statements fulfil 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 in the Financial Highlights, Chairman's Statement, Strategic Report and
Investment Manager's Report of the 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
2016, as outlined in the Corporate Governance Statement, Strategic Report
and the Report of the Audit Committee, the Board has concluded that the
Annual Report and Audited Consolidated Financial Statements for the year
ended 31 December 2016, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
*Independent Auditor's report to the Members of Starwood European Real
Estate Finance Limited*
*Report on the audit of the consolidated financial statements*
*OUR OPINION*
In our opinion, the consolidated financial statements give a true and fair
view of the financial position of Starwood European Real Estate Finance
Limited (the 'Company') and its subsidiaries (together the 'Group') as at 31
December 2016, and of their consolidated financial performance and their
consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards as adopted by the European Union
and have been properly prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
*WHAT WE HAVE AUDITED*
The Group's consolidated financial statements comprise:
- the Consolidated Statement of Financial Position as at 31 December 2016
- the Consolidated Statement of Comprehensive Income for the year then
ended;
- the Consolidated Statement of Changes in Equity for the year then ended;
- the Consolidated Statement of Cash Flows for the year then ended; and
- the notes to the consolidated financial statements, which include a
summary of significant accounting policies.
*BASIS FOR OPINION*
We conducted our audit in accordance with International Standards on
Auditing ('ISAs'). Our responsibilities under those standards are further
described in the Auditor's responsibilities for the audit of the
consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
*INDEPENCE*
We are independent of the Group in accordance with the International Ethics
Standards Board for Accountants' Code of Ethics for Professional Accountants
('IESBA Code') and SEC Independence Rules that are relevant to our audit of
the consolidated financial statements. We have fulfilled our other ethical
responsibilities in accordance with the IESBA Code and SEC Independence
Rules.
*MATERIALITY*
*- *Overall materiality was GBP7.6 million, which represents 2.0% of
consolidated net assets.
*AUDIT SCOPE*
*- *The Company is based in Guernsey with underlying subsidiaries located in
Guernsey and Luxembourg and engages Starwood European Finance Partners
Limited (the 'Investment Manager') to manage its assets. The consolidated
financial statements are a consolidation of the Company and all of the
underlying subsidiaries.
- We conducted our audit of the consolidated financial statements from
information provided by Ipes (Guernsey) Limited (the 'Administrator') to
whom the board of directors has delegated the provision of certain
functions. We also had significant interaction with Starwood Capital Europe
Advisers LLP (the 'Investment Adviser') in completing aspects of our overall
audit work.
- We conducted our audit work in Guernsey and we tailored the scope of our
audit taking into account the types of investments within the Group, the
involvement of the third parties referred to above, the accounting processes
and controls, and the industry in which the Group operates.
- We performed an audit of the complete financial information of the
Guernsey and Luxembourg components of the Group.
- The components where we performed full scope audit procedures accounted
for 100% of total net assets and total operating profit.
*KEY AUDIT MATTERS*
*- *Valuation of loans advanced
- Risk of fraud in income from loans advanced
*AUDIT SCOPE*
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the consolidated financial statements. In
particular, we considered where the directors made subjective judgements;
for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently
uncertain. As in all of our audits, we also addressed the risk of management
override of internal controls, including among other matters, consideration
of whether there was evidence of bias that represented a risk of material
misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to
enable us to provide an opinion on the consolidated financial statements as
a whole, taking into account the structure of the Group, the accounting
processes and controls, and the industry in which the Group operates.
The Company is based in Guernsey with three underlying subsidiaries located
in Guernsey and Luxembourg. The consolidated financial statements are a
consolidation of the Company and all of the underlying subsidiaries.
Scoping was performed at the Group level, irrespective of whether the
underlying transactions took place within the Company or within the
subsidiaries. The Group audit was led, directed and controlled by
PricewaterhouseCoopers CI LLP and all audit work for material items within
the consolidated financial statements was performed in Guernsey by
PricewaterhouseCoopers CI LLP.
The transactions relating to the Company and the subsidiaries are maintained
by the Administrator and therefore we were not required to engage with
component auditors from another PwC global network firm operating under our
instructions. Our testing was therefore performed on a consolidated basis
using thresholds which are determined with reference to the overall Group
materiality and the risks of material misstatement identified.
As noted in the overview, the components of the Group where we performed
full scope audit procedures accounted for 100% of total net assets and total
operating profit.
*MATERIALITY*
The scope of our audit was influenced by our application of materiality. An
audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement. Misstatements may arise due
to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the consolidated financial
statements.
Based on our professional judgement, we determined certain quantitative
thresholds for materiality, including the overall Group materiality for the
consolidated financial statements as a whole as set out in the table below.
These, together with qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent of our audit procedures
and to evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
+---------------------------------+----------------------------+
|*Overall materiality* |GBP7.6 million |
+---------------------------------+----------------------------+
|*How we determined it* |2.0% of overall consolidated|
| |net assets |
+---------------------------------+----------------------------+
|*Rationale for the materiality |We believe consolidated net |
|benchmark* |assets to be the appropriate|
| |basis for determining |
| |materiality since this is a |
| |key consideration for |
| |investors when assessing |
| |financial performance. It is|
| |also a generally accepted |
| |measure used for companies |
| |in this industry. |
+---------------------------------+----------------------------+
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP0.4 million, as well as
misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
*KEY AUDIT MATTERS*
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the consolidated financial statements
of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these
matters.
+------------------------------+-------------------------------+
|*Key audit matter* |*How our audit addressed the |
| |key audit matter* |
+------------------------------+-------------------------------+
|*Valuation of loans advanced* |We evaluated management's |
|Loans advanced at the year-end|processes and assumptions used |
|of GBP359.9 million (2015: |to measure the loans at |
|GBP307.7 million) are measured |amortised cost and to assess |
|at amortised cost and comprise|whether the loans advanced |
|of both fixed and floating |showed any indicators for |
|rate loans. |impairment and the impact of |
| |any such indicators. Our |
|Loans advanced make up a |procedures included: |
|significant part of the | |
|consolidated statement of |Detailed testing over the |
|financial position and due to |effective interest models used |
|the nature of these |by management to value the |
|transactions their ongoing |loans at amortised cost using |
|recoverability and impairment |the effective interest rate |
|is subject to judgement and |method; |
|estimation. |Validating the assumptions and |
| |inputs into the amortised cost |
|The judgements exercised in |models and reading the |
|determining the potential for |associated agreements and other|
|impairment provisions could |legal documentation; |
|significantly impact the net |Obtaining management's |
|asset value of the Group and |impairment reviews for each |
|this is considered to be a key|loan and assessing whether any |
|source of estimation |indicators of impairment |
|uncertainty as described in |existed at the year-end; |
|note 2c of the consolidated |Obtaining evidence to support |
|financial statements. The |significant assumptions |
|specific areas of judgement |presented in the impairment |
|include: |reviews, including |
| |consideration of the financial |
|How management determine the |information on the borrower to |
|underlying assumptions when |assess their ability to meet |
|preparing impairment review |future payment commitments; and|
|analysis such as changes in |Inspecting compliance |
|valuation of underlying |certificates signed by each |
|collateral, the ability of the|underlying borrower which |
|borrowers to deliver on their |confirmed compliance with any |
|business plans and projected |covenants as at the year-end. |
|financial performance figures;| |
|and |We did not identify any |
|The impact of changes in the |material issues from our |
|expected cash flows for each |procedures. |
|loan on the carrying values. | |
+------------------------------+-------------------------------+
+------------------------------+-------------------------------+
|*Key audit matter* |*How our audit addressed the |
| |key audit matter* |
+------------------------------+-------------------------------+
|*Risk of fraud in income from |Our procedures included: |
|loans advanced* | |
|Income from loans advanced for|Assessing the judgements made |
|the year was GBP27.8 million |in respect of the estimated |
|(2015: GBP22.7 million) and was |cash flows including |
|measured in accordance with |arrangement, origination and |
|the effective interest rate |commitment fees, through |
|requirements set out in IAS |testing of the amortised cost |
|39. The Group has a key |models for each loan to assess |
|investment objective to |compliance with the |
|provide shareholders with |requirements of IAS 39; |
|regular dividends through |Recalculating interest income |
|investment in debt instruments|using the original effective |
|and therefore we focussed on |interest rate paying due |
|this risk. |consideration to any early |
| |partial or full prepayments; |
|The requirement to estimate |Inspecting supporting |
|the expected cash flows when |documents, such as |
|forming an effective interest |correspondence with the |
|rate model is subject to |underlying borrower and timing |
|significant management |of cash receipts, as part of |
|judgements and estimates, and |our assessment of management's |
|as such could be open to |estimates and assumptions; and |
|manipulation by management of |For those debt investments also|
|factors including: |held at 31 December 2015, |
| |comparing the estimated cash |
|Timing of repayments; |flows in the amortised cost |
|Expectations of partial or |models as at 31 December 2016 |
|full prepayments; and |and evaluating the rationale |
|Associated exit fees and |behind any significant changes |
|make-whole payments. |to those cash flows from the 31|
| |December 2015 models. This |
|Changes to the estimated |included, but was not limited |
|timings of cash flows can have|to, the acceleration in the |
|a significant impact on the |expected prepayment date of the|
|recognition of income from |Denmark Industrial Portfolio |
|loans advanced and is |which had increased the |
|considered to be a key source |recognition of income from |
|of estimation uncertainty as |loans advanced during the year.|
|described in note 2c of the |This estimate was supported by |
|consolidated financial |the full prepayment of the loan|
|statements. |post year end as disclosed in |
| |note 24 of the consolidated |
| |financial statements. |
| | |
| |We did not identify any |
| |material issues from our |
| |procedures. |
+------------------------------+-------------------------------+
*OTHER INFORMATION*
The directors are responsible for the other information. The other
information comprises the Objective and Investment Policy, the Financial
Highlights, the Chairman's Statement, the Strategic Report, the Investment
Manager's Report, the Board of Directors, the Report of the Directors, the
Directors' Remuneration Report, the Corporate Governance Statement, the
Report of the Audit Committee, the Statement of Directors' Responsibilities
and the Corporate Information (but does not include the consolidated
financial statements and our auditor's report thereon).
Other than as specified in our report, our opinion on the consolidated
financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information identified above and, in
doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing
to report in this regard.
*RESPONSIBILITIES OF DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS*
The directors are responsible for the preparation of the consolidated
financial statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by the European
Union, the requirements of Guernsey law and for such internal control as the
directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, the directors are
responsible for assessing the Group's ability to continue as a going
concern, disclosing, as applicable, matters relating to going concern and
using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
*AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL
STATEMENTS*
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's
report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with ISAs, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
- Obtain an understanding of internal control relevant to the audit 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
Group's internal control.
- Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
- Conclude on the appropriateness of the directors' use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the Group's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor's report
unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of
such communication.
*REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS*
Under The Companies (Guernsey) Law, 2008 we are required to report to you
if, in our opinion:
- we have not received all the information and explanations we require for
our audit;
- proper accounting records have not been kept; or
- the consolidated financial statements are not in agreement with the
accounting records.
We have no exceptions to report arising from this responsibility.
We have nothing to report in respect of the following matters which we are
required to review under the Listing Rules:
- the directors' statement in relation to going concern. As noted in the
directors' statement, the directors have concluded that it is appropriate to
adopt the going concern basis in preparing the financial statements. The
going concern basis presumes that the Group has adequate resources to remain
in operation, and that the directors intend it to do so, for at least one
year from the date the financial statements were signed. As part of our
audit we have concluded that the directors' use of the going concern basis
is appropriate. However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the Group's ability to
continue as a going concern;
- the directors' statement that they have carried out a robust assessment of
the principal risks facing the Group and the directors' statement in
relation to the longer-term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of making
inquiries and considering the directors' process supporting their
statements; checking that the statements are in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statements are consistent with the knowledge acquired by us in the course of
performing our audit; and
- the part of the Corporate Governance Statement relating to the Group's
compliance with the ten further provisions of the UK Corporate Governance
Code specified for our review.
