DJ SWEF: Half Yearly Report 30 June 2021
Starwood European Real Estate Finance Ltd (SWEF) SWEF: Half Yearly Report 30 June 2021 07-Sep-2021 / 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.
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7 September 2021
Starwood European Real Estate Finance Limited
Half Yearly Report 30 June 2021
Another Period of Robust Income Generation
Fully Covered Quarterly Dividend Totalling 5.5 Pence Annually; 8 per cent Share Price Total Return in the Period
Starwood European Real Estate Finance Limited and its subsidiaries ("the Group"), a leading investor originating, executing and managing a diverse portfolio of high-quality real estate debt investments in the UK and Europe, announces its Half Year Results for the six month period ended 30 June 2021.
Highlights over the six months to 30 June 2021
-- Income stability - all loan interest and scheduled amortisation payments received in full and on time
-- Strong cash generation - the portfolio continues to support annual dividend payments of 5.5 pence pershare, paid quarterly, and generates an annual dividend yield of 5.9 per cent on the share price as at 30 June 2021
-- Robust portfolio - despite pandemic-related disruption, the portfolio continues to perform in line withexpectations? Borrowers remain adequately capitalised and are expected to continue to pay loan interest and capitalrepayments in line with contractual obligations - Entry into life sciences sector - On 22 April 2021 the Group announced that it has closed a GBP26.6mfloating rate whole loan secured by a portfolio of four UK life science properties - On 21 July 2021 the Group announced that it had closed a GBP13.5m floating rate whole loan secured by aportfolio of a hotel and office complex in Northern Ireland
-- 8 per cent - Share price total return during the six months ended 30 June 2021
-- 46.5 per cent - Share price total return since inception in December 2012
-- The Investment Manager believes the current investment pipeline is the strongest since the Company wasestablished
Portfolio Statistics - diverse, 78.3% floating rate, LTV maintained
As at 30 June 2021, the portfolio was invested in line with the Group's investment policy. The key portfolio statistics are summarised below.
30 June 2021 30 June 2020 Number of investments 18 18 Percentage of currently invested portfolio in floating rate loans 78.3% 79.5% Invested Loan Portfolio unlevered annualised total return* 6.6% 6.7% Portfolio levered annualised total return* 6.8% 7.0% Weighted average portfolio LTV - to Group first GBP* 18.0% 18.4% Weighted average portfolio LTV - to Group last GBP* 63.5% 62.9% Average loan term (stated maturity at inception) 4.7 years 4.4 years Average remaining loan term 2.2 years 2.8 years Net Asset Value GBP423.7m GBP430.1m Amount drawn under Revolving Credit Facilities (excluding accrued interest) (GBP11.0m) (GBP24.1m) Loans advanced GBP420.8m GBP448.9m Cash GBP1.4m GBP9.0m Other net assets (including hedges) GBP12.5m GBP3.8m
*Alternative performance measure
NAV Performance - as anticipated and stable demonstrating resilience of portfolio
The table below shows the NAV per share achieved over the 6 months to 30 June 2021:
January February March April May June Cum-dividend NAV per share (pence) 103.91 104.42 103.56 103.59 104.25 103.63
Stephen Smith, Chairman of the Company commented:
"During the past six months the Company has yet again proven its credentials as a highly stable source of robust dividends for shareholders. In contrast to many equity REITs, there has not been a single missed payment across the portfolio for the entire duration of the Covid-19 pandemic. This has ensured total continuity of income supporting the annual 5.5 pence dividend yield paid quarterly to shareholders, which remains fully covered. Further, the underlying risk of the portfolio has not shifted with LTVs maintained in the low 60% historical range that the manager has skilfully maintained since the Company's inception in 2012 across even the most volatile recent environment.
"At the outset of the Covid-19 period, in a time of famously turbulent equity market volatility, the Company's share price fell to a persistent discount to NAV for the first time since inception, albeit this has been gradually reducing over the past six-month period under review. Given the extremely robust performance of the portfolio through even the most hostile of market tests and the ongoing uncertainty around many traditional forms of dividend income, it is our belief that the Company's current share price discount to NAV represents compelling risk adjusted value."
Analyst Call
A conference call for analysts will be held remotely at 9:30am, to receive details please contact henryw@buchanan.uk.com
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited as Company Secretary
01481 735814
Magdala Mullegadoo
Starwood Capital +44 (0) 20 7016 3655
Duncan MacPherson
Jefferies International Limited +44 (0) 20 7029 8000
Stuart Klein
Neil Winward
Gaudi Le Roux
Buchanan +44 (0) 20 7466 5000
Helen Tarbet +44 (0) 07788 528143
Henry Wilson
Hannah Ratcliff
Notes:
Starwood European Real Estate Finance Limited is an investment company listed on the main market of the London Stock Exchange with an investment objective to 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.
www.starwoodeuropeanfinance.com.
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.
Interim Financial Report and Unaudited Condensed
Consolidated Financial Statements
for the six-month period from 1 January 2021 to 30 June 2021
CONTENTS
Overview Corporate Summary Chairman's Statement Investment Manager's Report Principal Risks Governance Board of Directors Statement of Directors' Responsibilities Interim Financial Statements Independent Review Report Unaudited Condensed Consolidated Statement of Comprehensive Income Unaudited Condensed Consolidated Statement of Financial Position Unaudited Condensed Consolidated Statement of Changes in Equity Unaudited Condensed Consolidated Statement of Cash Flows Notes to the Unaudited Condensed Consolidated Financial Statements Further Information Alternative Performance Measures Corporate Information
Overview
Corporate Summary
PRINCIPAL ACTIVITIES AND 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 in the UK and the European Union's internal market.
The Company seeks 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 Group aims to be 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 Guernsey Financial Services Commission ("GFSC") as a registered closed-ended investment company. The Company's ordinary shares were first admitted to the premium segment of the UK's Financial Conduct Authority's Official List and to trading on the Main Market of the London Stock Exchange as part of its initial public offering which completed on 17 December 2012.
Further issues took place in March 2013, April 2013, July 2015, September 2015, August 2016 and May 2019. The issued capital during the period comprises the Company's Ordinary Shares denominated in Sterling.
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The Company received authority at the 2020 Annual General Meeting ("AGM"), to purchase up to 14.99 per cent of the Ordinary Shares in issue on 8 June 2020 and since then, in August 2020, the Board engaged Jefferies International Limited as buy-back agent to effect share buy backs on behalf of the Company. During the third and fourth quarters of 2020 the Company bought back 3,648,125 shares at an average cost per share of 86.9 pence per share and these shares are held in treasury. During January 2021 the Company bought back 660,000 Ordinary Shares at an average price of 89.54 pence per share. Ordinary shares bought back are held in treasury. Share buy backs are subject to sufficient cash being available. This authority was renewed at the 2021 AGM with the Company receiving authority to purchase up to 14.99 per cent of Ordinary Shares in issue on 15th June 2021 (which was 408,911,273 Ordinary Shares), as 4,308,125 Ordinary Shares have already been bought back as described above and are being held in treasury.
