REG-Starwood European Real Estate Finance Ltd SWEF: Full Year Results for the Year Ended 31 December 2024
03/04/2025 07:04
============
Starwood European Real Estate Finance Ltd (SWEF)
SWEF: Full Year Results for the Year Ended 31 December 2024
03-Apr-2025 / 07:00 GMT/BST
══════════════════════════════════════════════════════════════════════════
Starwood European Real Estate Finance Limited
Full Year Results for the Year Ended 31 December 2024
Starwood European Real Estate Finance Limited (the “Company”) and its
subsidiaries (“SEREF” or the “Group”), a leading investor managing a
diverse portfolio of high-quality real estate debt investments in the UK
and Europe and now pursuing an orderly realisation and return of capital
to shareholders, is pleased to announce Full Year Results for the year
ended 31 December 2024.
Highlights for the period, 12 months ended 31 December 2024
▪ Asset realisation progress – during the year a total of £109 million,
42 per cent of the Group’s 31 December 2023 total funded loan
portfolio, has been repaid, comprising the repayment of five loans:
◦ £42.6 million, Hotel, Scotland
◦ €32.8 million, Three Shopping Centres, Spain
◦ €22.9 million, Hotel, Dublin
◦ €12.2 million, Shopping Centre, Spain
◦ £8.8 million Hotel and Office, Northern Ireland
▪ Significant cash returns to Shareholders totalled £125.0 million
during the year (in addition to the £85.0 million returned to
Shareholders in 2023) from the proceeds of loan repayments and cash
held at the beginning of the year across the instalments:
◦ February 2024: c.£20 million
◦ March 2024: c.£25 million
◦ July 2024: c.£80 million
▪ Dividends continue uninterrupted totalling 5.5 pence per Ordinary
share.
▪ Strong cash generation – based on current forecasts, the portfolio is
expected to continue to support an annual dividend payment of 5.5
pence per Ordinary share.
▪ Income stability – all contractual loan interest and scheduled
amortisation payments have once again been paid in full.
▪ Inflation protection – 84 per cent of the portfolio is contracted at
floating interest rates (with floors).
▪ Borrowers of loans classified as Stage 1 and Stage 2 remain adequately
capitalised and are expected to continue to pay loan interest and
capital repayments in line with contractual obligations.
▪ Solid portfolio performance – the loan book is performing broadly in
line with expectations with its defensive qualities reflected in the
Group’s continued NAV stability in a challenging macro-economic
environment (save for the impact of the impairment provision made in
relation to the Office Portfolio, Ireland loan).
▪ 81% share price total return since inception in December 2012.
▪ The average remaining loan term of the portfolio is 1.2 years, with
the final loan being contractually due to repay by the end of 2026 –
as of 31 December 2024 (subject to any permitted extensions which may
be granted in the best interests of the shareholders).
▪ Significant equity cushion – the weighted average Loan to Value for
the portfolio as of 31 December 2024 is 64 per cent. With the
exception of the Office Portfolio, Ireland loan, a significant equity
cushion continues to exist to the Company’s loan basis.
Post period-end Highlights
• One significant repayment concerning a £47.3 million loan (Hotels, UK)
that was repaid in full.
• An additional £46.0 million of cash was returned to Shareholders in
February 2025.
Portfolio Statistics
As at 31 December 2024, the portfolio was invested in line with the
Group’s investment policy. The key portfolio statistics are summarised
below:
31 December 2024 31 December 2023
Number of investments 7 12
Percentage of currently invested 84.3% 90.5%
portfolio in floating rate loans*
Invested Loan Portfolio unlevered 9.1% 8.2%
annualised total return*
Weighted average portfolio LTV - to 20.6% 14.7%
Group first £*
Weighted average portfolio LTV - to 63.5% 61.8%
Group last £*
Average remaining loan term 1.2 years 1.4 years
Net Asset Value £194.9m £327.3m
Loans advanced at amortised cost
(including accrued income and net of £149.5m £264.1m
impairment provisions)
Cash £45.7m £63.8m
Other net liabilities (including
financial assets held at fair value (£0.3m) (£0.6m)
through profit or loss)
*Alternative performance measure
John Whittle, Chairman of the Company commented:
“During the year 42 per cent of the Group’s 31 December 2023 funded
portfolio was repaid across five investments. Further post-period end,
this positive momentum has been maintained with a significant £47.3
million loan repayment. All of these positive results have enabled us to
return £125 million to shareholders in three instalments during 2024 and
£46 million in 2025 to date.
“Save for the impact of the provision made in relation to the Office
Portfolio, Ireland loan, I’m pleased to report that the loan book is
performing broadly in line with expectations and that borrowers remain
adequately capitalised.