This report, including the opinion, has been prepared for and only for the
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 this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
We have audited the accompanying consolidated financial statements of
Starwood European Real Estate Finance Limited and its subsidiaries (the
'Group'), which comprise the Consolidated Statement of Financial Position as
of 31 December 2016, 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 the preparation 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 financial statements that
are free from material misstatement, whether due to fraud or error.
*AUDITOR'S RESPONSIBILITY*
Our responsibility is to express an opinion on the consolidated financial
statements 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 whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The
procedures selected depend on our judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, we consider
internal control relevant to the Company's preparation and fair presentation
of the consolidated 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 Company's internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of
accounting policies used 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 obtained is sufficient and appropriate to provide a basis for our
audit opinion.
*OPINION*
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Starwood
European Real Estate Finance Limited and its subsidiaries as of 31 December
2016, and the results of their operations, changes in their net assets, and
their cash fl ows for the year then ended, in accordance with International
Financial Reporting Standards as adopted by the European Union.
*OTHER MATTER*
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The other items listed
in the Contents 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 management
and was derived from and relates directly to the underlying accounting and
other records used to prepare the financial statements. The information has
been subjected to the auditing procedures applied in the audit of the
financial statements and certain additional procedures, including comparing
and reconciling such information directly to the underlying accounting and
other records used to prepare the financial statements or to the financial
statements themselves and other additional procedures, in accordance with
auditing standards generally accepted in the United States of America. In
our opinion, the information is fairly stated, in all material respects, in
relation to the consolidated financial statements taken as a whole.
*Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016*
+------------------------+-------+--------------+--------------+
| | | *1 January| *1 January|
| |*Notes*| 2016 to*| 2015 to 31|
| | | *31 December|December 2015*|
| | | 2016*| *GBP*|
| | | *GBP*| |
+------------------------+-------+--------------+--------------+
|*Income* | | | |
+------------------------+-------+--------------+--------------+
|Income from loans | 11| 27,826,368| 22,716,523|
|advanced | | | |
+------------------------+-------+--------------+--------------+
|Income from cash and | | 17,195| 34,262|
|cash equivalents | | | |
+------------------------+-------+--------------+--------------+
|Other income | | 577| 9,307|
+------------------------+-------+--------------+--------------+
|*Total income* | | *27,844,140*| *22,760,092*|
+------------------------+-------+--------------+--------------+
|*Expenses* | | | |
+------------------------+-------+--------------+--------------+
|Investment management | 23| 2,527,199| 1,976,640|
|fees | | | |
+------------------------+-------+--------------+--------------+
|Directors' fees and | 4,23| 124,807| 138,841|
|travel expenses | | | |
+------------------------+-------+--------------+--------------+
|Administration fees | 3(c)| 271,587| 249,599|
+------------------------+-------+--------------+--------------+
|Auditors' fees | 5| 130,970| 135,882|
+------------------------+-------+--------------+--------------+
|Broker's fees and | 3(e)| 950| 47,802|
|expenses | | | |
+------------------------+-------+--------------+--------------+
|Legal and professional | | 239,158| 151,158|
|fees | | | |
+------------------------+-------+--------------+--------------+
|Net foreign exchange | 6| (1,679,501)| 443,435|
|(gains) / losses | | | |
+------------------------+-------+--------------+--------------+
|Revolving credit | | 324,040| 275,741|
|facility commitment fees| | | |
+------------------------+-------+--------------+--------------+
|Revolving credit | | 221,002| 230,662|
|facility amortisation of| | | |
|fees | | | |
+------------------------+-------+--------------+--------------+
|Revolving credit | | 308,523| 226,964|
|facility interest | | | |
+------------------------+-------+--------------+--------------+
|Other expenses | | 124,113| 125,844|
+------------------------+-------+--------------+--------------+
|*Total operating | | *2,592,848*| *4,002,568*|
|expenses* | | | |
+------------------------+-------+--------------+--------------+
|*Operating profit for | | *25,251,292*| *18,757,524*|
|the year before tax* | | | |
+------------------------+-------+--------------+--------------+
|Taxation | 21| 3,022| 2,439|
+------------------------+-------+--------------+--------------+
|*Operating profit for | | *25,248,270*| *18,755,085*|
|the year and total | | | |
|comprehensive income* | | | |
+------------------------+-------+--------------+--------------+
|Weighted average number | 7| 332,051,239| 259,548,110|
|of shares in issue | | | |
+------------------------+-------+--------------+--------------+
|Basic and diluted | 7| 7.60| 7.23|
|earnings per Ordinary | | | |
|Share (pence) | | | |
+------------------------+-------+--------------+--------------+
*Consolidated Statement of Financial Position
as at 31 December 2016*
+----------------------+-------+---------------+---------------+
| |*Notes*| *31 December| *31 December|
| | | 2016*| 2015*|
| | | *GBP*| *GBP*|
+----------------------+-------+---------------+---------------+
|*Assets* | | | |
+----------------------+-------+---------------+---------------+
|Cash and cash | 8| 31,018,181| 520,558|
|equivalents | | | |
+----------------------+-------+---------------+---------------+
|Other receivables and | 9| 53,381| 95,684|
|prepayments | | | |
+----------------------+-------+---------------+---------------+
|Revolving credit | 10| 28,846| 212,348|
|facility capitalised | | | |
|costs | | | |
+----------------------+-------+---------------+---------------+
|Loans advanced | 11| 359,876,862| 307,694,827|
+----------------------+-------+---------------+---------------+
|Financial assets at | 12| -| 5,918,115|
|fair value through | | | |
|profit or loss | | | |
+----------------------+-------+---------------+---------------+
|*Total assets* | | *390,977,270*| *314,441,532*|
+----------------------+-------+---------------+---------------+
|*Liabilities* | | | |
+----------------------+-------+---------------+---------------+
|Financial liabilities | 12| 9,156,088| -|
|at fair value through | | | |
|profit or loss | | | |
+----------------------+-------+---------------+---------------+
|Revolving credit | 13| -| 8,162,405|
|facility | | | |
+----------------------+-------+---------------+---------------+
|Trade and other | 14| 870,156| 806,083|
|payables | | | |
+----------------------+-------+---------------+---------------+
|*Total liabilities* | | *10,026,244*| *8,968,488*|
+----------------------+-------+---------------+---------------+
|*Net assets* | | *380,951,026*| *305,473,044*|
+----------------------+-------+---------------+---------------+
|*Capital and reserves*| | | |
+----------------------+-------+---------------+---------------+
|Share capital | | 371,929,982| 300,397,205|
+----------------------+-------+---------------+---------------+
|Retained earnings | | 9,021,044| 5,075,839|
+----------------------+-------+---------------+---------------+
|*Total equity* | | *380,951,026*| *305,473,044*|
+----------------------+-------+---------------+---------------+
|Number of Ordinary | 16| 375,019,398| 304,180,000|
|Shares in issue | | | |
+----------------------+-------+---------------+---------------+
|Net asset value per | | 101.58| 100.43|
|Ordinary Share (pence)| | | |
+----------------------+-------+---------------+---------------+
These consolidated financial statements were approved and authorised for
issue by the Board of Directors on 28 March 2017.
*Consolidated Statement of Changes in Equity
for the year ended 31 December 2016*
*Year ended 31 December 2016*
+----------------+-------------+----------------+--------------+
| | *Share| *Retained|*Total Equity*|
| | capital| earnings*| *GBP*|
| | GBP*| *GBP*| |
+----------------+-------------+----------------+--------------+
|*Balance at 1 |*300,397,205*| *5,075,839*| *305,473,044*|
|January 2016* | | | |
+----------------+-------------+----------------+--------------+
|Issue of share | 73,000,000| -| 73,000,000|
|capital | | | |
+----------------+-------------+----------------+--------------+
|Cost of issues | (1,467,223)| -| (1,467,223)|
+----------------+-------------+----------------+--------------+
|Dividends paid | -| (21,303,065)| (21,303,065)|
+----------------+-------------+----------------+--------------+
|Operating profit| -| 25,248,270| 25,248,270|
|and total | | | |
|comprehensive | | | |
|income | | | |
+----------------+-------------+----------------+--------------+
|*Balance at 31 |*371,929,982*| *9,021,044*| *380,951,026*|
|December 2016* | | | |
+----------------+-------------+----------------+--------------+
*Year ended 31 December 2015*
+----------------+-------------+----------------+--------------+
| | *Share| *Retained|*Total Equity*|
| | capital| earnings*| *GBP*|
| | GBP*| *GBP*| |
+----------------+-------------+----------------+--------------+
|*Balance at 1 |*233,843,162*| *4,441,254*| *238,284,416*|
|January 2015* | | | |
+----------------+-------------+----------------+--------------+
|Issue of share | 67,971,650| -| 67,971,650|
|capital | | | |
+----------------+-------------+----------------+--------------+
|Cost of issues | (1,417,607)| -| (1,417,607)|
+----------------+-------------+----------------+--------------+
|Dividends paid | -| (18,120,500)| (18,120,500)|
+----------------+-------------+----------------+--------------+
|Operating profit| -| 18,755,085| 18,755,085|
|and total | | | |
|comprehensive | | | |
|income | | | |
+----------------+-------------+----------------+--------------+
|*Balance at 31 |*300,397,205*| *5,075,839*| *305,473,044*|
|December 2015* | | | |
+----------------+-------------+----------------+--------------+
*Consolidated Statement of Cash Flows
for the year ended 31 December 2016*
+--------------------------+----------------+------------------+
| | *31 December|*31 December 2015*|
| | 2016*| *GBP*|
| | *GBP*| |
+--------------------------+----------------+------------------+
|*Operating activities:* | | |
+--------------------------+----------------+------------------+
|Operating profit for the | 25,248,270| 18,755,085|
|year and total | | |
|comprehensive income | | |
+--------------------------+----------------+------------------+
|*Adjustments:* | | |
+--------------------------+----------------+------------------+
|Net interest income | (27,826,368)| (22,716,523)|
+--------------------------+----------------+------------------+
|Interest income on cash | (17,195)| (34,262)|
|and cash equivalents | | |
+--------------------------+----------------+------------------+
|Decrease / (Increase) in | 42,303| (63,722)|
|prepayments and | | |
|receivables | | |
+--------------------------+----------------+------------------+
|Increase in trade and | 54,704| 28,869|
|other payables | | |
+--------------------------+----------------+------------------+
|Net loss / (gain) on | 15,074,203| (894,531)|
|financial instruments held| | |
|at fair value through | | |
|profit or loss | | |
+--------------------------+----------------+------------------+
|Net foreign exchange | (18,256,954)| 3,239,456|
|(gains) / losses | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | 308,523| 226,964|
|interest | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | 221,002| 230,662|
|amortisation of fees | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | 324,040| 275,741|
|commitment fees | | |
+--------------------------+----------------+------------------+
| | *(4,827,472)*| *(952,261)*|
+--------------------------+----------------+------------------+
|Loans advanced 1 | (168,567,654)| (145,454,076)|
+--------------------------+----------------+------------------+
|Loans repaid | 129,269,039| 63,499,033|
+--------------------------+----------------+------------------+
|Origination fees paid | (1,316,353)| (1,372,444)|
+--------------------------+----------------+------------------+
|Origination expenses paid | -| (97,194)|
+--------------------------+----------------+------------------+
|Interest, commitment and | 33,855,722| 16,022,619|
|exit fee income from loans| | |
|advanced | | |
+--------------------------+----------------+------------------+
|Syndication expenses paid | -| (133,200)|
+--------------------------+----------------+------------------+
|*Net cash outflow from | *(11,586,718)*| *(68,487,523)*|
|operating activities* | | |
+--------------------------+----------------+------------------+
|*Cash flows from investing| | |
|activities* | | |
+--------------------------+----------------+------------------+
|Interest income from cash | 17,195| 34,262|
|and cash equivalents | | |
+--------------------------+----------------+------------------+
|*Net cash inflow from | *17,195*| *34,262*|
|investing activities* | | |
+--------------------------+----------------+------------------+
|*Cash flows from financing| | |
|activities* | | |
+--------------------------+----------------+------------------+
|Net share issue proceeds | 71,532,777| 66,554,043|
|received2 | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | (37,500)| -|
|expenses paid | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | (8,155,816)| 8,155,816|
|(repaid) / utilised | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | (315,112)| (220,375)|
|interest paid | | |
+--------------------------+----------------+------------------+
|Revolving credit facility | (314,671)| (280,470)|
|commitment fees paid | | |
+--------------------------+----------------+------------------+
|Dividends paid | (21,303,065)| (18,120,500)|
+--------------------------+----------------+------------------+
|*Net cash inflow from | *41,406,613*| *56,088,514*|
|financing activities* | | |
+--------------------------+----------------+------------------+
|*Net increase / (decrease)| *29,837,090*| *(12,364,747)*|
|in cash and cash | | |
|equivalents* | | |
+--------------------------+----------------+------------------+
|Cash and cash equivalents | 520,558| 13,172,978|
|at the start of the year | | |
+--------------------------+----------------+------------------+
|Net foreign exchange gain | 660,533| (287,673)|
|/ (loss) on cash and cash | | |
|equivalents | | |
+--------------------------+----------------+------------------+
|*Cash and cash equivalents| *31,018,181*| *520,558*|
|at the end of the year* | | |
+--------------------------+----------------+------------------+
1 Net of arrangement fees of GBP2,212,322 (2015: GBP1,479,139) withheld. 2 Net
of share issue costs of GBP1,467,223 (2015: GBP1,057,802) withheld.