The Company makes its investments through Starfin Lux S.à.r.l (indirectly wholly-owned via a 100% shareholding in Starfin Public Holdco 1 Limited), Starfin Lux 3 S.à.r.l and Starfin Lux 4 S.à.r.l (both indirectly wholly-owned via a 100% shareholding in Starfin Public Holdco 2 Limited).
The Investment Manager is Starwood European Finance Partners Limited (the "Investment Manager"), a company incorporated in Guernsey with registered number 55819 and regulated by the GFSC. The Investment Manager has appointed Starwood Capital Europe Advisers, LLP (the "Investment Adviser"), an English limited liability partnership authorised and regulated by the Financial Conduct Authority, to provide investment advice, pursuant to an Investment Advisory Agreement.
Chairman's Statement
Dear Shareholder,
I am delighted to present the Interim Financial Report and Unaudited Condensed Consolidated Financial Statements of Starwood European Real Estate Finance Limited (the "Group") for the period from I January 2021 to 30 June 2021.
This half year has been a period of consolidation following a turbulent period in the market and for the share price of the Company, although not, it must be said, a turbulent time for the Group's NAV which has once again remained stable throughout. Ultimately, the period under discussion demonstrated the positive fundamentals of the Group's portfolio as an exceptionally attractive risk-adjusted source of alternative income tested in the harshest of market environments. Against these market challenges, the Group not only maintained a stable NAV but also met its dividend targets, delivering an annualised 5.5 pence per share to shareholders. The Board continues to monitor share price moves and has been pleased recently with the reaction to the "back to work" agenda. In the earlier part of the period however, share buybacks had been used on occasion to correct shorter term demand and supply imbalances. Investors now have more clarity that economies are working their way out of Covid-19, and they are gradually recognising the value in the portfolio currently. At the same time, the Investment Manager is seeing the strongest pipeline of available transactions since the Group's inception (partially as a result of post Covid-19 opportunities) providing compelling opportunities for value creation.HIGHLIGHTS OVER THE SIX MONTHS TO 30 JUNE 2021
-- Income stability - all loan interest and scheduled amortisation payments received in full and on time
-- Strong cash generation - the portfolio continues to support annual dividend payments of 5.5 pence pershare, paid quarterly, and generates an annual dividend yield of 5.9 per cent on the share price as at 30 June 2021
-- Robust portfolio - despite pandemic-related disruption, the portfolio continues to perform in line withexpectations
-- Borrowers remain adequately capitalised and are expected to continue to pay loan interest and capitalrepayments in line with contractual obligations
-- On 22 April 2021 the Group announced that it had closed a GBP26.6 million floating rate whole loan securedby a portfolio of four UK life science properties
-- 8 per cent - Share price total return during the six months ended 30 June 2021
-- 46.5 per cent - Share price total return since inception in December 2012
-- The Investment Manager believes the current investment pipeline is the strongest since the Company wasestablished
Post 30 June 2021 the Group announced that it had closed a GBP13.5 million floating rate whole loan secured by a portfolio of a hotel and office complex in Northern Ireland.
INVESTMENT PERFORMANCE
INTEREST & AMORTISATION PAYMENTS
All loan interest and scheduled amortisation payments to date have been received in full and on time. This includes loans in sectors that have been most impacted by the pandemic, namely, hospitality and retail assets, where borrowers continue to remain adequately capitalised as previously reported.
STRONG CASH GENERATION
The portfolio performance continues to support the targeted annual dividend payments of 5.5 pence per share, paid quarterly.
INVESTMENT MOMENTUM
The table below summarises the new commitments made and repayments received in the first six months of each year from 2017 to 2021.
H1 2017 H1 2018 H1 2019 H1 2020 H1 2021 New Commitments GBP115.5m GBP147.5m GBP49.9m GBP72.7m GBP26.6m Repayments & Amortisation (GBP85.2m) (GBP74.1m) (GBP45.9m) (GBP65.3m) (GBP45.8m) Net Increase / (Decrease) in Commitments GBP30.3m GBP73.4m GBP4.0m GBP7.4m (GBP19.2m)
The net change in commitments during the first half of 2021 have fallen for the first time. This is not surprising as activity in the Company's investment markets dropped during the Covid-19 pandemic and is only now recovering. Repayments in 2020 in total were significantly lower than in most previous years as it took borrowers longer to sell or execute their business plans and the opportunities to refinance following completion of business plans were much more limited and continue to be a little subdued as shown above. Importantly, the Group remains close to fully invested, with an outstanding pipeline of new loans, all of which supports the Company's income generation going forward.
As at 30 June 2017 to 2021 the Group had commitments as shown in the table below.
June 2017 June 2018 June 2019 June 2020 June 2021 Funded loans GBP390.7m GBP429.9m GBP447.0m GBP447.5m GBP418.5m Unfunded Commitments GBP5.4m GBP42.2m GBP31.9m GBP67.2m GBP36.8m Total Commitments GBP396.1m GBP472.1m GBP478.9m GBP514.7m GBP455.3m
Subsequent to 30 June 2021 to the date of these Interim Financial Statements the following two significant changes to the portfolio were made:
NEW LOAN: OFFICE AND HOTEL, NORTHERN IRELAND
On 21 July 2021 the Group announced that it had closed a GBP13.5 million floating rate whole acquisition loan secured by a portfolio of a mixed use hotel and office property.
REPAYMENT OF LOAN: HOTEL, SPAIN
On 11th August 2021 the Group announced that during July 2021 it received the full and final repayment of its EUR54.2m loan on a resort hotel in Spain.
NAV PERFORMANCE
The table below shows the NAV per share achieved over the 6 months to 30 June 2021.
January February March April May June Cum-dividend NAV per share (pence) 103.91 104.42 103.56 103.59 104.25 103.63
As anticipated, as shown above and as in the past, we are pleased to report that the Group's NAV has once again remained stable over the first half of the year demonstrating the highly resilient credentials of the asset class that contributes to its success as a reliable source of alternative income. We do not expect to see significant movements in NAV as the Group's loans are held at amortised cost and Euro exposures are hedged.
The NAV would be materially impacted if an impairment in the value of a loan was required but, despite the disruption to markets in general caused by the Covid-19 pandemic, no such impairment has been needed. Please refer to the Investment Manager's report for detailed sector performance reporting, information on the accounting for our loans and the current loan to value position for the portfolio as a whole and for each sector.
SHARE PRICE PERFORMANCE
During the first half of 2021, the Company's shares returned 8.0 per cent on a total return basis with the share price trading between 84.2 pence and 94.0 pence and ending the half year at 94.0 pence, a 12-month high for the Company. Despite the Company having bought back 4,308,125 shares in the last twelve months to 30 June 2021, and the Board's regular deliberations about the use and appropriateness of share buybacks, it was decided that the general improvement in market sentiment and "return to work" theme was driving more positive investor sentiment resulting in no share buybacks since January 2021. Notwithstanding this, the Company renewed its authority to purchase up to 14.99 per cent of the Ordinary Shares in issue and may use this authority to address the imbalance in the demand and supply for shares where appropriate going forward.