“With only six investments now remaining in the portfolio, I look forward
to keeping shareholders informed on our progress to realise the remaining
investments and continue returning capital promptly to shareholders while
sustaining regular quarterly dividend payments.”
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited as Company
Secretary +44 203 5303 630
Duke Le Prevost
Starwood Capital +44 (0) 20 7016 3655
Duncan MacPherson
Jefferies International Limited +44 (0) 20 7029 8000
Gaudi Le Roux
Harry Randall
Ollie Nott
Burson Buchanan +44 (0) 20 7466 5000
Helen Tarbet +44 (0) 07788 528143
Henry Wilson
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 conduct an orderly realisation of the assets of the
Group. 1 www.starwoodeuropeanfinance.com.
The Group's assets are managed by Starwood European Finance Partners
Limited, an indirect wholly owned subsidiary of Starwood Capital Group.
Starwood European Real Estate Finance
Annual Report and Audited Consolidated Financial Statements
for the year ended 31 December 2024
Overview
Financial Highlights
Key Highlights Year ended Year ended
31 December 2024 31 December 2023
NAV per Ordinary Share 100.49 p 104.35 p
Share Price 91.8 p 90.4 p
NAV total return (1) 2.1% (2) 6.6% (2)
Share Price total return (1) 8.3% (2) 10.5% (2)
Total Net Assets £194.9 m £327.3 m
Loans advanced at amortised cost
(including accrued income and net of £149.5 m £264.1 m
impairment provision)
Financial assets held at fair value £1.0 m £1.0 m
through profit or loss
Cash and Cash Equivalents £45.7 m £63.8 m
Other net liabilities (£1.3 m) (£1.6 m)
Dividends per Ordinary Share 5.5 p (3) 6.0 p (4)
Invested Loan Portfolio unlevered 9.1% 8.2%
annualised total return (1)
Ongoing charges percentage (1) 1.3% 1.1%
Weighted average portfolio LTV to Group 20.6% 14.7%
first £ (1)
Weighted average portfolio LTV to Group 63.5% 61.8%
last £ (1)
(1) Further explanation and definitions of the calculation is contained in
the section “Alternative Performance Measures” at the end of this
financial report.
(2) Source: Morningstar. The Morningstar calculations include dividends in
the year in which the payments are made to shareholders. This differs to
the approach taken by the Company in this table which is to show dividends
in the year in relation to which they are declared (see footnotes (3) and
(4) below).
The differences between dividends paid and declared are shown below:
2024 2023
Dividends declared as disclosed by the Company (by the year to 5.5p 6.0p
which they relate)
Dividends paid during the year and included in the Morningstar 6.0p 7.5p
calculation
(3) During 2024 the Company declared a dividend of 1.375 pence per
Ordinary Share in relation to each of the first three quarters of 2024
with the fourth quarter dividend of 1.375 pence per Ordinary Share
declaration being made in January 2025. These four dividends declared all
related to income earned in 2024 and are therefore included within the 5.5
pence per Ordinary Share dividend shown in the table above for the year
ended 31 December 2024.
(4) During 2023 the Company declared a dividend of 1.375 pence per
Ordinary Share in relation to each of the first three quarters. The
Company also declared a dividend of 1.875 pence per Ordinary Share in
January 2024. These four dividends declared all related to income earned
in 2023 and are therefore included within the 6.0 pence per Ordinary Share
dividend shown in the table above for the year ended 31 December 2023.
SHARE PRICE PERFORMANCE
As of 31 December 2024, the NAV was 100.49 pence per Ordinary Share (2023:
104.35 pence) and the share price was 91.8 pence (2023: 90.4 pence).
PREMIUM / DISCOUNT CUM-FAIR
The Company’s share price has been volatile since the market turbulence
caused by Covid-19 in March 2020. The volatility has been driven primarily
by market conditions and trading flows rather than a change in the
Company’s performance.
Objective and Investment Policy
INTRODUCTION
Starwood European Real Estate Finance Limited (the “Company”) was
established in November 2012 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, together with its 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”), has
provided a regular dividend to shareholders whilst preserving capital by
limiting downside risk.
On 31 October 2022, the Company announced, that following a review of the
Company’s strategy and advice sought from its advisers, the Board intended
to recommend to shareholders that the investment objective and policy of
the Company were amended such that the Board can pursue a strategy of
orderly realisation and the return of capital over time to shareholders
(the “Proposed Orderly Realisation”). If approved by the shareholders, the
Company would seek to return cash to shareholders in an orderly manner as
soon as reasonably practicable following the repayment of loans, while
retaining sufficient working capital for ongoing operations and the
funding of committed but currently unfunded loan commitments.