The accpmpanying notes form an integral part of these consolidated financial
statements.
*Notes to the Consolidated Financial Statements
for the year ended 31 December 2016*
*1. GENERAL INFORMATION*
Starwood European Real Estate Finance Limited ('the Company') was
incorporated with limited liability in Guernsey under the Companies
(Guernsey) Law, 2008, as amended, on 9 November 2012 with registered number
55836, and has been authorised by the GFSC as an authorised closed-ended
investment company. The registered office and principal place of business of
the Company is 1, Royal Plaza, Royal Avenue, St Peter Port, Guernsey,
Channel Islands, GY1 2HL.
On 12 December 2012, the Company announced the results of its IPO, which
raised net proceeds of GBP223.9 million. 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. A further GBP9.9 million of net
proceeds was raised via tap issues throughout the period ended 31 December
2013 and GBP66.6 million for the year ended 31 December 2015. On 10 August
2016 the Company issued a further 70,839,398 Ordinary Shares raising net
proceeds of GBP71.5 million.
The consolidated financial statements comprise the financial statements of
the Company, Starfin Public GP Limited (the 'GP'), Starfin Public LP (the
'Partnership') and Starfin Lux S.à.r.l ('Luxco') (together 'the Group') as
at 31 December 2016.
The Company's investment objective 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 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 special purpose vehicles wholly owned by
the Luxco or the Company. The Group expects all of its investments to be
debt obligations of corporate entities domiciled or with significant
operations in the United Kingdom and wider European Union's internal market.
The Company has appointed Starwood European Finance Partners Limited as the
Investment Manager ('the Investment Manager'), a company incorporated in
Guernsey and regulated by the GFSC. The Investment Manager has appointed
Starwood Capital Europe Advisers, LLP ('the Investment Adviser'), an English
limited liability partnership authorised and regulated by the Financial
Conduct Authority, to provide investment advice pursuant to an Investment
Advisory Agreement. The administration of the Company is delegated to Ipes
(Guernsey) Limited ('the Administrator').
*2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES*
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been
consistently applied to the year presented, unless otherwise stated.
*a) Going Concern*
Note 18 includes the Group's objectives, policies and processes for manging
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 and
consideration of the realisation vote in the Report of the Directors.
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 at least one year from
the date the consolidated financial statements were signed. Accordingly, the
Directors continue to adopt a going concern basis in preparing these
consolidated financial statements.
*b) Statement of compliance*
The Company has 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 standards and interpretations approved by the International
Accounting Standards Boards ('IASB') together with the interpretations of
the IFRS Interpretations Committee ('IFRIC') as approved by the
International Accounting Standards Committee ('IASC') which remain in
effect. The Directors of the Company have taken the exemption in Section 244
of The Companies (Guernsey) Law, 2008 (as amended) and have therefore
elected to only prepare consolidated financial statements for the year.
Standards, Amendments and Interpretations in issue and effective on or after
1 January 2017:
+---------------------------------------------+----------------+
|*New standards* |*Effective date*|
+---------------------------------------------+----------------+
|*IFRS 9* Financial Instruments - |1 January 2018 |
|Classifications and Measurement | |
+---------------------------------------------+----------------+
|*IFRS 15* Financial Instruments - Revenue |1 January 2018 |
|from Contracts from Customers | |
+---------------------------------------------+----------------+
| | |
+---------------------------------------------+----------------+
|*Revised and amended standards* | |
+---------------------------------------------+----------------+
|*IAS 7* Statement of Cash Flows (amendments |1 January 2017 |
|resulting from disclosure initiative) | |
+---------------------------------------------+----------------+
With the exception of IFRS 9, the Directors do not consider the changes will
have a material impact. The Directors have not undertaken an assessement yet
to consider whether IFRS 9 changes will have a material impact.
*c) Basis of preparation*
These consolidated financial statements have been prepared on 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 judgements and key sources of estimation uncertainty*
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements relate to:
- the impairment of financial assets held as loans advanced, the key area of
judgement being, as to whether there is any indication that a loan may be
impaired (see note 2(h));
- the functional currency of subsidiary undertakings of the Company, which
is considered by the Directors to be Sterling (see notes 2(e) and 2(k));
- the operating segments, of which the Directors are currently of the
opinion that the Company and its subsidiaries are engaged in a single
segment of business, which is based on the loans advanced as at the
reporting date (see note 2(f)); and
- the receipt of and estimated timing of scheduled and unscheduled
pre-payments of loans advanced and the impact on liquidity risk and the
interest income (see note 18); and
- the syndication of loans, and the assessment of how the syndicated
facility should be treated under the relevant accounting standards. The key
area of judgement being whether substantially all of the risks and rewards
of ownership have transferred to the transferee and whether the syndicated
loan is derecognised or not (see note 2(g)).
*d) Basis of consolidation*
The consolidated financial statements incorporate the financial statements
of the Company and entities controlled by the Company (its subsidiary
undertakings) made up to the Consolidated Statement of Financial Position
date. Control is achieved where the Company has the power to govern the
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 Company controls another entity. The Company also
assesses existence of 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.
+--------------+---------+----------+---------------+----------+
|*Subsidiary * |*Date of |*Ownership|*Country of * |*Principal|
|*undertakings*|* |%* |*Establishment*|place of |
| |*Control*| | |business* |
+--------------+---------+----------+---------------+----------+
|Starfin Public|20/11/12 |100 |Guernsey |Guernsey |
|GP Limited | | | | |
+--------------+---------+----------+---------------+----------+
|Starfin Public|22/11/12 |100 |Guernsey |Guernsey |
|LP | | | | |
+--------------+---------+----------+---------------+----------+
|Starfin Lux |30/11/12 |100 |Luxembourg |Luxembourg|
|S.à.r.l | | | | |
+--------------+---------+----------+---------------+----------+
Subsidiary undertakings are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated from the date
that control ceases.
The Group applies the acquisition method to account for business
combinations.
Acquisition-related costs are expensed as incurred unless 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 assets at the date of the acquisition.
Intercompany transactions, balances, income and expenses on transactions
between Group companies are eliminated on consolidation. Profits and losses
resulting from intercompany transactions that are recognised in assets are
also eliminated.
*e) Functional and presentation currency*
Items included in the financial statements of each of the Group's entities
are measured using the currency of the primary economic environment in which
the entity operates ('the functional currency'). Therefore the Directors
have considered in assessing the functional currency of each of the Group's
entities:
- the share capital of all members of the Group is denominated in Sterling;
- the dividends are paid in Sterling;
- the majority of loans advanced are denominated in Sterling; and
- Euro non-investment transactions represent only a small proportion of
transactions in the Luxembourg entity.
The functional and presentation currency of each Group entity is Sterling.
The Directors have also adopted Sterling as the Group's presentation
currency and therefore the consolidated financial statements for the Company
are presented in Sterling.
*f) Segment reporting*
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the
Board, as the Board makes strategic decisions. The Directors, after having
considered the way in which internal reporting is 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.
*g) Financial assets and liabilities*
_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 through profit or loss_
Financial assets at fair value through profit or loss comprise derivatives
not designated as hedges.
_Loans and receivables_
Loans and receivables are non-derivative financial assets 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 financial assets are non-derivatives that are either
designated in this category or not classified in any of the other
categories. They are included in non-current assets unless the investment
matures or management intends to dispose of it within 12 months of the end
of the reporting period.
_Recognition and measurement_
Regular purchases and sales of financial assets are recognised on the trade
date, the date on which the Group commits to purchase or sell the asset.
Investments are initially recognised at fair value plus transaction costs
for all financial assets not carried at 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 Statement of Comprehensive Income. Financial assets 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
financial assets at fair value through profit or loss are subsequently
carried at fair value. Loans and receivables are subsequently carried at
amortised cost using the effective interest method less provisions for any
impairments.
_Loan syndication_
Loans and receivables measured at amortised cost are derecognised following
syndication if the risks 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.
*h) Impairment of financial assets*
Impairments for specific bad and doubtful debts are made against loans and
receivables, by an evaluation of the exposure on a case-by-case basis. An
assessment is 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 impairment loss is calculated as the difference between
the present value of future cash flows, discounted at the loan's original
effective interest rate, and the loan's current carrying value. The amount
of any impairment loss, if any, would be recorded in the Consolidated
Statement of Comprehensive Income. No impairment has been recognised to
date.
*i) Cash and cash equivalents*
In the Consolidated Statement of Cash Flows, cash and cash equivalents
includes cash in hand, deposits held at call with banks and other short-term
highly liquid investments with original maturities of three months or less.
*j) Share capital*
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of new Ordinary Shares are shown in equity as a
deduction, net of tax, from the proceeds.
*k) Foreign currency translation*
_Transactions and balances_
Foreign currency transactions are translated into the functional currency
using the exchange rates 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 monetary assets and liabilities denominated in
foreign currencies are recognised in the Consolidated Statement of
Comprehensive Income. Foreign exchange gains and losses that relate to
borrowings and cash and cash equivalents and all other foreign exchange
gains and losses are presented in the Consolidated Statement of
Comprehensive Income within'net foreign exchange (gains)/losses'.
_Group companies_
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency of the Group
are translated into the presentation currency of the Group as follows:
i. assets and liabilities for each Statement of Financial Position presented
are translated at the closing rate at the date of that Statement of
Financial Position; and
ii. income and expenses for each Statement of Comprehensive Income are
translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are translated at
the rate on the dates of the transactions).
None of the Group entities have a functional currency different to their
presentation currency.
*l) Interest income*
Interest income on loans advanced is recognised using the effective interest
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 original effective interest rate of the instrument,
and continues unwinding the discount as interest income. Interest income on
impaired loans 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 accruals basis.
*m) Origination, exit and loan arrangement fees*
Origination fees paid to the Investment Manager and exit and direct loan
arrangement fees received will be recognised using the effective interest
rate method under loans advanced and amortised over the lifetime of the
related financial asset through income from loans advanced in the
Consolidated Statement of Comprehensive Income. Syndication costs are
recognised in the Consolidated Statement of Comprehensive Income when
incurred.
*n) Expenses*
All other expenses are included in the Consolidated Statement of
Comprehensive Income on an accruals basis.
*o) Taxation*
The Company is a tax-exempt Guernsey limited liability company as it is
domiciled and registered for taxation purposes in Guernsey where it pays an
annual exempt status fee under The Income Tax (Exempt Bodies) (Guernsey)
Ordinances 1989 (as amended). Accordingly, no provision for Guernsey tax is
made.
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 Luxembourg
and taxation is provided based on the results for the year (see note 21).
*p) 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 initially at fair value and subsequently measured at amortised
cost using the effective interest method, less provision for impairment.
*q) Other payables*
Trade and other payables are 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 initially at fair value
and subsequently measured at amortised cost using the effective interest
rate method.
*r) Dividend distributions*
Dividend distributions to the Company's shareholders are recognised as a
liability in the Company's financial statements in the period in which the
dividends are declared by the Board of Directors.