As at 30 June 2021, the share price discount to the cum-dividend NAV was 9.3 per cent with an average discount to the cum-dividend NAV of 13.2 per cent over the half year. The Board and the Investment Manager and Adviser continue to believe that the shares represent very attractive value at this level as demonstrated by the previously disclosed personal purchases of shares by one of the Directors of the Company and by two senior employees of the Investment Adviser during the period.
DIVIDENDS
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The Directors declared dividends in respect of the first two quarters of 2021 of 1.375 pence per Ordinary Share, equating to an annualised 5.5 pence per annum. This was covered by earnings excluding unrealised foreign exchange movements. With the current portfolio and pipeline, and based on current forecasts, we expect the dividend to continue to be covered by earnings over the 12 months to 31 December 2021.
The Board and Investment Manager and Adviser recognise the importance of stable and predictable dividends for our shareholders. Accordingly, we hold a small dividend reserve (within retained earnings) of circa GBP2.9 million built up over several years which, if necessary, we will use to maintain the annual dividend at 5.5 pence per share for the foreseeable future. As a result of this, dividends have not been, and are not anticipated to be, paid out of capital reserves.
On the share price at 30 June 2021, a dividend of 5.5 pence per annum represents a 5.9 per cent dividend yield.
BOARD COMPOSITION AND DIVERSITY
In the full year financial statements to 31 December 2020 published in March the Board set out the next steps in the succession plans which I am pleased to report are now concluded with the appointment today of Gary Yardley (see note 16). In March we outlined that we envisaged a new director being appointed during the second half of 2021, my retirement from the Board in December 2021 and, having allowed for a period of handover to the new Board members, John Whittle's retirement from Board in December 2023. We sought independent recommendations on the best candidates.
The Board believes in the value and importance of diversity in the boardroom and it continues to consider the recommendations of the Davies, Hampton Alexander and Parker Reports and these recommendations were taken into account in its recruitment process for the appointment of a new director.
Having recently appointed Shelagh Mason and Charlotte Denton to the Board, secured John Whittle's involvement until December 2023 and with Gary Yardley now joining the Board the Company believes that the Board is, and will continue to be, fully equipped with the necessary skills, experience, knowledge and diversity to facilitate the Board's succession process over the coming years.
GOING CONCERN
Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Group is a going concern.
The Directors have undertaken a comprehensive review of the Group's ability to continue as a going concern including assessing the possible impact of the COVID-19 pandemic on the Group's portfolio, reviewing the ongoing 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. After making enquiries of the Investment Manager and the Administrator, reviewing the going concern analysis prepared by the Investment Adviser and having reassessed the principal risks, 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 unaudited condensed consolidated financial statements were signed. A range of scenarios have been evaluated as part of this analysis. The worst case scenario evaluated was an interest payment default on all hotel and retail loans. In this scenario the Company was still able to meet its liabilities as they fall due although the dividend would need to be reduced to reflect the reduced cash received. Accordingly, the Directors continue to adopt a going concern basis in preparing these Unaudited Condensed Consolidated Financial Statements.
COVID-19 AND OUTLOOK
The Board is pleased that the diligent underwriting, loan structuring and active asset management of the Investment Manager and Adviser during this last turbulent 18 months has led to very robust performance of the loans during the period, meaning that all interest has been received in full and on time and no impairments have been required. Importantly, future interest payments continue to be expected to be received in full based on the forecast gradual continued easing of lockdowns across the UK and Europe. For further information on the performance of the various components of the portfolio during the last six months please refer to the Investment Manager's report.
The Investment Adviser is seeing a strong pipeline of opportunities as the markets continue to stabilise and will continue to apply its rigorous approach to the selection of appropriate opportunities as it re-invests capital into new opportunities. At 30 June 2021, the Group was very modestly levered with net debt of GBP9.6 million (2.3 per cent of NAV) and undrawn revolving credit facilities (see note 3.g) of the 2020 Annual Report for further information) of GBP115.0 million to fund existing commitments of circa GBP37 million. If the Group does not receive any further repayments this year, it means the Group has approximately GBP70 million of capacity for new loans.
The Board believes that the Company is well placed and that its portfolio and investment pipeline should, over the long term, continue to deliver an attractive risk-adjusted return led by a high level of income supported by a resilient asset class with a relatively low correlation to the broader financial markets. I would like to close by thanking you for your commitment and support.
Stephen Smith
Chairman
6 September 2021
Investment Manager's Report
MARKET SUMMARY AND INVESTMENT OUTLOOK
The largest vaccination campaign in history is underway. According to Bloomberg more than 4.95 billion doses have been administered across 183 countries as at 22 August 2021. The UK had been one of the clear leaders in vaccinations and for the reopening of the economy and society. As of 21st August 2021, in the UK 132 doses have been administered per 100 people, with 70 per cent of people having received a first dose, putting the UK ahead of the US, France and Germany. Ireland and Spain, however, are ahead of the UK. Ireland is at 134 doses per 100 people with 73 per cent having received a first dose and Spain is at 135 doses per 100 people with 76 per cent having received a first dose. The current pace of vaccination in Ireland is also ahead of the other European nations at 0.70 doses per 100 people per day compared with 0.66 for Spain, 0.64 for France, 0.33 for Germany, 0.31 for UK and only 0.27 for the US.
The UK reopening plan post pandemic restrictions that was set out in February has remained almost entirely on schedule. Earlier in the year we expected crowds of 10,000 people at mass events and the opening of short-haul travel later in the year. In sports we have seen progress to more than 60,000 people attending football's Euros final and a capacity crowd of 15,000 for the final weekend on centre court at Wimbledon. This has been enabled by checks on negative test results or vaccination status. In the hotel market we have seen the anticipated performance for UK leisure driven markets coming through as hotels were able to more fully open over the last weeks. One example of a strong leisure performance is the Bath market, where occupancy rates had been running lower than 30 per cent all year to May, which achieved occupancy percentage rates in the 80s during the half term week. While there will be some bumps in the road the general pace of opening for international travel is likely to be similarly facilitated by high levels of vaccination and advances in the tracking of testing and vaccination status.