On 28 December 2022, a Circular relating to the Proposed Orderly
Realisation and containing a Notice of Extraordinary General Meeting (EGM)
was published. The Circular set out details of, and sought shareholder
approval for, certain proposals (the “Proposals”). The Proposals were:
(a) a change to the Company’s Investment Policy to reflect the fact that
the Company will cease making any new investments and will pursue a
realisation strategy of the remaining assets in the Company’s portfolio;
and
(b) adoption of new articles which provide for the periodic Compulsory
Redemption of the Company’s Shares at the discretion of the Directors to
allow cash to be returned to shareholders following the full or partial
realisation of assets.
On 27 January 2023, these Proposals were approved at the EGM.
The Investment Objective and Policy which applied prior to the approval of
the Proposals are set out in the 2021 Annual Report which can be found on
the Company’s website https://starwoodeuropeanfinance.com. The Investment
Objective applied up to the date of the approval of the Proposals was 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
Investment Policy applied up to the date of the approval of the Proposals
was to invest in a diversified portfolio of real estate debt investments
in the UK and the European Union's internal market as the Group had done
since its initial public offering (IPO) in December 2012.
Set out below is the current Investment Objective and Policy of the
Company following the approval of the Proposals.
INVESTMENT OBJECTIVE
Following the Company’s EGM on 27 January 2023, the Company’s investment
objective is to conduct an orderly realisation of the assets of the Group.
INVESTMENT POLICY
The assets of the Group will be realised in an orderly manner, returning
cash to shareholders at such times and in such manner as the Board may, in
its absolute discretion, determine. The Board will endeavour to realise
all of the Group’s investments in a manner that achieves a balance between
maximising the net value received from those investments and making timely
returns to shareholders.
The Group may not make any new investments save that:
• investments may be made to honour commitments under existing
contractual arrangements or to preserve the value of any underlying
security; and
• cash held by the Group pending distribution will be held in either
cash or cash equivalents for the purposes of cash management.
Subject to the above restrictions, the Company retains the ability to seek
to enhance the returns of selected loan investments through the economic
transfer of the most senior portion of such loan investments which would
be by way of syndication, sale, assignment, sub-participation or other
financing (including but not limited to true sale securitisation,
repurchase transactions and loan-on-loan financing) 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.
Transactions with Starwood Capital Group or Other Accounts
Subject to the above restrictions, the Company retains the ability to
transact with 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 furtherance of
the Company’s investment objective to conduct an orderly realisation of
the Group’s assets (for example, sales of the Group’s assets to companies
within the Starwood Capital Group or certain Other Accounts or amendments
to pre-existing arrangements). In order to manage the potential conflicts
of interest that may arise as a result of any 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 and Guidance, 2021 issued by the
Guernsey Financial Services Commission (“Commission”) under The Protection
of Investors (Bailiwick of Guernsey) Law, 2020, as amended, and, where
required by the Listing Rules, Shareholder approval would be obtained in
accordance with the listing rules issued by the Financial Conduct
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.
While Starwood Capital Group and certain Other Accounts are party to
certain pre-existing co-investment commitments, no new co-investment
arrangements are expected to be entered into by, or in relation to, the
Company in the future during the orderly realisation of the Company’s
assets.
The change in investment objective does not impact the below
classifications.
Borrowings
The Company may utilise borrowings from time to time for working capital
and general corporate purposes provided such borrowings will not exceed an
amount equal to 30 per cent of the Net Asset Value immediately following
the drawdown of the borrowings.
In calculating the Company’s borrowings for this purpose, any liabilities
incurred under its foreign exchange hedging arrangements (described below)
shall be disregarded.
Hedging
The Company will not enter into derivative transactions for purely
speculative purposes. However, the Company’s investments have been
typically made in the currency of the country where the underlying real
estate assets are located. The Company may continue to 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 have been 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.
FCA Listing Rule restrictions
The Company will continue to comply with the restrictions imposed by the
Listing Rules in force and as amended from time to time.
Any material change to the Company’s published investment policy will be
made only with the prior approval of the Financial Conduct Authority and
of shareholders by ordinary resolution at a general meeting of the
Company.
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 and the Company remains listed:
• 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 will, 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. 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.
Chairman’s Statement
JOHN WHITTLE | Chairman
2 April 2025
Dear Shareholder,
On behalf of the Board, it is my pleasure to present the Annual Report and
Audited Consolidated Financial Statements of Starwood European Real Estate
Finance Limited (the “Group”) for the year ended 31 December 2024.
The UK’s economic growth in 2024 was slower than initially forecast in
part due to the uncertainty around the scale and composition of tax
increases in the Autumn Budget at the end of October. UK base rates had
been forecast to decrease more and quicker in 2024 than the cumulative 0.5
per cent decrease (in two separate cuts) in the latter part of the year.