*s) Offsetting financial assets and liabilities*
Financial assets and liabilities are offset and the net amount reported on
the Consolidated Statement of Financial Position when there is a legally
enforceable right to offset the recognised amounts and there is an intention
to settle on a net basis or realise the asset and settle the liability
simultaneously.
*t) Financial liabilities*
Financial liabilities, including bank loans are initially recognised at fair
value and subsequently accounted for with interest on an accruals basis.
Financial liabilities are derecognised when the contractual obligation is
discharged, cancelled or expires.
*3. MATERIAL AGREEMENTS
a) Investment management agreement*
The Company and the Investment Manager have entered into an investment
management agreement, dated 28 November 2012 (the 'Investment Management
Agreement'), pursuant to which the Investment Manager has been given overall
responsibility for the discretionary management of the Company's assets
(including uninvested cash) in accordance with the Company's investment
objectives and policy.
The Investment Manager is entitled to 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 balances until such time as 75 per cent of the Net Issue
Proceeds are invested. The Company and Investment Manager agreed to increase
the 75 per cent threshold to 90 per cent during 2014. The 90 per cent
threshold was reached in May 2014). The management fee is payable quarterly
in arrears.
In addition, the Investment Manager is entitled to an asset origination fee
of 0.75 per cent of the value of all new loan investments made or acquired
by the Group (see note 23). The asset origination fee to be paid by the
Group is expected to be paid upon receipt by the Group of loan arrangement
fees received on the deployment of the Group's funds.
The Investment Management Agreement is terminable by either the Investment
Manager or 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 limited liability partnership
authorised and regulated by the Financial Conduct Authority, to provide
investment advice pursuant to an Investment Advisory Agreement.
*b) Partnership agreement*
As per the Amended and Restated Limited Partnership Agreement relating to
Starfin Public LP, dated 28 November 2012, the Company commits substantially
all of the net issue proceeds plus proceeds from subsequent tap issues to
the Partnership. That commitment is drawn down as required by 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 balance of 99.99 per cent, is committed
and is paid over when requested by the GP.
Each amount of income and capital proceeds 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 allocated to the
GP in each accounting period a sum of GBP1,000;
- Second, to the extent of any excess, to the Company until the Company has
achieved the hurdle total return; and
- Third, 20 per cent of the excess to Starfin Carry LP ('the Special Limited
Partner') and 80 per cent of the excess to the Company.
The hurdle total return will be achieved when the NAV of the Company, plus
the total of all dividends declared and paid to ordinary shareholders, is
equal to the NAV of the Company as at Admission as increased by 8 per cent
per annum, on a simple interest basis (but excluding actual carried interest
accrued and deemed as a creditor on the Statement of Financial Position). To
the extent that the Company makes further issues of Ordinary Shares, the
hurdle total return will be adjusted accordingly, by reference to the issue
prices of such further issues and dividends declared subsequent to such
issues.
*c) Administration agreement*
The Company has 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 amount chargeable of 0.035 per cent per annum on the amount by
which the Company's NAV exceeds GBP140 million 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 appointed the Registrar to act as Registrar of
the Company for a minimum annual fee payable by the Company of GBP7,500 in
respect of basic registration.
*e) IPO Sponsor's and placing agreement*
On 7 September 2015, the Company entered into a Placing Programme Agreement
with Fidante Partners Europe Limited ('Fidante Capital') and is subject to a
maximum aggregate commission payable to Fidante Capital of 2 per cent of
gross proceeds raised. As part of this agreement the GBP50,000 annual fee is
offset against any commission earned.
The Placing Programme Agreement terminated on 6 September 2016 was governed
by the laws of England and Wales.
*f) Licence agreement*
The Company and Starwood Capital Group Management, LLC ('the Licensor') have
entered into a trade mark licence agreement dated 28 November 2012 ('the
Licence Agreement'), 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 Licence Agreement, it may be terminated by the
Licensor; (i) if the Investment Management Agreement or any other similar
agreement between the Company and the Investment Manager (or either of their
respective affiliates) is terminated for any reason whatsoever or expires:
(ii) if the Company suffers an insolvency event or breaches any court order
relating to the Licence Agreement; or (iii) upon two months' written notice
without cause.
*g) Hedging agreements*
The Company and Lloyds Bank plc entered into an international forward
exchange master agreement dated 5 April 2013 and on 7 February 2014 the
Company entered into a Professional Client Agreement with Goldman Sachs,
pursuant to which the parties can enter into foreign exchange transactions
with the intention of hedging against fluctuations in the exchange rate
between Sterling and other currencies. Both agreements are governed by the
laws of England and Wales.
*h) Revolving credit 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 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 the 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. The facility is secured by a pledge over the bank accounts of the
Company, its interests in Starfin Public LP and the intercompany funding
provided by the Company to Starfin Public LP. Starfin Public LP also acts as
guarantor of the facility and has pledged its bank accounts as collateral.
The undertakings and events of default are customary for a transaction of
this nature. On 22 December 2015, the revolving credit facility was
increased to GBP60 million. On 28 October 2016, the Company extended the
maturity date of the facility to 31 March 2017.
*4. DIRECTORS' FEES*
+---------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+---------------------+------------------+------------------+
|Directors' emoluments| 122,500| 132,500|
+---------------------+------------------+------------------+
|Other expenses | 2,307| 6,341|
+---------------------+------------------+------------------+
| | *124,807*| *138,841*|
+---------------------+------------------+------------------+
*5. AUDITORS' REMUNERATION*
+--------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+--------------+------------------+------------------+
|Audit fees | 110,970| 118,382|
+--------------+------------------+------------------+
|Non-audit fees| 20,000| 17,500|
+--------------+------------------+------------------+
| | *130,970*| *135,882*|
+--------------+------------------+------------------+
In addition, the Auditors also received GBP5,000 (2015: GBP40,000) for
professional services in relation to the Placing Programme. As these fees
were directly related to the Placing Pragamme, it was recognised in the
Consolidated Statement of Changes in Equity as Cost of Issues. Non-audit
fees of GBP20,000 (2015: GBP17,500) relate to the Group's interim review of its
condensed consolidated financial statements.
*6. NET FOREIGN EXCHANGE LOSSES / (GAINS)*
+------------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------------------+------------------+------------------+
|Loans advanced gains | 3,289,183| 14,671|
|(realised) | | |
+------------------------+------------------+------------------+
|Loans advanced losses | (2,309,471)| (3,748,927)|
|(realised) | | |
+------------------------+------------------+------------------+
|Forward contracts gains | 1,201,629| 1,879,460|
|(realised) | | |
+------------------------+------------------+------------------+
|Forward contracts losses| (1,942,172)| (2,287)|
|(realised) | | |
+------------------------+------------------+------------------+
|Other gains (realised) | 800,094| 3,162|
+------------------------+------------------+------------------+
|Other losses (realised) | (901,618)| (266,248)|
+------------------------+------------------+------------------+
|Loans advanced gains | 16,616,059| 2,469,553|
|(unrealised) | | |
+------------------------+------------------+------------------+
|Loans advanced losses | -| (1,687,350)|
|(unrealised) | | |
+------------------------+------------------+------------------+
|Forward contracts gains | 359,219| 3,525,752|
|(unrealised) | | |
+------------------------+------------------+------------------+
|Forward contracts losses| (15,433,422)| (2,631,221)|
|(unrealised) | | |
+------------------------+------------------+------------------+
| | *1,679,501*| *(443,435)*|
+------------------------+------------------+------------------+
*7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE*
The calculation of basic earnings per Ordinary Share is based on the
operating profit of GBP25,248,270 (2015: GBP18,755,085) and on the weighted
average number of Ordinary Shares in issue during the year of 332,051,239
(2015: 259,548,110) Ordinary Shares.
The calculation of NAV per Ordinary Share is based on a NAV of GBP380,951,026
(2015: GBP305,473,044) and the actual number of Ordinary Shares in issue at 31
December 2016 of 375,019,398 (2015: 304,180,000).
*8. CASH AND CASH EQUIVALENTS*
Cash and cash equivalents comprise the following:
+------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------+------------------+------------------+
|Cash at bank| 31,018,181| 520,558|
+------------+------------------+------------------+
| | *31,018,181*| *520,558*|
+------------+------------------+------------------+
Cash and cash equivalents comprises cash held by the Group and short term
deposits held with various banking institutions with original maturities of
three months or less. The carrying amount of these assets approximates their
fair value. For further information and the associated risks refer to note
18.
*9. OTHER RECEIVABLES AND PREPAYMENTS*
+--------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+--------------+------------------+------------------+
|Prepayments | 38,131| 95,684|
+--------------+------------------+------------------+
|Sundry debtors| 15,250| -|
+--------------+------------------+------------------+
| | *53,381*| *95,684*|
+--------------+------------------+------------------+
*10. REVOLVING CREDIT FACILITY CAPITALISED COSTS*
The revolving credit facility capitalised costs are directly attributable
costs incurred in relation to the establishment of the revolving credit loan
facility.
*11. LOANS ADVANCED*
The Group's accounting policy on the measurement of financial assets is
discussed in note 2(g).
+--------------------------+-----------------+-----------------+
| | *31 December| *31 December|
| | 2016*| 2015*|
| | *GBP*| *GBP*|
+--------------------------+-----------------+-----------------+
|*UK* | | |
+--------------------------+-----------------+-----------------+
|Lifecare Residences, | -| 14,027,005|
|London | | |
+--------------------------+-----------------+-----------------+
|Salesforce Tower, London | -| 11,859,123|
+--------------------------+-----------------+-----------------+
|Centre Point, London | 45,599,157| 45,498,669|
+--------------------------+-----------------+-----------------+
|Aldgate Tower, London | -| 42,577,547|
+--------------------------+-----------------+-----------------+
|5 Star Hotel, London | 12,962,754| 13,142,848|
+--------------------------+-----------------+-----------------+
|Center Parcs Bonds, UK | 9,796,319| 9,868,456|
+--------------------------+-----------------+-----------------+
|Industrial Portfolio, UK | 32,177,066| 32,357,364|
+--------------------------+-----------------+-----------------+
|Hospitals, UK | 25,354,320| 25,502,202|
+--------------------------+-----------------+-----------------+
|Hotel, Channel Islands | 27,096,842| -|
+--------------------------+-----------------+-----------------+
|Varde Partners mixed | 25,037,555| -|
|portfolio, UK | | |
+--------------------------+-----------------+-----------------+
|Mixed use development, | 8,063,336| -|
|South East UK | | |
+--------------------------+-----------------+-----------------+
|Regional Budget Hotel | 74,998,597| -|
|Portfolio, UK | | |
+--------------------------+-----------------+-----------------+
|*Netherlands* | | |
+--------------------------+-----------------+-----------------+
|Office | 12,058,598| 10,362,243|
+--------------------------+-----------------+-----------------+
|Industrial Portfolio | 22,624,425| 20,515,407|
+--------------------------+-----------------+-----------------+
|W Hotel | -| 15,865,865|
+--------------------------+-----------------+-----------------+
|*Finland* | | |
+--------------------------+-----------------+-----------------+
|Retail Portfolio | -| 24,548,879|
+--------------------------+-----------------+-----------------+
|*Denmark* | | |
+--------------------------+-----------------+-----------------+
|Industrial Portfolio | 35,692,414| 32,404,690|
+--------------------------+-----------------+-----------------+
|*Ireland* | | |
+--------------------------+-----------------+-----------------+
|Retail and Residential | 3,687,359| 4,584,580|
|Portfolio | | |
+--------------------------+-----------------+-----------------+
|Residential Portfolio, | 5,263,215| 4,579,949|
|Cork | | |
+--------------------------+-----------------+-----------------+
|Residential Portfolio, | 6,750,309| -|
|Dublin | | |
+--------------------------+-----------------+-----------------+
|Logistics, Dublin | 12,714,596| -|
+--------------------------+-----------------+-----------------+
| | *359,876,862*| *307,694,827*|
+--------------------------+-----------------+-----------------+
No element of loans advanced are past due or impaired. For further
information and the associated risks see the Investment Manager's Report.