Previously we commented on a change in sentiment back toward working from the office with a reduction from 69 per cent of CEOs of major companies to 17 per cent expecting to reduce office space between the third quarter of 2020 and the first quarter of 2021. Property Week now reports that the amount of office space available for sub-leasing in London has turned a corner as occupiers begin to U-turn on "knee-jerk" decisions made during the pandemic to sublet space. Savills' data shows that May saw the largest monthly decline in the total amount of tenant-controlled space on the market since March 2020, falling 7 per cent to 5.88 million square feet, although this figure is still 45 per cent higher than the long-term average. Savills' July data also shows West End investment market cumulative annual turnover of GBP2.1 billion is 38 per cent down on the five year average but comments that with over GBP2.5 billion of assets under offer it bodes well for a busy second half of the year. In the West End occupier market, while leasing pace is still off historical averages, the available supply in May dropped for the first time since August 2020 and Savills report that leasing activity is picking up. Following on from May, total available supply decreased further in June, reaching 7.8m sq ft, equating to a vacancy rate of 6.8 per cent.
We also commented previously on the leading indicators we were seeing in the hotel investment market in the last few months. Early indications for European second quarter hotel investment volumes are more than a 70 per cent increase quarter on quarter to over EUR3 billion. This is also over 70 per cent higher than the second quarter of 2020. There is still further to go to get back to the pre-pandemic level of EUR6 billion in the second quarter of 2019. Other positive indications are the number of large transactions in the market agreed in the second quarter which are likely to close in the third quarter, and, as with many other real estate markets, there is currently very strong demand and relatively low supply of product for sale.
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We are also now seeing the beginning of investment market activity on the retail side. We expect to see a more positive sentiment on the retail investment market spread with increased data on post pandemic spending habits, followed by tenant activity then following through to the relevant investment markets. The British Retail Consortium reported retail sales were 6.4 per cent higher in July than in the same month one year ago. This is below the 3-month average growth of 14.7 per cent. UK retail warehouses are leading the way in the sector with Savills reporting the pandemic-related pause in transactional activity to be short-lived, with the investment market off to a good start to 2021 with GBP476 million of transactions in the first quarter. This is the largest volume of first quarter transactions since 2017 and is up 47 per cent on the same period in 2019. Yields have been moving rapidly and are tighter by as much as 75 basis points for prime assets since last year. The many different types of retail in Europe will move at differing paces and it will be interesting to see how momentum builds in this space.
Inflation has become a concern for markets with uncertainty about whether high short term readings will translate into longer term inflation. The markets are currently signalling that this is a short term effect with continued low long term bond yields. Evercore note the last time US short term inflation was this high, the ten year US treasury bond yielded 7.7 per cent whereas it is only 1.3 per cent today. If expectations changed on long term inflation then we would expect to see interest rate policy responses and in this case the Group's portfolio would benefit as 78 per cent of the portfolio is floating rate debt which would benefit from higher short term interest rates. While the income from floating rate loans would benefit from increases in rates, these loans all feature interest rate floors which protect income against very low interest rates. This results in an asymmetrically better upside to an increasing interest rate environment versus the downside of a decreasing interest rate environment from here. Capital markets generally have continued a positive trajectory. The FTSE 100, FTSE 250 and the iShares UK Property ETF are up 8.9 per cent, 9.2 per cent and 9.5 per cent respectively during the first half of 2021.
The trend in non-bank lending to the real estate market continues to be highlighted by data coming through from the Cass business school survey which is the most comprehensive survey of UK commercial real estate lending. The statistics provide a clear picture of the scale of the migration from domestic balance sheet lenders to other sources of capital in commercial real estate lending. In 2008 GBP170 billion of UK commercial real estate debt was held by UK banks and building societies. By the end of 2020 this had reduced to GBP77 billion. That corresponds to a reduction of market share from 66 per cent to 40 per cent. This trend is clearly being seen in the Group's pipeline which includes a diverse set of opportunities and is at the strongest level since the Group was established.
All of the above factors combined give us confidence of positive momentum in our markets and activity amongst our counterparties; we therefore expect our portfolio to continue to perform robustly and we expect to see further opportunities for loan origination.
PORTFOLIO STATISTICS
As at 30 June 2021, the portfolio was invested in line with the Group's investment policy. The key portfolio statistics are as summarised below.
30 June 30 June
2021 2020
Number of investments 18 18
Percentage of currently invested portfolio in floating rate loans 78.3% 79.5%
Invested Loan Portfolio unlevered annualised total return (1) 6.6% 6.7%
Portfolio levered annualised total return (1) 6.8% 7.0%
Weighted average portfolio LTV - to Group first GBP (1) 18.0% 18.4%
Weighted average portfolio LTV - to Group last GBP (1) 63.5% 62.9%
Average loan term (stated maturity at inception) 4.7 years 4.4 years
Average remaining loan term 2.2 years 2.8 years
Net Asset Value GBP423.7m GBP430.1m
Amount drawn under Revolving Credit Facilities (excluding accrued interest) (GBP11.0m) (GBP24.1m)
Loans advanced GBP420.8m GBP448.9m
Cash GBP1.4m GBP9.0m
Other net assets (including hedges) GBP12.5m GBP3.8m 1. Alternative performance measure - refer to Alternative performance Measures for definitions andcalculation methodology.
The maturity profile of investments as at 30 June 2021 is shown below.
Remaining years to contractual maturity (1) Principal value of loans % of
GBPm invested portfolio
0 to 1 years 83.5 20%
1 to 2 years 163.3 39%
2 to 3 years 29.1 7%
3 to 5 years 142.6 34% 1. Excludes any permitted extensions. Note that borrowers may elect to repay loans before contractualmaturity.
The Group continues to achieve good portfolio diversification as shown in the below:
Country % of invested assets UK 43.3% Spain 29.1% Republic of Ireland 20.5% Netherlands 3.4% Germany 2.7% Finland 1.0% Sector % of invested assets Hospitality 40.4% Office 22.2% Retail 12.7% Residential 11.2% Healthcare 6.0% Life Sciences 4.7% Light Industrial 1.3% Logistics 1.3% Other 0.2% Loan type % of invested assets Whole loans 62.3% Mezzanine 37.7% Currency % of invested assets* Sterling 43.3% Euro 56.7%
-- The currency split refers to the underlying loan currency, however the capital on all non-sterlingexposure is hedged back to sterling.
The Board considers that the Group is engaged in a single segment of business, being the provision of a diversified portfolio of real estate backed loans. The analysis presented in this report is presented to demonstrate the level of diversification achieved within that single segment. The Board does not believe that the Group's investments constitute separate operating segments.
SHARE PRICE PERFORMANCE
As at 30 June 2021 the NAV was 103.62 pence per Ordinary Share (31 December 2020: 104.18 pence) and the share price was 94 pence (31 December 2020: 90 pence).
Source: Morningstar
The Company's share price has been volatile since March 2020. This volatility has been driven by market conditions and trading cash flows rather than a change in the Company's NAV.
