DJ SWEF: Annual Audited Accounts 2019
Starwood European Real Estate Finance Ltd (SWEF)
SWEF: Annual Audited Accounts 2019
07-Apr-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
Starwood European Real Estate Finance
Annual Report and Audited Consolidated Financial Statements
for the year ended 31 December 2019
The Company has today published its annual financial report for the year
ended 31 December 2019 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.
Financial Highlights
Key Highlights Year ended Year ended
31 December 2019 31 December 2018
NAV per Ordinary Share 103.23 p 102.66 p
Share Price 104.50 p 102.00 p
NAV total return(1) 7.1% 7.1%
Share Price total return(1) 9.1% (1.0)%
Total Net Assets GBP426.6 m GBP385.0 m
Loans advanced at amortised GBP390.6 m GBP413.4 m
cost (including accrued
income)
Financial assets held at fair GBP30.5 m GBP21.9 m
value through profit or loss
(including associated accrued
income)
Cash and Cash Equivalents GBP36.8 m GBP28.2 m
Amount drawn under Revolving GBP29.7 m GBP68.8 m
Credit Facility (excluding
accrued interest)
Dividends per Ordinary Share 6.5 p 6.5 p
Invested Loan Portfolio 7.1% 7.4%
unlevered annualised total
return(1)
Invested Loan Portfolio 7.0% 8.0%
levered annualised total
return(1)
Ongoing charges percentage(1) 1.0% 1.1%
Weighted average portfolio LTV 18.4% 16.7%
to Group first GBP(1)
Weighted average portfolio LTV 63.0% 64.1%
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.
Full text of annual financial report for the year ended 31 December 2019
Overview
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 UK and the wider 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
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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 2018 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, shareholders' 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 2019 31 December 2018
NAV per Ordinary Share 103.23 p 102.66 p
Share Price 104.50 p 102.00 p
NAV total return(1) 7.1% 7.1%
Share Price total return(1) 9.1% (1.0)%
Total Net Assets GBP426.6 m GBP385.0 m
Loans advanced at amortised GBP390.6 m GBP413.4 m
cost (including accrued
income)
Financial assets held at fair GBP30.5 m GBP21.9 m
value through profit or loss
(including associated accrued
income)
Cash and Cash Equivalents GBP36.8 m GBP28.2 m
Amount drawn under Revolving GBP29.7 m GBP68.8 m
Credit Facility (excluding
accrued interest)
Dividends per Ordinary Share 6.5 p 6.5 p
Invested Loan Portfolio 7.1% 7.4%
unlevered annualised total
return(1)
Invested Loan Portfolio 7.0% 8.0%
levered annualised total
return(1)
Ongoing charges percentage(1) 1.0% 1.1%
Weighted average portfolio LTV 18.4% 16.7%
to Group first GBP(1)
Weighted average portfolio LTV 63.0% 64.1%
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 2019 the NAV was 103.23 pence per Ordinary Share (2018:
102.66 pence) and the share price was 104.50 pence (2018: 102.00 pence).
Source: Thomson Reuters Datastream
Since 31 December 2019, in common with the overall equity market, the
Company's share price has fallen sharply and continues to be volatile. These
moves have been driven by market conditions and flow rather than a change in
the Company's NAV.
Chairman's Statement
STEPHEN SMITH | Chairman
6 April 2020
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 2019.
OVERVIEW
The Group had another successful origination year in 2019 with GBP224.7
million of new commitments, equivalent to 52.1 per cent of the loan book at
the beginning of the year. Repayments totalled GBP198.3 million equal to 45.9
per cent of the loan book at the start of the year, marginally higher than
the average of 41.9 per cent over the previous four years. Net commitments
were therefore GBP26.4 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 7.1 per cent. The Company's share price
total return across the financial year was 9.1 per cent, reflecting an
increase in the share price from the end of 2018 and 6.5 pence of dividend
payments during the year.
As at 31 December 2019, the Group had investments and commitments of GBP489
million (of which GBP78 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 has cash of GBP36.8 million and unused liquidity facilities of GBP96
million (a total capacity of GBP133 million) which is available to fund
undrawn commitments of GBP78 million and new lending. The gross annualised
levered total return at the year end was 7.0 per cent. The Net Asset Value
("NAV") was GBP426.6 million, being 103.23 pence per Ordinary Share.
The table below shows the loan commitment and repayment profile over the
last five years.
2015 2016 2017 2018 2019
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