The table below reconciles the movement of the carrying value of loans
advanced in the year:
+------------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------------------+------------------+------------------+
|Loans advanced at the | 307,694,827| 220,954,400|
|start of the year | | |
+------------------------+------------------+------------------+
|Loans advanced | 170,779,976| 146,933,215|
+------------------------+------------------+------------------+
|Loans repaid | (129,269,039)| (63,499,033)|
+------------------------+------------------+------------------+
|Arrangement fees earned | (2,212,322)| (1,479,139)|
+------------------------+------------------+------------------+
|Commitment fees earned | (112,404)| (72,657)|
+------------------------+------------------+------------------+
|Accrued interest | (474,589)| 474,589|
|(received) / purchased | | |
|on loan acquisition | | |
+------------------------+------------------+------------------+
|Exit fees earned | (2,624,796)| (227,417)|
+------------------------+------------------+------------------+
|Origination fees paid | 1,316,353| 946,069|
+------------------------+------------------+------------------+
|Origination expenses | -| 97,194|
|paid | | |
+------------------------+------------------+------------------+
|Effective interest | 27,826,368| 22,716,523|
|income earned | | |
+------------------------+------------------+------------------+
|Interest payments | (30,643,933)| (16,197,134)|
|received / accrued | | |
+------------------------+------------------+------------------+
|Foreign exchange gains /| 17,596,421| (2,951,783)|
|(losses) | | |
+------------------------+------------------+------------------+
|*Loans advanced at the | *359,876,862*| *307,694,827*|
|end of the year* | | |
+------------------------+------------------+------------------+
|*Loans advanced at fair | *382,064,552*| *320,752,322*|
|value * | | |
+------------------------+------------------+------------------+
For further information on the fair value of loans advanced, refer to note
19.
*12. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS*
Financial assets at fair value through profit or loss comprise currency
forward contracts which represent contractual obligations to purchase
domestic currency and sell foreign currency on a future date at a specified
price. The underlying instruments become favourable (assets) or unfavourable
(liabilities) as a result of fluctuations of foreign exchange rates relative
to their terms. The aggregate contractual or notional amount of derivative
financial instruments, the extent to which instruments are favourable or
unfavourable, and thus the aggregate fair values of derivative financial
assets and liabilities, can fluctuate significantly from time to time. The
fair value of derivative instruments held are set outbelow:
+-------+-----+---------+-------+-------------+-------+-------++
| |*Notional| *Fair values* |*Total*| ||
| |contract*| | *GBP*| ||
| | *amount1| | | ||
| | GBP*| | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*31 December | |*Assets|*Liabilities*| | ||
|2016* | | GBP*| *GBP*| | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Goldman Sachs:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign |16,225,47| -| (721,672)| (721,672)||
|exchange | 8| | | ||
|derivatives | | | | ||
|Currency | | | | ||
|forwards | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total* |*16,225,4| *-*| *(721,672)*| *(721,672)*||
| | 78*| | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Lloyds Bank plc:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign |89,622,75| 99,549| (8,533,965)| (8,434,416)||
|exchange | 5| | | ||
|derivatives | | | | ||
|Currency | | | | ||
|forwards | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total* |*89,622,7|*99,549|*(8,533,965)*| *(8,434,416)*||
| | 55*| *| | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign |105,848,2| 99,549| (9,255,637)| (9,156,088)||
|exchange | 33| | | ||
|derivatives | | | | ||
|Currency | | | | ||
|forwards | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total* |*105,848,|*99,549|*(9,255,637)*| *(9,156,088)*||
| | 233*| *| | ||
+-------+-----+---------+-------+-------------+-------+-------++
| | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
| | *Notional| *Fair values* |*Total*||
| | contract*| | *GBP*||
| | *amount1| | ||
| | GBP*| | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*31 | | *Assets| *Liabilities*| | ||
|Decembe| | GBP*| *GBP*| | ||
|r 2015*| | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Goldman Sachs:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign| 22,551,503|2,072,4| (87,249)|1,985,1||
|exchang| | 14| | 65||
|e | | | | ||
|derivat| | | | ||
|ives | | | | ||
|Currenc| | | | ||
|y | | | | ||
|forward| | | | ||
|s | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total*| *22,551,503*|*2,072,| *(87,249)*|*1,985,||
| | | 414*| | 165*||
+-------+-----+---------+-------+-------------+-------+-------++
|*Lloyds Bank plc:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign| 96,295,877|5,426,4| (1,493,485)|3,932,9||
|exchang| | 35| | 50||
|e | | | | ||
|derivat| | | | ||
|ives | | | | ||
|Currenc| | | | ||
|y | | | | ||
|forward| | | | ||
|s | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total*| *96,295,877*|*5,426,| *(1,493,485)*|*3,932,||
| | | 435*| | 950*||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total:* ||
+-------+-----+---------+-------+-------------+-------+-------++
|Foreign| 118,847,380|7,498,8| (1,580,734)|5,918,1||
|exchang| | 49| | 15||
|e | | | | ||
|derivat| | | | ||
|ives | | | | ||
|Currenc| | | | ||
|y | | | | ||
|forward| | | | ||
|s | | | | ||
+-------+-----+---------+-------+-------------+-------+-------++
|*Total*| *118,847,380*|*7,498,| *(1,580,734)*|*5,918,||
| | | 849*| | 115*||
+-------+-----+---------+-------+-------------+-------+-------++
1 Euro and Danish Krona amounts are translated at the year end exchange rate
*13. REVOLVING CREDIT FACILITY*
Under the Company's investment policy, the Company is limited to aggregate
short and long term borrowings at the time of the relevant drawdown of an
amount equivalent to a maximum of 30 per cent of NAV but longer term
borrowings will be limited to 20 per cent of NAV in any event. In
calculating the Company's borrowings for this purpose, any liabilities
incurred under the Company's foreign exchange hedging arrangements shall be
disregarded. The interest rate payable will depend on how long the 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. The facility is
secured by a pledge over the bank accounts of the Company, its interests in
Starfin Public LP and the intercompany funding provided by the Company to
Starfin Public LP. Starfin Public LP also acts as guarantor of the facility
and has pledged its bank accounts as collateral. As at 31 December 2016 an
amount of GBPnil (2015: GBP8,155,816) was drawn and interest of GBPnil (2015: GBP
6,589) was payable.
*14. TRADE AND OTHER PAYABLES*
+---------------------------+----------------+-----------------+
| | *31 December| *31 December|
| | 2016*| 2015*|
| | *GBP*| *GBP*|
+---------------------------+----------------+-----------------+
|Investment management fees | 716,308| 575,154|
|payable | | |
+---------------------------+----------------+-----------------+
|Administration fees payable| 67,329| 55,490|
+---------------------------+----------------+-----------------+
|Audit fees payable | 56,601| 42,261|
+---------------------------+----------------+-----------------+
|Other expenses payable | -| 18,466|
+---------------------------+----------------+-----------------+
|Legal and professional fees| -| 94,163|
|payable | | |
+---------------------------+----------------+-----------------+
|Revolver commitment fees | 29,918| 20,549|
|payable | | |
+---------------------------+----------------+-----------------+
| | *870,156*| *806,083*|
+---------------------------+----------------+-----------------+
*15. COMMITMENTS*
As at 31 December 2016 the Company had outstanding commitments in respect of
loans not fully drawn of GBP6,851,061 (2015: GBP7,617,154).
As at 31 December 2016 the Company has entered into forward contracts under
the Hedging Master Agreement with Lloyds Bank plc to sell EUR59,886,719
(2015: EUR82,317,292) and Kr333,042,060 (2015: Kr 365,315,294) to receive
Sterling. At the year end, these forward contracts have a fair value of
GBP8,434,416 liability (2015: GBP3,932,950 asset).
As at 31 December 2016 the Company has entered into forward contracts under
the Professional Client Agreement with Goldman Sachs to sell EUR18,932,880
(2015: EUR 30,686,492) and receive Sterling. At the year end, these forward
contracts have a fair value of GBP721,672 liability (2015: GBP1,985,165 asset).
*16. SHARE CAPITAL*
The share capital of the Company consists of an unlimited number of
redeemable Ordinary Shares of no par value which upon issue the Directors
may classify into such classes as they may determine. The Ordinary Shares
are redeemable at the discretion of the Board.
At the year end the Company had issued and fully paid up share capital as
follows:
+------------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------------------+------------------+------------------+
|Ordinary Shares of no | 375,019,398| 304,180,000|
|par value | | |
|Issued and fully paid | | |
+------------------------+------------------+------------------+
*Rights attached to shares*
The Company's share capital is denominated in Sterling. At any general
meeting of the Company each ordinary share carries one vote. The Ordinary
Shares also carry the right to receive all income of the Company
attributable to the Ordinary Shares, and to participate in any distribution
of such income made by the Company, such income shall be divided pari passu
among the holders of Ordinary Shares in proportion to the number of Ordinary
Shares held by them.
*Significant share movements*
1 January 2016 to 31 December 2016:
+--------------------------------+-------------+-------------+
|*Ordinary Shares* | *Number*| *GBP*|
+--------------------------------+-------------+-------------+
|Balance at start of the year | 304,180,000| 306,480,650|
+--------------------------------+-------------+-------------+
|Shares issued on 12 August 2016 | 70,839,398| 73,000,000|
+--------------------------------+-------------+-------------+
|*Balance at the end of the year*|*375,019,398*|*379,480,650*|
+--------------------------------+-------------+-------------+
|Issue costs to date | | (7,550,668)|
+--------------------------------+-------------+-------------+
|*Net proceeds* | |*371,929,982*|
+--------------------------------+-------------+-------------+
1 January 2015 to 31 December 2015:
+----------------------------------+-------------+-------------+
|*Ordinary Shares* | *Number*| *GBP*|
+----------------------------------+-------------+-------------+
|Balance at start of the year | 238,100,000| 238,509,000|
+----------------------------------+-------------+-------------+
|Shares issued on 3 July 2015 | 23,780,000| 24,493,400|
+----------------------------------+-------------+-------------+
|Shares issued on 24 September 2015| 42,300,000| 43,478,250|
+----------------------------------+-------------+-------------+
|*Balance at the end of the year* |*304,180,000*|*306,480,650*|
+----------------------------------+-------------+-------------+
|Issue costs to date | | (6,083,445)|
+----------------------------------+-------------+-------------+
|*Net proceeds* | |*300,397,205*|
+----------------------------------+-------------+-------------+
*17. DIVIDS*
Dividends will be declared by the Directors and paid in compliance with the
solvency test prescribed by Guernsey law. Under Guernsey law, companies can
pay dividends in excess of accounting profit provided they satisfy the
solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency
test considers whether a company is able to pay its debts when they fall
due, and whether the value of a company's assets is greater than its
liabilities. The Company passed the solvency test for each dividend paid.
Subject to market conditions, the financial position of the Company and the
investment outlook, it is the Directors' intention to pay quarterly
dividends to shareholders (for more information see Chairman's Statement).
The Company paid the following dividends in respect of the year to 31
December 2016:
+---------------+----------------+-------------+---------------+
|*Period to:* | *Dividend rate| *Net| *Payment date*|
| | per Share| dividend*| |
| | (pence)*| *paid (GBP)*| |
+---------------+----------------+-------------+---------------+
|31 March 2016 | 1.625| 4,942,925| 19 May 2016|
+---------------+----------------+-------------+---------------+
|30 June 2016 | 1.625| 4,942,925| 25 August 2016|
+---------------+----------------+-------------+---------------+
|30 September | 1.625| 6,094,065|4 November 2016|
|2016 | | | |
+---------------+----------------+-------------+---------------+
After the end of the year, the Directors declared a dividend in respect of
the financial year ended 31 December 2016 of 1.625 pence per share
GBP6,094,065 to be paid as at 17 February 2017 to shareholders on the register
as at 3 February 2017.