INVESTMENT DEPLOYMENT
As at 30 June 2021, the Group had 18 investments and commitments of GBP455.3 million as follows:
Sterling equivalent Sterling equivalent unfunded Sterling Total (Drawn and
balance (1) commitment (1) Unfunded)
Hospitals, UK GBP25.0m - GBP25.0m
Hotel & Residential, UK GBP49.9m - GBP49.9m
Office, Scotland GBP4.9m GBP0.1m GBP5.0m
Office, London GBP13.6m GBP7.0m GBP20.6m
Hotel, Oxford GBP16.7m GBP6.3m GBP23.0m
Hotel, Scotland GBP38.1m GBP4.5m GBP42.6m
Hotel, North Berwick GBP13.1m GBP1.9m GBP15.0m
Life Science, UK GBP19.5m GBP7.1m GBP26.6m
Logistics Portfolio, UK(2) GBP0.6m - GBP0.6m
Total Sterling Loans GBP181.4m GBP26.9m GBP208.3m
Three Shopping Centres, GBP31.2m - GBP31.2m
Spain
Shopping Centre, Spain GBP14.6m - GBP14.6m
Hotel, Dublin GBP51.6m - GBP51.6m
Hotel, Spain GBP46.6m - GBP46.6m
Office, Madrid, Spain GBP15.9m GBP0.9m GBP16.8m
Mixed Portfolio, Europe GBP24.8m - GBP24.8m
Mixed Use, Dublin GBP3.9m GBP8.7m GBP12.6m
Office Portfolio, Spain GBP13.2m GBP0.3m GBP13.5m
Office Portfolio, Ireland GBP30.2m - GBP30.2m
Logistics Portfolio, GBP5.1m - GBP5.1m
Germany(2)
Total Euro Loans GBP237.1m GBP9.9m GBP247.0m
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Total Portfolio GBP418.5m GBP36.8m GBP455.3m 1. Euro balances translated to sterling at period-end exchange rate. 2. Logistics Portfolio, UK and Logistics Portfolio, Germany is one single loan agreement with sterling andEuro tranches.
Between 1 January 2021 and 30 June 2021, the following significant investment activity occurred (included in the table above):
NEW LOAN: LIFE SCIENCE, UK:
On 22 April 2021 the Group announced that it had closed a GBP26.6 million floating rate whole loan secured by a portfolio of four properties. The properties consist of laboratory and office spaces let to a diverse range of life science occupiers in the UK. The financing has been provided in the form of an initial advance along with a smaller capex facility to support the borrower's value-enhancing capex initiatives. The loan term is 4 years, and the Group expects to earn an attractive risk-adjusted return in line with its stated investment strategy.
LOAN REPAYMENTS & AMORTISATION:
The following material loan repayments and amortisation were received during the first half of the year:
-- a full and final repayment of the Residential, London loan which had had a balance outstanding of GBP25.1million on 31 December 2020;
-- EUR3.4 million of unscheduled amortisation on the loan on the mixed portfolio in Europe, following aportfolio of asset sales which was in line with the borrower's business plan;
-- GBP11.5 million of unscheduled amortisation on Logistics Portfolio, UK, following a portfolio of assetsales which was in line with the borrower's business plan;
-- EUR0.6 million of unscheduled amortisation on Logistics Portfolio, Germany, following a portfolio of assetsales which was in line with the borrower's business plan;
-- EUR0.6 million of unscheduled amortisation on Office Portfolio, Spain, following an asset sale; and
-- EUR5.7 million partial repayment of Office Portfolio, Spain, following the successful refinancing of thatloan.
The Group also advanced GBP16.5 million to borrowers to which it has outstanding commitments during the six months to 30 June 2021.
Subsequent to 30 June 2021
Subsequent to 30 June 2021 the following significant changes were made to the portfolio:
REPAYMENT OF LOAN: HOTEL, SPAIN:
On 11th August 2021 the Group announced that during July 2021 it received the full and final repayment of its EUR54.2m loan on a resort hotel in Spain.
NEW LOAN: HOTEL & OFFICE, NORTHERN IRELAND:
On 21 July 2021 the Group announced that it had closed a GBP13.5 million floating rate whole loan secured by a portfolio of a mixed use hotel and office property. The financing has been provided in the form of an acquisition loan. The loan term is 3 years, and the Group expects to earn an attractive risk-adjusted return in line with its stated investment strategy.
PORTFOLIO OVERVIEW
Interest & Amortisation Payments
All loan interest and scheduled amortisation payments to date of these financial statements have been received in full and on time. This includes loans in sectors that have been most impacted by the pandemic, namely, hospitality and retail assets, where borrowers continue to remain adequately capitalised as previously reported.
Loan to Value
The Group's weighted average current loan to value is 63.5 per cent. This is measured against RICS red book standard valuation reports instructed independently of borrowers and are carried out by leading global property consultancy firms such as Savills, CBRE, JLL and Colliers. The weighted average aging of the date of these formal valuation reports is under one year (at 0.8 years). This means that on average across the portfolio, the loan to values are being marked against values that have been updated recently and since the onset of the pandemic. This gives comfort around the robustness of the Group's position, with very significant equity cushions against the average loan basis.
The table below shows the sensitivity of the loan to value calculation for movements in the underlying property valuation and demonstrates that the Group has considerable headroom within the currently reported last LTVs.
Change in Valuation Hospitality Retail Residential Other Total -25% 82.0% 101.1% 79.6% 83.3% 84.6% -20% 76.9% 94.8% 74.6% 78.1% 79.3% -15% 72.3% 89.2% 70.2% 73.5% 74.7% -10% 68.3% 84.3% 66.3% 69.4% 70.5% -5% 64.7% 79.8% 62.9% 65.7% 66.8% 0% 61.5% 75.8% 59.7% 62.5% 63.5% 5% 58.6% 72.2% 56.9% 59.5% 60.4% 10% 55.9% 69.0% 54.3% 56.8% 57.7% 15% 53.5% 66.0% 51.9% 54.3% 55.2%
Key updates by portfolio sector are outlined below.
Hospitality (40.4 per cent of funded investment portfolio)
-- The largest hotel exposure included in the portfolio as at 30 June 2021 was Hotel, Spain (accounting for27.6 per cent of current hospitality exposure and 11.1 per cent of the total funded investment portfolio). Thiscoastal resort hotel completed a heavy refurbishment programme in 2020 and the hotel re-opened during May 2021 as aluxury destination 5-star property. The property has achieved very high guest ratings since opening and forwardbookings for the remainder of the season are excellent, with average room rates ahead of business plan. Thisdemonstrates the strength of pent-up demand for leisure travel, particularly to resort locations. Subsequent to 30June 2021 the Group was pleased to announce that during July 2021 it received the full and final repayment of thisloan. Following repayment of this loan, the Group's exposure to the hospitality sector reduced to 33 per cent ofthe investment portfolio as at 30 June 2021.
-- The next most significant hotel exposure is Hotel, Dublin which accounted for 25.0 per cent of the 30June 2021 hospitality exposure. As previously reported this property has, to a significant extent, mitigated thenegative impacts of reduced conference and leisure business caused by the pandemic, by leasing the property to theIrish government's Health Service Executive ("HSE"). This contract is expected to be in place for most of 2021. Thesponsor has continued to work on value accretive asset management initiatives across the wider estate which issubject to the loan's security and this has been verified such that following a recently updated formal valuation,the loan has been further de-risked with the loan to value ratio decreasing by approximately 2.6 per cent.
