DJ SWEF: Annual Audited Accounts 2018
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Starwood European Real Estate Finance Ltd (SWEF)
SWEF: Annual Audited Accounts 2018
26-March-2019 / 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.
26 March 2019
Starwood European Real Estate Finance Limited
Annual Report and Audited Consolidated Financial Statements
for the year ended 31 December 2018
The Company has today published its annual financial report for the year
ended 31 December 2018 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 December 2018 31 December 2017
NAV per Ordinary Share 102.66 p 102.17 p
Share Price 102.00 p 109.50 p
NAV total return(1) 7.1% 7.2%
Share Price total return(1) (1.0%) 7.6%
Total Net Assets GBP385.0 m GBP383.1 m
Loans advanced at amortised GBP413.4 m GBP370.0 m
cost (including accrued
income)
Financial assets held at fair GBP21.9 m GBP22.1 m
value through profit or loss
(including associated accrued
income)
Cash and Cash Equivalents GBP28.2 m GBP11.8 m
Amount drawn under Revolving GBP68.8 m GBP13.3 m
Credit Facility (excluding
accrued interest)
Dividends per Ordinary Share 6.5 p 6.5 p
Invested Loan Portfolio 7.4% 7.5%
unlevered annualised total
return(1)
Invested Loan Portfolio 8.0% 7.7%
levered annualised total
return(1)
Ongoing charges percentage(1) 1.1% 1.0%
Weighted average portfolio LTV 16.7% 14.5%
to Group first GBP(1)
Weighted average portfolio LTV 64.1% 63.2%
to Group last GBP(1)
(1) Further explanation and definitions of the calculation is contained in
the section "Alternative Performance Measures" at the end of this financial
report.
For further information, please contact:
Duncan MacPherson - Starwood Capital - 020 7016 3655
Full text of annual financial report for the year ended 31 December 2018
Objective and Investment Policy
INVESTMENT OBJECTIVE
The investment objective of Starwood European Real Estate Finance Limited
(the "Company"), together with its wholly owned subsidiaries Starfin Public
Holdco 1 Limited, Starfin Public Holdco 2 Limited, Starfin Lux S.à.r.l,
Starfin Lux 3 S.à.r.l, and Starfin Lux 4 S.à.r.l, (collectively the
"Group"), is to provide its shareholders with regular dividends and an
attractive total return while limiting downside risk, through the
origination, execution, acquisition and servicing of a diversified portfolio
of real estate debt investments (including debt instruments) in the UK and
the wider European Union's internal market.
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.
When and if the UK ceases to be a member of the European Union or in the
event that any other 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
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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 December 2018 31 December 2017
NAV per Ordinary Share 102.66 p 102.17 p
Share Price 102.00 p 109.50 p
NAV total return(1) 7.1% 7.2%
Share Price total return(1) (1.0%) 7.6%
Total Net Assets GBP385.0 m GBP383.1 m
Loans advanced at amortised GBP413.4 m GBP370.0 m
cost (including accrued
income)
Financial assets held at fair GBP21.9 m GBP22.1 m
value through profit or loss
(including associated accrued
income)
Cash and Cash Equivalents GBP28.2 m GBP11.8 m
Amount drawn under Revolving GBP68.8 m GBP13.3 m
Credit Facility (excluding
accrued interest)
Dividends per Ordinary Share 6.5 p 6.5 p
Invested Loan Portfolio 7.4% 7.5%
unlevered annualised total
return(1)
Invested Loan Portfolio 8.0% 7.7%
levered annualised total
return(1)
Ongoing charges percentage(1) 1.1% 1.0%
Weighted average portfolio LTV 16.7% 14.5%
to Group first GBP(1)
Weighted average portfolio LTV 64.1% 63.2%
to Group last GBP(1)
(1) Further explanation and definitions of the calculation is contained in
the section "Alternative Performance Measures" at the end of this financial
report.
SHARE PRICE PERFORMANCE
As at 31 December 2018 the NAV was 102.66 pence per Ordinary Share (2017:
102.17 pence) and the share price was 102.00 pence (2017: 109.50 pence).
Source: Thomson Reuters
Chairman's Statement
STEPHEN SMITH | Chairman
25 March 2019
Dear Shareholder,
It is my pleasure to present the Annual Report and Audited Consolidated
Financial Statements of Starwood European Real Estate Finance Limited for
the year ended 31 December 2018.
OVERVIEW
The Group had another successful origination year in 2018 with GBP208 million
of new commitments made to borrowers. With repayments and amortisation at a
more typical level than in 2017, net commitments increased by GBP70.8 million
during the year.
The Group declared an aggregate dividend for the year of 6.5 pence per
Ordinary Share. The Group's NAV for the year remained stable and NAV total
return (including dividends) was 7.0 per cent. The Company's share price
total return across the financial year was 1.0 per cent downward, reflecting
weaker equity market sentiment generally across several asset classes in
late 2018.
As at 31 December 2018, the Group had investments and commitments of GBP477.2
million (of which GBP45.5 million was committed but unfunded at the end of the
year). The average maturity of the Group's loan book was 2.8 years. The
Group had net debt of GBP40.6 million leaving unused liquidity facilities of
GBP73 million, available to fund undrawn commitments and new lending. The
gross annualised levered total return of the invested loan portfolio was 8.0
per cent. The Net Asset Value ("NAV") was GBP385.0 million, being 102.66 pence
per Ordinary Share.
The table below shows the loan commitment and repayment profile over the
last five years.
2014 2015 2016 2017 2018
New loans to GBP143.2m GBP118.7m GBP175.9m GBP245.8m GBP208.0m
borrowers
(commitment)
Loan repayments and -GBP48.8m -GBP49.0m -GBP129.3m -GBP213.1m -GBP137.2m
amortisation
Net Investment GBP94.4m GBP69.7m GBP46.6m GBP32.7m GBP70.8m
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