The Company paid the following dividends in respect of the year to 31
December 2015:
+---------------+----------------+------------+----------------+
|*Period to:* | *Dividend rate| *Net| *Payment date*|
| | per Share| dividend*| |
| | (pence)*| *paid (GBP)*| |
+---------------+----------------+------------+----------------+
|31 March 2015 | 1.750| 4,166,750| 29 May 2015|
+---------------+----------------+------------+----------------+
|30 June 2015 | 1.750| 4,582,900| 24 August 2015|
+---------------+----------------+------------+----------------+
|30 September | 1.750| 5,323,150|13 November 2015|
|2015 | | | |
+---------------+----------------+------------+----------------+
|31 December | 1.750| 5,323,150|18 February 2016|
|2015 | | | |
+---------------+----------------+------------+----------------+
*18. RISK MANAGEMENT POLICIES AND PROCEDURES*
The Group through its investment in whole loans, subordinated loans,
mezzanine loans, bridge loans, loan-on-loan financings and other debt
instruments is exposed to a variety of financial risks, including market
risk (including currency risk and interest rate risk), credit risk and
liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group's financial performance.
It is the role of the Board to review and manage all risks associated with
the Group, mitigating these either directly or through the delegation of
certain responsibilities to the Audit Committee, Investment Manager and
Investment Adviser.
The Board of Directors has established procedures for monitoring and
controlling risk. The Group has investment guidelines that set out its
overall business strategies, its tolerance for risk and its general risk
management philosophy.
In addition, the Investment Manager monitors and measures the overall risk
bearing capacity in relation to the aggregate risk exposure across all risk
types and activities. Further details regarding these policies are set out
below:
*i) Market risk*
Market risk includes market price risk, currency risk and interest rate
risk. If a borrower defaults on a loan and the real estate market enters a
downturn it could materially and adversely affect the value of the
collateral over which loans are secured. However, this risk is considered by
the Board to constitute credit risk as it relates to the borrower defaulting
on the loan and not directly to any movements in the real estate market. As
such the Directors do not consider that the Group is subject to market price
risk. The Investment Manager moderates market risk through a careful
selection of loans within specified limits. The Group's overall market
position is monitored by the Investment Manager and is reviewed by the Board
of Directors on an on-going basis.
*a) Currency risk*
The Group, via the subsidiaries, operates across Europe and invests in loans
that are denominated in currencies other than the functional currency of the
Company. Consequently the Group is exposed to risks arising from foreign
exchange rate fluctuations in respect of these loans and other assets and
liabilities which relate to currency flows from revenues and expenses.
Exposure to foreign currency risk is hedged and monitored by the Investment
Manager on an on-going basis and is reported to the Board accordingly.
The Company and Lloyds Bank plc entered into an international forward
exchange master agreement dated 5 April 2013 and on 7 February 2014 the
Company entered into a Professional Client Agreement with Goldman Sachs,
pursuant to which the parties can enter into foreign exchange transactions
with the intention of hedging against fluctuations in the exchange rate
between Sterling and other currencies. The Company does not trade in
derivatives but holds them to hedge specific exposures and have maturities
designed to match the exposures they are hedging. The derivatives are held
at fair value which represents the replacement cost of the instruments at
the Consolidated Statement of Financial Position date and movements in the
fair value are included in the Consolidated Statement of Comprehensive
Income under net foreign exchange gains/(losses). The Company does not adopt
hedge accounting in the financial statements. At the reporting date the
Company had 106 (2015: 75) open forward contracts.
As at 31 December 2016 the Company had the following currency exposure:
+----------------+-----------+------------+--------+-----------+
|*31 December | *Danish| *Sterling| *Euro| *Total*|
|2016* | Krona| GBP*| GBP*| *GBP*|
| | GBP*| | | |
+----------------+-----------+------------+--------+-----------+
|*Assets* | | | | |
+----------------+-----------+------------+--------+-----------+
|Loans advanced | 35,692,414| 261,085,946|63,098,5|359,876,862|
| | | | 02| |
+----------------+-----------+------------+--------+-----------+
|Other | -| 53,381| -| 53,381|
|receivables and | | | | |
|prepayments | | | | |
+----------------+-----------+------------+--------+-----------+
|Cash and cash | 1,287,053| 29,007,907| 723,221| 31,018,181|
|equivalents | | | | |
+----------------+-----------+------------+--------+-----------+
|*Liabilities* | | | | |
+----------------+-----------+------------+--------+-----------+
|Financial | -| (9,156,088)| -|(9,156,088)|
|liabilities at | | | | |
|fair value | | | | |
|through profit | | | | |
|or loss | | | | |
+----------------+-----------+------------+--------+-----------+
|Trade and other | -| (870,156)| -| (870,156)|
|payables | | | | |
+----------------+-----------+------------+--------+-----------+
|*Net currency |*36,979,467|*280,120,990|*63,821,|*380,922,18|
|exposure* | *| *| 723*| 0*|
+----------------+-----------+------------+--------+-----------+
| | | | | |
+----------------+-----------+------------+--------+-----------+
|*31 December | *Danish| *Sterling| *Euro| *Total*|
|2015* | Krona| GBP*| GBP*| *GBP*|
| | GBP*| | | |
+----------------+-----------+------------+--------+-----------+
|*Assets* | | | | |
+----------------+-----------+------------+--------+-----------+
|Loans advanced | 32,404,690| 194,833,214|80,456,9|307,694,827|
| | | | 23| |
+----------------+-----------+------------+--------+-----------+
|Other | -| 33,056| 62,628| 95,684|
|receivables and | | | | |
|prepayments | | | | |
+----------------+-----------+------------+--------+-----------+
|Cash and cash | 33,118| 481,502| 5,938| 520,558|
|equivalents | | | | |
+----------------+-----------+------------+--------+-----------+
|Financial assets| -| 5,918,115| -| 5,918,115|
|at fair value | | | | |
|through profit | | | | |
|or loss | | | | |
+----------------+-----------+------------+--------+-----------+
|*Liabilities* | | | | |
+----------------+-----------+------------+--------+-----------+
|Revolving credit| -| (8,162,405)| -|(8,162,405)|
|facility | | | | |
+----------------+-----------+------------+--------+-----------+
|Trade and other | -| (797,993)| (8,090)| (806,083)|
|payables | | | | |
+----------------+-----------+------------+--------+-----------+
|*Net currency |*32,437,808|*192,305,489|*80,517,|*305,260,69|
|exposure* | *| *| 399*| 6*|
+----------------+-----------+------------+--------+-----------+
_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 2016 would increase or decrease by GBP6,382,172 (2015:
GBP8,051,740). Should the exchange rate of the Danish Krona against Sterling
increase or decrease by 10 per cent with all other variables held constant,
the net assets of the Group at 31 December 2016 would increase or decrease
by GBP3,697,947 (2015: GBP3,243,781).These percentages have been determined
based 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 Board of Directors reviews this risk on a
regular basis.
*b) Interest rate risk*
Interest rate risk is the risk that the value of financial instruments and
related income from loans advanced and cash and cash equivalents will
fluctuate due to changes in market interest rates.
The majority of the Group's financial assets are loans advanced, receivables
and cash and cash equivalents. The Group's investments have some exposure to
interest rate risk but this is limited to interest earned on cash deposits
and floating interbank rate exposure for investments designated as loans
advanced. Loans advanced have been structured to include a combination of
fixed and floating interest rates to reduce the overall impact of interest
rate movements. Further protection is provided by including interbank rate
floors, preventing interest rates from falling below certain levels.
The following table shows the portfolio profile of the financial assets at
31 December 2016:
+------------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------------------+------------------+------------------+
|Floating rate | | |
+------------------------+------------------+------------------+
|Loans advanced1 | 242,693,741| 148,059,663|
+------------------------+------------------+------------------+
|Cash and cash | 31,018,181| 520,558|
|equivalents | | |
+------------------------+------------------+------------------+
|*Fixed rate* | | |
+------------------------+------------------+------------------+
|Loans advanced | 117,183,121| 159,635,164|
+------------------------+------------------+------------------+
|*Total financial assets | *390,895,043*| *308,215,385*|
|subject * | | |
|*to interest rate risk* | | |
+------------------------+------------------+------------------+
1 Loans advanced at floating rates include loans with interbank rate floors.
If interest rates had changed by 25 basis points, with all other variables
remaining constant, the effect on the net profit and equity would have been
as shown in the table below:
+--------------------------+-----------------+-----------------+
| | *31 December| *31 December|
| | 2016*| 2015*|
| | *GBP*| *GBP*|
+--------------------------+-----------------+-----------------+
|Increase of 25 basis | 684,280| 371,451|
|points1 | | |
+--------------------------+-----------------+-----------------+
|Decrease of 25 basis | (684,280)| (371,451)|
|points | | |
+--------------------------+-----------------+-----------------+
1 The calculation assumes no interbank rate floors.
These percentages have been determined based on potential volatility and
deemed reasonable by the Directors.
*ii) Credit risk*
Credit risk is the risk that a counterparty will be unable to pay amounts in
full when due. The Group's main credit risk exposure is in the loan
portfolio, shown as loans advanced, where the Group invests in whole loans
and also subordinated and mezzanine debt which rank behind senior debt for
repayment in the event that a borrower defaults. There is a spread
concentration of risk as at 31 December 2016 due to several loans being
advanced since inception. There is also credit risk in respect of other
financial assets as a portion of the Group's assets are cash and cash
equivalents or accrued interest. The banks used to hold cash and cash
equivalents have been diversified to spread the credit risk to which the
Group is exposed. The Group also has credit risk exposure in its financial
assets through profit and loss which is diversified between hedge providers
in order to spread credit risk to which the Group is exposed. The total
exposure to credit risk arises from default of the counterparty and the
carrying amounts of financial assets best represent the maximum credit risk
exposure at the year end date. As at 31 December 2016, the maximum credit
risk exposure was GBP390,910,293 (2015: GBP314,133,500).
The Investment Manager has adopted procedures to reduce credit risk exposure
by conducting credit analysis of the counterparties, their business and
reputation which is monitored on an on-going basis. After the advancing of a
loan a dedicated debt asset manager employed by the Investment Adviser
monitors on-going credit risk and reports to the Investment Manager, with
quarterly updates also provided to the Board. The debt asset manager
routinely stresses and analyses the profile of the Group's underlying risk
in terms of exposure to significant tenants, performance of asset management
teams and property managers against specific milestones that are typically
agreed at the time of the original loan underwriting, forecasting headroom
against covenants, reviewing market data and forecast economic trends to
benchmark borrower performance and to assist in identifying potential future
stress points. Periodic physical inspections of assets that form part of the
Group's security are also completed in addition to monitoring the identified
capital expenditure requirements against actual borrower investment.
The Group maintains its cash and cash equivalents across various different
banks to diversify credit risk which have been all rated A1 or higher by
Moody's and this is subject to the Group's credit risk monitoring policies
as mentioned above.
+------------------------------------+------------------+
|*31 December 2016* |
+------------------------------------+------------------+
| | *Total as at *|
| |*31 December 2016*|
| | *GBP*|
+------------------------------------+------------------+
|Barclays Bank plc | 31,001,274|
+------------------------------------+------------------+
|Lloyds Bank plc | 894|
+------------------------------------+------------------+
|HSBC Bank plc | 74|
+------------------------------------+------------------+
|Royal Bank of Scotland International| 193|
+------------------------------------+------------------+
|ING Luxembourg, SA | 15,746|
+------------------------------------+------------------+
|*Total cash and cash equivalents* | *31,018,181*|
+------------------------------------+------------------+
| |
+------------------------------------+------------------+
|*31 December 2015* |
+------------------------------------+------------------+
| | *Total as at *|
| |*31 December 2015*|
| | *GBP*|
+------------------------------------+------------------+
|Barclays Bank plc | 248,291|
+------------------------------------+------------------+
|Lloyds Bank plc | 892|
+------------------------------------+------------------+
|HSBC Bank plc | 37|
+------------------------------------+------------------+
|Royal Bank of Scotland International| 208|
+------------------------------------+------------------+
|ING Luxembourg, SA | 271,130|
+------------------------------------+------------------+
|*Total cash and cash equivalents* | *520,558*|
+------------------------------------+------------------+
The carrying amount of cash and cash equivalents approximates their fair
value.
*iii) Liquidity risk*
Liquidity risk is the risk that the Group will not have sufficient resources
available to meet its liabilities as they fall due. The Group's loans
advanced are illiquid and may be difficult or impossible to realise for cash
at short notice.