-- The UK hotel exposures predominately comprise of three hotels (Hotel, Oxford, Hotel, Scotland and Hotel,North Berwick, accounting for 40.2 per cent of hotels in the portfolio as at 30 June 2021). These hotels have beenundergoing comprehensive refurbishments in line with the underwritten business plan. Hotel, Oxford and Hotel,Scotland partially reopened over summer 2021 with full opening of all three hotels anticipated by the end ofSeptember. They re-open with the benefit of attractive new branding and a fully refurbished offering which isexpected to be well placed to benefit from pent-up UK domestic leisure travel demand, particularly with two ofthese assets being located directly adjacent to well-known landmark Scottish golf courses.
-- Remaining UK hotel exposure as at 30 June 2021 comprises a 50-key hotel ground up development within theHotel and Residential, UK loan. Construction is progressing well, with completion forecast in 2022. This loan isresidential-led and the value of pre-sold residential units is higher than the total loan commitment (inclusive ofthe hotel), which very significantly reduces hospitality exposure on this loan.
All hospitality loans have adequate resources to meet their cash needs in the medium term.
Retail (12.7 per cent of funded investment portfolio)
-- The Group's exposure to retail is predominantly comprised of the "Three Shopping Centres, Spain" and"Shopping Centre, Spain" loans. These are the only stand-alone retail loans in the portfolio and comprise 11 percent of the Group's total funded investment portfolio. All other retail exposure is contained in a limited numberof mixed use portfolios where the retail sector represents less than 25 per cent of the total loan balance.
-- With pandemic related restrictions beginning to be eased, along with vaccine progress in Spain being oneof the strongest in Continental Europe, retail footfall traffic is beginning to increase. Footfall in May 2021 hadrecovered, on average, to over 70 per cent of the same period, pre-pandemic, in 2019. This is expected to continueto increase over the coming months. Occupancy on average in the centres has remained robust with limited tenantfailures in contrast to the level of retailer insolvencies in the UK and US. The sponsor's asset manager has beensuccessful in leasing up some vacant space to gym operators and sports brands in particular, amongst others. Thishas involved the sponsor injecting new equity into the deals in order to assist with capital expenditure for newstore fit outs and they continue to be very actively engaged in the assets.
-- Across the investment portfolio, loans with retail exposure continue to have adequate cash reserves andunderlying income generation to pay interest.
Construction & heavy refurbishment (25.2 per cent of funded investment portfolio)
-- Over 95 per cent of the Group's construction and heavy refurbishment loans are located in the UK. Theseprojects have continued to operate on site throughout the period since the outbreak of the pandemic, albeit attimes, on-site capacity was reduced for safety reasons. Notwithstanding this, all projects are progressingsatisfactorily and no unfunded cost overruns have occurred.
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-- Non-essential construction sites in the Republic of Ireland were mandated by the government to close from8 January 2021 through to early May 2021; however we note that the Group's exposure to Irish construction loans islimited to under one per cent of total loans funded as of 30 June 2021. In any event this project has remainedadequately capitalised with no unfunded cost overruns projected, and we do not consider that the delay in timing offinal completion to adversely impact asset value or the loan.
-- Please note that the construction & heavy refurbishment exposure noted above will include assets alsoincluded in hospitality and in office, industrial, logistics & residential.
Office, industrial, logistics, healthcare, life science & residential (46.9 per cent of funded investment portfolio)
-- These sectors continue to display resilient characteristics in terms of overall performance with highrent collection and robust rental and investment yields. Sponsors with asset sell down strategies are succeeding inachieving above underwrite pricing, particularly on the disposals that we have witnessed within the industrial andresidential sectors.
-- The Group's exposure to office is 22.2 per cent of the funded investment portfolio. Within this sector,the exposures are well diversified across Europe. The largest exposure within this sector represents 31 per cent oftotal office and just 7 per cent of the total investment portfolio. This loan has a high occupancy of institutionaltenants in prime city centre locations. While generally new lease tenant incentives have increased slightly as aresult of a slower take up related to pandemic disruption, rental levels and investment yields based on actualtransactions have remained fairly robust. The Group's weighted average loan to value of the loans with a greaterthan 50 per cent office weighting is 64 per cent which reflects a modest position.
-- The Group's exposure to residential is under construction product, of which a large proportion has beenpre-sold. The level of legally exchanged unit pre-sales has now reached a level that exceeds the total loancommitment, which has therefore significantly de-risked the loan.
LIQUIDITY AND HEDGING
The Group is very modestly levered with net debt of GBP9.6 million (2.3 per cent of NAV) at 30 June 2021 and has significant liquidity available with undrawn revolving credit facilities (see note 3.g) of the 2020 Annual Report for further information) of GBP115.0 million to fund existing commitments as summarised below.
As at 30 June 2021 GBP million Drawn on Group debt facilities (11.0) Cash at hand 1.4 Net Debt (9.6) Undrawn Debt Facilities available to Group 115.0 Undrawn Commitments to Borrowers (36.8) Available Capacity 78.2
The way in which the Group's borrowing facilities are structured means that it does not need to fund mark to market margin calls. The Group does have the obligation to post cash collateral under its hedging facilities. However, cash would not need to be posted until the hedges were more than GBP20 million out of the money. The mark to market of the hedges at 30 June 2021 was GBP11.0 million (in the money) and with the robust hedging structure employed by the Group, cash collateral has never been required to be posted since inception.
The Group has the majority of its investments currently denominated in Euros (although this can change over time) and is a sterling denominated group. The Group is therefore subject to the risk that exchange rates move unfavourably and that a) foreign exchange losses on the loan principal are incurred and b) that interest payments received are lower than anticipated when converted back to Sterling and therefore returns are lower than the underwritten returns.
The Group manages this risk by entering into forward contracts to hedge the currency risk. All non-Sterling loan principal is hedged back to Sterling to the maturity date of the loan (unless it was funded using the revolving credit facilities in which case it will have a natural hedge). Interest payments are generally hedged for the period for which prepayment protection is in place. However, the risk remains that loans are repaid earlier than anticipated and forward contracts need to be broken early. In these circumstances the forward curve may have moved since the forward contracts were placed which can impact the rate received. In addition, if the loan repays after the prepayment protection, interest after the prepayment protected period may be received at a lower rate than anticipated leading to lower returns for that period. Conversely the rate could have improved and returns may increase.
TRANSITION TO SONIA AND LIBOR
The Investment Manager is overseeing the transition from LIBOR to SONIA for each of the loans impacted on behalf of the Group. The Group has ensured that loan agreements for the current portfolio are in a form which accommodates the flexibilities required to manage the transition. In addition, the two new Sterling loans entered into during 2021 (and referred to elsewhere) have interest charges linked to SONIA rather than LIBOR.