The Group manages its liquidity risk through short term and long term cash
flow forecasts to ensure it is able to meet its obligations. In addition,
the Company is permitted to borrow up to 20 per cent of NAV and has entered
into a revolving credit facility of GBP60,000,000 (2015: GBP60,000,000) of which
GBPnil (2015: GBP8,162,405) was drawn at year end.
The table below shows the maturity of the Group's non-derivative financial
assets and liabilities arising from the advancement of loans by remaining
contractual maturities at the date of the Consolidated Statement of
Financial Position. The amounts disclosed under assets are contractual,
undiscounted cash flows and may differ from the actual cash flows received
in the future as a result of early repayments:
+---------------+-----------+----------+-----------+-----------+
|*31 December 2016* |
+---------------+-----------+----------+-----------+-----------+
| | *Up to 3|*Between 3| *Over 1| *Total*|
| | months| and| year| *GBP*|
| | GBP*| 12 months| GBP*| |
| | | GBP*| | |
+---------------+-----------+----------+-----------+-----------+
|*Assets* | | | | |
+---------------+-----------+----------+-----------+-----------+
|Loans advanced | -|51,694,797|308,182,065|359,876,862|
+---------------+-----------+----------+-----------+-----------+
|*Liabilities | | | | |
|and | | | | |
|commitments* | | | | |
+---------------+-----------+----------+-----------+-----------+
|Loan | (156,734)|(3,365,607|(3,328,720)|(6,851,061)|
|commitments1 | | )| | |
+---------------+-----------+----------+-----------+-----------+
| |*(156,734)*|*48,329,19|*(304,853,3|*(353,025,8|
| | | 0*| 45)*| 01)*|
+---------------+-----------+----------+-----------+-----------+
1 Loan commitments are estimated forecasted drawdowns at year end.
+--------------+---------+----------+------------+-------------+
|*31 December 2015* |
+--------------+---------+----------+------------+-------------+
| | *Up to 3|*Between 3|*Over 1 year| *Total*|
| | months| and| GBP*| *GBP*|
| | GBP*| 12 months| | |
| | | GBP*| | |
+--------------+---------+----------+------------+-------------+
|*Assets* | | | | |
+--------------+---------+----------+------------+-------------+
|Loans advanced| -|97,019,298| 210,675,529| 307,694,827|
+--------------+---------+----------+------------+-------------+
|*Liabilities | | | | |
|and | | | | |
|commitments* | | | | |
+--------------+---------+----------+------------+-------------+
|Loan |(1,274,85| (189,944)| -| (1,464,796)|
|commitments | 2)| | | |
+--------------+---------+----------+------------+-------------+
| |*(1,274,8|*96,829,35|*210,675,529|*306,230,031*|
| | 52)*| 4*| *| |
+--------------+---------+----------+------------+-------------+
The table below analyses the Group's derivative financial instruments that
will be settled on a gross basis into relevant maturity groupings based on
the remaining period at the date of the Consolidated Statement of Financial
Position. The amounts disclosed are the contractual undiscounted cash flows:
+---------------+-----------+----------+-----------+-----------+
|*31 December 2016* |
+---------------+-----------+----------+-----------+-----------+
|*Derivatives | *Up to 3|*Between 3| *More than| *Total as|
|held for | months| and| 1 year| at 31|
|trading* | GBP*| 12 months| GBP*| December|
| | | GBP*| | 2016*|
| | | | | *GBP*|
+---------------+-----------+----------+-----------+-----------+
|*Goldman Sachs:* |
+---------------+-----------+----------+-----------+-----------+
|Foreign exchange derivatives |
+---------------+-----------+----------+-----------+-----------+
|Outflow1 | 259,152| 3,870,200| 12,096,127| 16,225,479|
+---------------+-----------+----------+-----------+-----------+
|Inflow | 249,619| 3,336,270| 12,174,796| 15,760,685|
+---------------+-----------+----------+-----------+-----------+
|*Lloyds Bank plc:* |
+---------------+-----------+----------+-----------+-----------+
|Foreign exchange derivatives |
+---------------+-----------+----------+-----------+-----------+
|Outflow1 | 1,016,205| 2,645,809| 85,960,740| 89,622,754|
+---------------+-----------+----------+-----------+-----------+
|Inflow | 894,776| 3,099,571| 80,185,670| 84,180,017|
+---------------+-----------+----------+-----------+-----------+
| |
+---------------+-----------+----------+-----------+-----------+
|*31 December 2015* |
+---------------+-----------+----------+-----------+-----------+
|*Derivatives | *Up to 3|*Between 3| *More than| *Total as|
|held for | months| and| 1 year| at 31|
|trading* | GBP*| 12 months| GBP*| December|
| | | GBP*| | 2015*|
| | | | | *GBP*|
+---------------+-----------+----------+-----------+-----------+
|*Goldman Sachs:* |
+---------------+-----------+----------+-----------+-----------+
|Foreign exchange derivatives |
+---------------+-----------+----------+-----------+-----------+
|Outflow1 | 235,356| 693,914| 21,622,233| 22,551,503|
+---------------+-----------+----------+-----------+-----------+
|Inflow | 236,275| 700,151| 22,450,710| 23,387,137|
+---------------+-----------+----------+-----------+-----------+
|*Lloyds Bank plc:* |
+---------------+-----------+----------+-----------+-----------+
|Foreign exchange derivatives |
+---------------+-----------+----------+-----------+-----------+
|Outflow1 | 1,044,176|34,851,191| 60,400,510| 96,295,877|
+---------------+-----------+----------+-----------+-----------+
|Inflow | 1,051,121|35,245,356| 63,529,702| 99,826,179|
+---------------+-----------+----------+-----------+-----------+
1 Euro and Danish Krona amounts translated at year end exchange rate.
*Capital management policies and procedures*
The Group's capital management objectives are:
- To ensure that the Group will be able to continue as a going concern; and
- To maximise the income and capital return to equity shareholders through
an appropriate balance of equity capital and long-term debt.
The capital of the Company is represented by the net assets attribute to the
holders of the Company's shares.
In accordance with the Group's investment policy, the Group's principal use
of cash (including the proceeds of the IPO and subsequent tap issues and
placings) has been to fund investments in the form of loans sourced by the
Investment Adviser and the Investment Manager, as well as initial expenses
related to the issue, on going operational expenses and payment of dividends
and other distributions to shareholders in accordance with the Company's
dividend policy.
The Board with the assistance of the Investment Manager monitors and reviews
the broad structure of the Company's capital on an on-going basis.
The Company has no imposed capital requirements.
The Company's capital at year end comprises:
+------------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+------------------------+------------------+------------------+
|*Equity* |
+------------------------+------------------+------------------+
|Equity share capital | 371,929,982| 300,397,205|
+------------------------+------------------+------------------+
|Retained earnings and | 9,021,044| 5,075,839|
|other reserves | | |
+------------------------+------------------+------------------+
|*Total capital* | *380,951,026*| *305,473,044*|
+------------------------+------------------+------------------+
*19. FAIR VALUE MEASUREMENT*
IFRS 13 requires the Group to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
(ii) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (level 2).
(iii) Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3).
The following table analyses within the fair value hierarchy the Group's
financial assets and liabilities (by class) measured at fair value:
+----------------+--------+-------------+--------+-------------+
|*31 December 2016* |
+----------------+--------+-------------+--------+-------------+
| |*Level 1| *Level 2|*Level 3| *Total*|
| | GBP*| GBP*| GBP*| *GBP*|
+----------------+--------+-------------+--------+-------------+
|*Liabilities* |
+----------------+--------+-------------+--------+-------------+
|Derivative | -| (9,156,088)| -| (9,156,088)|
|liabilities | | | | |
+----------------+--------+-------------+--------+-------------+
|*Total* | *-*|*(9,156,088)*| *-*|*(9,156,088)*|
+----------------+--------+-------------+--------+-------------+
|*31 December 2015* |
+----------------+--------+-------------+--------+-------------+
| | | | | |
+----------------+--------+-------------+--------+-------------+
| |*Level 1| *Level 2|*Level 3| *Total*|
| | GBP*| GBP*| GBP*| *GBP*|
+----------------+--------+-------------+--------+-------------+
|*Assets* |
+----------------+--------+-------------+--------+-------------+
|Derivative | -| 5,918,115| -| 5,918,115|
|assets | | | | |
+----------------+--------+-------------+--------+-------------+
|*Total* | *-*| *5,918,115*| *-*| *5,918,115*|
+----------------+--------+-------------+--------+-------------+
There have been no transfers between levels for the year ended 31 December
2016 (2015: nil).
The following table summarises within the fair value hierarchy the Group's
assets and liabilities (by class) not measured at fair value at 31 December
2016 but for which fair value is disclosed:
+--------+--------+------------+-------------+--------+--------+
|*31 December 2016* |
+--------+--------+------------+-------------+--------+--------+
| |*Level 1| *Level 2| *Level 3| *Total| *Total|
| | GBP*| GBP*| GBP*| fair|carrying|
| | | | | values| amount*|
| | | | | GBP*| *GBP*|
+--------+--------+------------+-------------+--------+--------+
|*Assets* |
+--------+--------+------------+-------------+--------+--------+
|Cash and| -| 31,018,181| -|31,018,1|31,018,1|
|cash | | | | 81| 81|
|equivale| | | | | |
|nts | | | | | |
+--------+--------+------------+-------------+--------+--------+
|Other | -| 53,381| -| 53,381| 53,381|
|receivab| | | | | |
|les | | | | | |
+--------+--------+------------+-------------+--------+--------+
|Loans | -| -| 382,064,552|382,064,|359,876,|
| | | | | 552| 862|
+--------+--------+------------+-------------+--------+--------+
|*Total* | *-*|*31,071,562*|*382,064,552*|*413,136|*390,948|
| | | | | ,114*| ,424*|
+--------+--------+------------+-------------+--------+--------+
|*Liabilities* |
+--------+--------+------------+-------------+--------+--------+
|Trade | -| 870,156| -| 870,156| 870,156|
|and | | | | | |
|other | | | | | |
|payables| | | | | |
+--------+--------+------------+-------------+--------+--------+
|*Total* | *-*| *870,156*| *-*|*870,156|*870,156|
| | | | | *| *|
+--------+--------+------------+-------------+--------+--------+
The following table summarises within the fair value hierarchy the Group's
assets and liabilities (by class) not measured at fair value at 31 December
2015 but for which fair value is disclosed:
+---------+--------+-----------+-------------+--------+--------+
|*31 December 2015* |
+---------+--------+-----------+-------------+--------+--------+
| |*Level 1| *Level 2| *Level 3| *Total| *Total|
| | GBP*| GBP*| GBP*| fair|carrying|
| | | | | values| amount*|
| | | | | GBP*| *GBP*|
+---------+--------+-----------+-------------+--------+--------+
|*Assets* |
+---------+--------+-----------+-------------+--------+--------+
|Cash and | -| 520,558| -| 520,558| 520,558|
|cash | | | | | |
|equivalen| | | | | |
|ts | | | | | |
+---------+--------+-----------+-------------+--------+--------+
|Other | -| 95,684| -| 95,684| 95,684|
|receivabl| | | | | |
|es | | | | | |
+---------+--------+-----------+-------------+--------+--------+
|Loans | -| -| 320,752,322|320,752,|307,694,|
| | | | | 322| 827|
+---------+--------+-----------+-------------+--------+--------+
|*Total* | *-*| *616,242*|*320,752,322*|*321,368|*308,311|
| | | | | ,564*| ,069*|
+---------+--------+-----------+-------------+--------+--------+
|*Liabilities* |
+---------+--------+-----------+-------------+--------+--------+
|Trade and| -| 806,083| -| 806,083| 806,083|
|other | | | | | |
|payables | | | | | |
+---------+--------+-----------+-------------+--------+--------+
|Revolving| -| 8,162,405| -|8,162,40|8,162,40|
|credit | | | | 5| 5|
|facility | | | | | |
+---------+--------+-----------+-------------+--------+--------+
|*Total* | *-*|*8,968,488*| *-*|*8,968,4|*8,968,4|
| | | | | 88*| 88*|
+---------+--------+-----------+-------------+--------+--------+
The carrying values of the assets and liabilities included in the above
table are considered to approximate their fair values, except for loans
advanced. The fair value of loans advanced has been determined by
discounting the expected cash flows using a discounted cash flow model. For
the avoidance of doubt, the Group carries its loans advanced at amortised
cost in the consolidated financial statements.