EXPECTED CREDIT LOSSES (IMPAIRMENT)
All loans within the portfolio are classified and measured at amortised cost less impairment.
Under IFRS 9 a three stage approach for recognition of impairment is used, based on whether there has been a significant deterioration in the credit risk of a financial asset since initial recognition. These three stages then determine the amount of impairment provision recognised.
At initial
recognition Recognise a loss allowance equal to 12 months expected credit losses resulting from default
(if asset is not events that are possible within 12 months.
credit impaired)
After initial
recognition:
Credit risk has not increased significantly since initial recognition. Recognise 12 months
expected credit losses.
Stage 1
Interest income is recognised by applying the effective interest rate to the gross carrying
amount of financial assets.
Credit risk has increased significantly since initial recognition. Recognise lifetime expected
losses.
Stage 2
Interest income is recognised by applying the effective interest rate to the gross carrying
amount of financial assets.
Credit impaired financial asset. Recognise lifetime expected losses.
Stage 3
Interest income is recognised by applying the effective interest rate to the amortised cost (that
is net of the expected loss provision) of financial assets.
The Group has not recognised expected credit losses at initial recognition on any of its loans due to the detailed and conservative underwriting undertaken, robust loan structures in place and a strong equity cushion with an average LTV of 63.5 per cent (based on the latest available valuation for each asset).
A detailed description of how the Group determines on what basis loans are classified as stage 1, stage 2 and stage 3 post initial recognition is provided in page 65 to the full year accounts.
Six loans with a carrying value as at 30 June 2021 of GBP160,620,492 (31 December 2020: GBP150,331,450) have been classified as stage 2 since 30 June 2020. No loans have been moved to Stage 2 or to Stage 3 during 2021. Subsequent to 30 June 2021 one of the loans classified as stage 2 (with a 30 June 2021 carrying value of GBP46.6 million) was repaid by the borrower.
FAIR VALUE OF THE PORTFOLIO COMPARED TO AMORTISED COST
The table below represents the fair value of the loans based on a discounted cash flow basis using a range of potential discount rates.
Discount Rate Value Calculated % of book value 4.7% GBP 439.3m 104.4% 5.02% GBP 436.3m = fair value 103.8% 5.2% GBP 434.6m 103.3% 5.7% GBP 429.9m 102.2% 6.2% GBP 425.3m 101.1% 6.7% GBP 420.8m = book value 100.0% 7.2% GBP 416.4m 98.9% 7.7% GBP 412.0m 97.9% 8.2% GBP 407.8m 96.9% 8.7% GBP 403.6m 95.9%
The effective interest rate ("EIR") - i.e. the discount rate at which future cash flows equal the amortised cost, is 6.7 per cent. We have sensitised the cash flows at EIR intervals of 0.5 per cent up to +/- 2.0 per cent. The table reflects how a change in market interest rates or credit risk premiums may impact the fair value of the portfolio versus the amortised cost. Further, the Group considers the EIR of 6.7 per cent to be conservative as many of these loans were part of a business plan which involved transformation and many of these business plans are advanced in the execution and therefore significantly de-risked from the original underwriting and pricing (for example the Hotel, Spain). The volatility of the fair value to movements in discount rates is low due to the low remaining duration of most loans.
RELATED PARTY TRANSACTIONS
Related party disclosures are given in note 15 to the Unaudited Condensed Consolidated Financial Statements.
FORWARD LOOKING STATEMENTS
Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Starwood European Finance Partners Limited
Investment Manager
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Principal Risks
PRINCIPAL RISKS FOR THE REMAINING SIX MONTHS OF THE YEAR TO 31 DECEMBER 2021
The principal risks assessed by the Board relating to the Group were disclosed in the Annual Report and Audited Consolidated Financial Statements for the year to 31 December 2020 on pages 12 to 15. The Board and Investment Manager have reassessed the principal risks and do not consider these risks to have changed. Therefore, the following are the principal risks assessed by the Board and the Investment Manager as relating to the Group for the remaining six months of the year to 31 December 2021:
CYBERCRIME
The Group is subject to the risk of unauthorised access into systems, identification of passwords or deleting data, which could result in loss of sensitive data, breach of data physical and electronic, amongst other potential consequences.
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, consequently, 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 the principal on loans may be repaid earlier than anticipated, causing the return on affected investments to be less than expected. Furthermore, if repayments are not promptly re-invested this may result in cash drag, which may lower portfolio returns. As a result, the level of dividends to be paid by the Company may fluctuate and there is no guarantee that any such dividends will be paid. Since the Covid-19 pandemic the shares have traded at a discount to NAV per share and shareholders may be unable to realise their investments through the secondary market at NAV per share.
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.
FOREIGN EXCHANGE RISK
The majority of the Group's investments are Euro denominated (circa 56.7 per cent as at 30 June 2021). 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.
Forward contracts used to manage the above risk could be broken early and in these circumstances, the forward curve may have moved since the forward contracts were placed which can impact the rate received. The Group is subject to the risk that it will need to post cash collateral against the mark to market on the forward contracts which could lead to liquidity issues or leave the Group unable to hedge new non-Sterling investments.
MARKET DETERIORATION RISK
The Group's investments are comprised principally of debt investments in the UK, and the European Union's internal market and it is therefore exposed to economic movements and changes in these markets. Any deterioration in the global, UK or European economy could have a significant adverse effect on the activities of the Group and may result in significant loan defaults or impairments.
The Covid-19 pandemic has had a material impact on global economies and on the operations of the Group's borrowers during 2020 and this has continued in 2021. The Covid-19 pandemic presents a major risk to growth and the full impact of the consequences for the world economy is unclear.
The UK's departure from the European Union represents a potential threat to its economy as well as wider Europe. On a cyclical view, national economies across Europe appear to be heading at best towards lower growth and alongside the economic impact of Covid-19, towards recession.
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.
RISK OF DEFAULT UNDER THE REVOLVING CREDIT FACILITIES
The Group is subject to the risk that a borrower could be unable or unwilling to meet a commitment that it has entered into with the Group as outlined above under market deterioration risk. As a consequence of this, the Group could breach the covenants of its revolving credit facilities and fall into default itself.
Governance
Board of Directors
STEPHEN SMITH | Non-executive Chairman - Chairman of the Board
Stephen is Chairman of The PRS REIT which currently trades on the Main Market, and a non-executive director of Sancus Lending Group Limited (appointed on 11 May 2021) which trades on the AIM of the London Stock Exchange. He was (resigned 1 May 2021) also Chairman of AEW UK Long Lease REIT plc which trades on the Main Market of the London Stock Exchange. 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.
JOHN WHITTLE | Non-executive Director -
Audit Committee Chairman and Senior Independent Director
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 Globalworth Real Estate Investments Limited, Sancus Lending Group Limited (formerly GLI Finance Limited) (both listed on AIM), Chenavari Toro Limited Income Fund Limited (listed on the SFS segment of the Main Market of the London Stock Exchange), and The Renewable Infrastructure Group Limited, a FTSE 250 company. He was previously Finance Director of Close Fund Services, a large independent fund administrator, where he successfully initiated a restructuring of client financial reporting services and was a key member of the business transition team. Prior to moving to Guernsey, he was at PriceWaterhouse in London before embarking on a career in business services, predominantly telecoms. He co-led the business turnaround of Talkland International (which became Vodafone Retail) and was directly responsible for the strategic shift into retail distribution and its subsequent implementation; he subsequently worked on the private equity acquisition of Ora Telecom. John is a resident of Guernsey.
SHELAGH MASON | Non-executive Director
Shelagh Mason is a solicitor specialising in English commercial property who retired as a consultant with Collas Crill LLP on 31st October 2020. She is the non-executive Chairman of the Channel Islands Property Fund Limited listed on the International Stock Exchange and is also non-executive Chairman of Riverside Capital PCC, sits on the board of Skipton International Limited, a Guernsey Licensed bank, and is a non-executive Director of The Renewable Infrastructure Group Limited, a FTSE 250 company, and Ruffer Investment Company Limited. Previously Shelagh was a member of the board of directors of Standard Life Investments Property Income Trust, a property fund listed on the London Stock Exchange for 10 years until December 2014. She retired from the board of Medicx Fund Limited, a main market listed investment company investing in primary healthcare facilities, in 2017 after 10 years on the board. She is a past Chairman of the Guernsey Branch of the Institute of Directors and a member of the Chamber of Commerce, the Guernsey International Legal Association and she also holds the IOD Company Direction Certificate and Diploma with distinction. Shelagh is a resident of Guernsey.
CHARLOTTE DENTON | Non-executive Director (appointed 1 January 2021)
During Charlotte's executive career she worked in various locations through roles in diverse organisations, including KPMG, Rothschild, Northern Trust, a property development start up and a privately held financial services group. She has served on boards for over fourteen years and is currently a non-executive Director of various entities including Butterfield Bank (Guernsey) Limited, the GP boards of private equity groups Cinven and Hitec and the Investment Manager for Next Energy. Charlotte is a Fellow of the Institute of Chartered Accountants in England and Wales and holds a degree in politics from Durham University. She is also a member of the Society of Trust and Estate Practitioners, a Chartered Director and a fellow of the Institute of Directors. Charlotte is a resident of Guernsey.
Statement of Directors' Responsibilities
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To the best of their knowledge, the Directors of Starwood European Real Estate Finance Limited confirm that: 1. The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34,"Interim Financial Reporting" as adopted by the European Union as required by DTR 4.2.4 R; and 2. The Interim Financial Report, comprising of the Chairman's Statement, the Investment Manager's Report andthe Principal Risks, meets the requirements of an interim management report and includes a fair review ofinformation required by:i. DTR 4.2.7R of the UK Disclosure and Transparency Rules, being an indication of important events thathave occurred during the first six months and their impact on the Unaudited Condensed Consolidated FinancialStatements, and a description of the principal risks and uncertainties for the remaining six months; and ii. DTR 4.2.8R of the UK Disclosure and Transparency Rules, being related party transactions that havetaken place in the first six months and that have materially affected the financial position or performance ofthe Company during that period, and any material changes in the related party transactions disclosed in thelast Annual Report.
By order of the Board
For Starwood European Real Estate Finance Limited
Stephen Smith John Whittle Chairman Director 6 September 2021 6 September 2021
Interim Financial Statements
Independent Review Report to Starwood European Real Estate Finance Limited
Report on the unaudited condensed consolidated financial statements
OUR CONCLUSION
We have reviewed Starwood European Real Estate Finance Limited's unaudited condensed consolidated financial statements (the "interim financial statements") in the Interim Financial Report and Unaudited Condensed Consolidated Financial Statements (the "Interim Report") of Starwood European Real Estate Finance Limited for the 6-month period ended 30 June 2021. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
WHAT WE HAVE REVIEWED
The interim financial statements comprise:
-- the unaudited condensed consolidated statement of financial position as at 30 June 2021;
-- the unaudited condensed consolidated statement of comprehensive income for the period then ended;
-- the unaudited condensed consolidated statement of cash flows for the period then ended;
-- the unaudited condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is The Companies (Guernsey) Law, 2008 and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE REVIEW
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
The Interim Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
WHAT A REVIEW OF INTERIM FINANCIAL STATEMENTS INVOLVES
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants,
Guernsey, Channel Islands
6 September 2021 a. The maintenance and integrity of the Starwood European Real Estate Finance Limited website is theresponsibility of the directors; the work carried out by the auditors does not involve consideration of thesematters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to thefinancial statements since they were initially presented on the website. b. Legislation in Guernsey governing the preparation and dissemination of financial statements may differfrom legislation in other jurisdictions.
Unaudited Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2021
1 January 2021 to 1 January 2020 to 1 January 2020 to 31
30 June 2021 30 June 2020 December 2020
Notes
GBP GBP GBP
(unaudited) (unaudited) (audited)
Income
Income from loans advanced 7 14,472,491 14,433,090 29,052,521
Net foreign exchange (losses) / gains 3 (1,279,202) 4,281,241 5,993,767
Net changes in fair value of financial assets at 13 - 1,097,722 1,097,722
fair value through profit or loss
Total income 13,193,289 19,812,053 36,144,010
Expenses
Investment management fees 15 1,561,503 1,584,891 3,186,943
Credit facility commitment fees 414,060 376,430 762,074
Credit facility interest 380,607 508,194 945,771
Legal and professional fees 174,184 155,133 288,111
Administration fees 172,485 154,606 331,591
Other expenses 127,943 94,259 198,350
Audit and non-audit fees 117,763 127,885 227,386
Directors' fees and expenses 15 89,500 69,991 152,564
Broker's fees and expenses 25,000 - 50,000
Agency fees - 10,781 10,781
Total operating expenses 3,054,645 3,082,170 6,153,571
Operating profit for the period / year before tax 10,138,644 16,729,883 29,990,439
Taxation 14 58,388 59,808 81,953
Operating profit for the period / year 10,080,256 16,670,075 29,908,486
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign (190,056) 292,900 232,417
operations
Other comprehensive (loss) / income for the period (190,056) 292,900 232,417
/ year
Total comprehensive income for the period / year 9,890,200 16,962,975 30,140,903
Weighted average number of shares in issue 4 408,968,207 413,219,398 412,469,890
Basic and diluted earnings per Ordinary Share 4 2.46 4.03 7.25
(pence)
The accompanying notes form an integral part of these Unaudited Condensed Consolidated Financial Statements.
Unaudited Condensed Consolidated Statement of Financial Position
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September 07, 2021 02:00 ET (06:00 GMT)