Cash and cash equivalents include cash at hand and fixed deposits held with
banks. Other receivables and prepayments include the contractual amounts and
obligations due to the Group and consideration for advance payments made by
the Group. Trade and other payables represent the contractual amounts and
obligations due by the Group for contractual payments.
*20. 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.
*21. TAXATION*
The Company is exempt from Guernsey taxation under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 for which it pays an annual fee of GBP1,200.
The Luxembourg indirect subsidiary of the Company is subject to the
applicable tax regulations in Luxembourg. The table below analyses the tax
charges incurred at Luxembourg level:
+-------------------+------------------+------------------+
| |*31 December 2016*|*31 December 2015*|
| | *GBP*| *GBP*|
+-------------------+------------------+------------------+
|*Current tax* |
+-------------------+------------------+------------------+
|Current tax on | 3,022| 2,439|
|profit for the year| | |
+-------------------+------------------+------------------+
|*Total current tax*| *3,022*| *2,439*|
+-------------------+------------------+------------------+
The Luxco had no operating gain on ordinary activities before taxation and
was therefore for the year ended 31 December 2016 subject to the Luxembourg
minimum corporate income taxation at EUR3,210 (2015: EUR3,210).
*22. RECONCILIATION OF IFRS TO US GAAP*
To meet the requirements of Rule 206(4)-2 under the Investment Advisors Act
1940 (the 'Custody Rule') the consolidated financial statements of the
Company have also been audited in accordance with Generally Accepted
Auditing Standards applicable in the United States ('US GAAS'). As such two
independent Auditors' reports are included, one under International
Standards on Auditing as required by the Crown Dependencies Audit Rules and
the other under US GAAS. Compliance with the Custody Rule also requires a
reconciliation of the operating profit and net assets under IFRS to US GAAP.
The principal differences 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 effective interest rate calculation on the
estimated cash flows over the expected life of the asset.
The Directors have assessed the operating profit and NAV of the Company and
Group under both IFRS and US GAAP and have concluded that no material
differences were identified and therefore no reconciliation has been
presented in these financial statements.
*23. RELATED PARTY TRANSACTIONS*
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions. Details on the Investment Manager
and other related party transactions are included in note 3 to the
consolidated financial statements.
+-----------------------+------------------+-------------------+
|*2016* |
+-----------------------+------------------+-------------------+
|*Fees, expenses and | *Outstanding at| *For the year|
|other payments* | 31 December 2016*| ended*|
| | *GBP*| *31 December 2016*|
| | | *GBP*|
+-----------------------+------------------+-------------------+
|*Directors' fees and expenses paid* |
+-----------------------+------------------+-------------------+
|Stephen Smith | -| 47,500|
+-----------------------+------------------+-------------------+
|John Whittle | -| 40,000|
+-----------------------+------------------+-------------------+
|Jonathan Bridel | -| 35,000|
+-----------------------+------------------+-------------------+
|Expenses paid | -| 2,307|
+-----------------------+------------------+-------------------+
|*Investment Manager* |
+-----------------------+------------------+-------------------+
|Investment management | 716,308| 2,527,199|
|fees | | |
+-----------------------+------------------+-------------------+
|Origination fees | -| 1,316,353|
+-----------------------+------------------+-------------------+
|Expenses | -| 39,885|
+-----------------------+------------------+-------------------+
|Sundry debtors | 15,250| -|
+-----------------------+------------------+-------------------+
| |
+-----------------------+------------------+-------------------+
|*2015* |
+-----------------------+------------------+-------------------+
|*Fees, expenses and | *Outstanding at*| *For the year|
|other payments* |*31 December 2015*| ended*|
| | *GBP*| *31 December 2015*|
| | | *GBP*|
+-----------------------+------------------+-------------------+
|*Directors' fees and expenses paid* |
+-----------------------+------------------+-------------------+
|Stephen Smith | -| 46,250|
+-----------------------+------------------+-------------------+
|John Whittle | -| 37,500|
+-----------------------+------------------+-------------------+
|Jonathan Bridel | -| 33,750|
+-----------------------+------------------+-------------------+
|Placing programme fees | -| 15,000|
+-----------------------+------------------+-------------------+
|Expenses paid | -| 6,341|
+-----------------------+------------------+-------------------+
|*Investment Manager* |
+-----------------------+------------------+-------------------+
|Investment management | 575,154| 1,976,640|
|fees | | |
+-----------------------+------------------+-------------------+
|Origination fees | -| 946,069|
+-----------------------+------------------+-------------------+
|Expenses | 18,012| 41,754|
+-----------------------+------------------+-------------------+
|*Hatfield Phillips International 1* |
+-----------------------+------------------+-------------------+
|Origination expenses | -| 50,000|
+-----------------------+------------------+-------------------+
1 Hatfield Phillips International was a subsidiary of Starwood Property
Trust during the financial year ended 31 December 2015.
+-----------------------+-------------------+------------------+
|*2016* |
+-----------------------+-------------------+------------------+
| |*Dividends paid for| *As at *|
|*Shareholdings and * | the year ended|*31 December 2016*|
|*dividends paid* | 31 December 2016| |
| | GBP*|*Number of shares*|
+-----------------------+-------------------+------------------+
|Starwood Property Trust| 594,100| 9,140,000|
|Inc | | |
+-----------------------+-------------------+------------------+
|SCG Starfin Investor LP| 148,525| 2,285,000|
+-----------------------+-------------------+------------------+
|Stephen Smith | 5,130| 78,929|
+-----------------------+-------------------+------------------+
|John Whittle | 771| 11,866|
+-----------------------+-------------------+------------------+
|Jonathan Bridel | 771| 11,866|
+-----------------------+-------------------+------------------+
| | | |
+-----------------------+-------------------+------------------+
|*2015* |
+-----------------------+-------------------+------------------+
|*Shareholdings and * |*Dividends paid for| *As at *|
|*dividends paid* | the year ended|*31 December 2015*|
| | 31 December 2015| |
| | GBP*|*Number of shares*|
+-----------------------+-------------------+------------------+
|Starwood Property Trust| 639,331| 9,140,000|
|Inc | | |
+-----------------------+-------------------+------------------+
|SCG Starfin Investor LP| 158,808| 2,285,000|
+-----------------------+-------------------+------------------+
|Stephen Smith | 7,566| 78,929|
+-----------------------+-------------------+------------------+
|John Whittle | 572| 11,866|
+-----------------------+-------------------+------------------+
|Jonathan Bridel | 572| 11,866|
+-----------------------+-------------------+------------------+
*Other*
The Group continues to participate in a number of loans in which Starwood
Property Trust, Inc. ('STWD') and Starfin European Debt TC, L.P. ('Starfin
TC') acted as a co-lender. The details of these loans are shown in the table
below.
+-----------------------------------+--------------------------+
|*Loan* |*Related party co-lenders*|
+-----------------------------------+--------------------------+
|Centre Point, London | STWD, Starfin TC|
+-----------------------------------+--------------------------+
|5 Star Hotel, London | Starfin TC|
+-----------------------------------+--------------------------+
|Mixed use development, South East | STWD|
|UK | |
+-----------------------------------+--------------------------+
*24. EVENTS AFTER THE REPORTING PERIOD*
The following investment commited since the year end, up to the date of
publication of this report:
+--------------+-----------------+
| |*Local Currency *|
+--------------+-----------------+
|School, Dublin| EUR18,850,000|
+--------------+-----------------+
GBP156,734 has been drawn under the outstanding commitments on the mixed-use
development, UK.
The following loan amortisation (both scheduled and unscheduled) has been
received since the year-end up to 28 March 2017:
+---------------------------------------+-----------------+
| |*Local Currency *|
+---------------------------------------+-----------------+
|5 Star Hotel, London | GBP13,173|
+---------------------------------------+-----------------+
|Varde Partners mixed portfolio, UK | GBP6,386,999|
+---------------------------------------+-----------------+
|Office, Amsterdam | EUR35,750|
+---------------------------------------+-----------------+
|Retail & Residential Portfolio, Ireland| EUR693,431|
+---------------------------------------+-----------------+
|Residential Portfolio, Dublin, Ireland | EUR27,000|
+---------------------------------------+-----------------+
|Logistics, Dublin, Ireland | EUR38,967|
+---------------------------------------+-----------------+
The following loans have been repaid in full since the year-end up to 28
March 2017:
+---------------------------------+-----------------+
| |*Local Currency *|
+---------------------------------+-----------------+
|Industrial Portfolio, Netherlands| EUR26,064,480|
+---------------------------------+-----------------+
|Industrial Portfolio, Denmark | Kr. 307,133,384|
+---------------------------------+-----------------+
On 23 January 2017 the Company declared a dividend of 1.625 pence per
Ordinary Share payable to shareholders on the register on 17 February 2016.
*Corporate Information*
+-------------+----------------------+---------------------------------+
|*Directors* |*Administrator, |*Principal Bankers* |
|Stephen Smith|Designated Manager * |Barclays Private Clients |
|(Non-executiv|*and Company |International Limited |
|e Chairman) |Secretary* |PO Box 41 |
|Jonathan |Ipes (Guernsey) |Le Marchant House |
|Bridel |Limited |St Peter Port |
|(Non-executiv|1 Royal Plaza |Guernsey |
|e Director) |Royal Avenue |GY1 3BE |
|John Whittle |St Peter Port | |
|(Non-executiv|Guernsey |Website: |
|e Director) |GY1 2HL |*www.starwoodeuropeanfinance.com*|
|(all care of | | |
|the |*Registered Office* | |
|registered |1 Royal Plaza | |
|office) |Royal Avenue | |
| |St Peter Port | |
|*Investment |Guernsey | |
|Manager* |GY1 2HL | |
|Starwood | | |
|European |*Investment Adviser* | |
|Finance |Starwood Capital | |
|Partners |Europe Advisers, LLP | |
|Limited |2nd Floor | |
|1 Royal Plaza|One Eagle Place | |
|Royal Avenue |St. James's | |
|St Peter Port|London | |
|Guernsey |SW1Y 6AF | |
|GY1 2HL |United Kingdom | |
| | | |
|*Solicitors |*Advocates to the | |
|to the |Company * | |
|Company |*(as to Guernsey law)*| |
|(as to |Mourant Ozannes | |
|English law |1 Le Marchant Street | |
|and U.S. |St Peter Port | |
|securities |Guernsey | |
|law)* |GY1 4HP | |
|Norton Rose | | |
|LLP |*Independent Auditors*| |
|3 More London|PricewaterhouseCoopers| |
|Riverside |CI LLP | |
|London |Royal Bank Place | |
|SE1 2AQ |1 Glategny Esplanade | |
|United |St Peter Port | |
|Kingdom |Guernsey | |
| |GY1 4ND | |
|*Registrar* | | |
|Computershare| | |
|Investor | | |
|Services | | |
|(Guernsey) | | |
|Limited | | |
|3rd Floor | | |
|Natwest House| | |
|Le Truchot | | |
|St Peter Port| | |
|Guernsey | | |
|GY1 1WD | | |
| | | |
|*Broker* | | |
|Fidante | | |
|Partners | | |
|Europe | | |
|Limited | | |
|trading as | | |
|Fidante | | |
|Capital | | |
|1 Tudor | | |
|Street | | |
|London | | |
|EC4Y 0AH | | |
|United | | |
|Kingdom | | |
+-------------+----------------------+---------------------------------+
Language: English
ISIN: GG00B79WC100
Category Code: ACS
TIDM: SWEF
LEI Code: 5493004YMVUQ9Z7JGZ50
Sequence No.: 3998
End of Announcement EQS News Service
559317 29-March-2017
1: http://public-cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=b14fd12a9d67a041cd95eabce5bcab5f&application_id=559317&site_id=vwd_london&application_name=news
(END) Dow Jones Newswires
March 29, 2017 02:02 ET (06:02 GMT)
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