The UK’s Monetary Policy Committee has said that the global economy is
under strain amid growing geopolitical tensions and trade policy
uncertainty and cautioned that the UK economy would be impacted if the US
government does impose tariffs on imports into the US. The magnitude and
severity of these changes and pressures on the UK and, indeed, on global
economies will depend on a range of factors; the outlook remains
uncertain.
The 2024 forecast for the EU projected moderate real GDP growth of 0.9 per
cent and the final number is currently estimated to be broadly in line
with the initial projection at 0.8 per cent. The growth outlook for 2025
is slightly higher, but still modest, circa 1.5 per cent. By the start of
2024, inflation had fallen significantly from its peak in 2023 and was
expected to fall further in 2024 but it is still above the European
Central Bank’s medium-term target of 2 per cent. With a low growth rate
and less inflationary pressure than many other major economies the
European Central Bank was able to make four base rate cuts in 2024
totalling 1.0 per cent, leaving the EU deposit rate at the end of 2024 at
3.0 per cent with further cuts expected. Elevated uncertainty, at home and
abroad, will continue to weigh on the EU economy in 2025.
Broadly speaking, real estate values stabilised across the spectrum in
2024, with some values now starting to increase. During late 2022 and
2023, yields had increased as a result of higher interest rates, but this
started to turn during 2024 and almost all asset classes have now seen the
beginning of yield compression. Office yields are a few months behind the
other asset classes but have flattened during 2024 and the outlook is that
they too will begin to compress in 2025. Occupational performance has seen
robust income growth in high quality real estate across all real estate
asset classes, including office. Transaction and investment volumes in
2024 were low in comparison to historic standards, and it is unlikely that
they will increase until investors feel they have entered a more stable
interest rate environment.
The Group’s results for 2024 were also not quite as forecast. On the
positive side all contractual interest and scheduled amortisation payments
have continued to be paid in full and underlying collateral valuations for
most of the portfolio continue to provide reassuring headroom. However, as
you will be aware, in October 2024, the loan sponsor of the Office
Portfolio, Ireland loan provided new operational updates. The Board
subsequently evaluated various business plan scenarios and the associated
uncertainties. As a consequence of this new information, combined with the
challenging local office market dynamics, the Board provisioned for a 50
per cent impairment of the Company’s loan, equivalent to €12.9 million.
The Board, Investment Manager and Investment Adviser consider that there
are a wide range of possible outcomes whereby the loan may have a lesser
or greater degree of recovery due to the ongoing uncertainty related to
the various business plan scenarios. The position is being actively
managed to maximise the opportunity for value recovery. Since October
2024, no material changes to the value of this loan have occurred.
Despite this impairment, during the year the Group returned £125.0 million
to shareholders, in addition to the £85.0 million returned to shareholders
in 2023 and delivered the target 5.5 pence per share dividend to
shareholders.
Shareholders will be aware that following an Extraordinary General Meeting
(‘EGM’) held on 27 January 2023 the objective of the Group is to pursue a
strategy of orderly realisation and the return of capital over time to
shareholders.
The orderly realisation strategy will not result in the liquidation of the
Company in the immediate future or require the Company to dispose of
assets within a defined time frame. The new strategy was approved by 99%
of Shareholders that voted at the EGM held on 27 January 2023, and it is
being implemented in a manner that seeks to maximise value to
shareholders. It is intended that the Company’s listing and target
annualised dividend of 5.5 pence per share will be maintained as long as
feasible during the orderly realisation. The Board anticipates that the
orderly realisation of the assets will happen over a four-to-five-year
period (having started at the beginning of 2023) with periodic share
redemptions continuing to be made as loans are repaid and commitments are
satisfied. As such, the focus of the Board, the Investment Manager and the
Investment Advisor is on achieving the best possible outcome for
shareholders.
Following several loan repayments during 2024 (more details in Divestment
Momentum section below) the portfolio comprised just seven loan assets as
of 31 December 2024.
2024 HIGHLIGHTS
• Asset realisation progress – during the year:
° A total of £109 million, 42 per cent of the Group’s 31 December 2023
total funded loan portfolio, has been repaid, comprising the repayment of
five loans
° Proceeds (along with some cash that was held at the beginning of the
year) were used to return £125 million of cash to shareholders during the
year
• Dividend – on 24 January 2025, the Directors declared a dividend,
which was paid in February, in respect of the fourth quarter of 2024
of 1.375 pence per Ordinary Share – resulting in a dividend of 5.5
pence per Ordinary Share for the full year. The 2025 dividend target
is 5.5 pence per Ordinary Share
• Strong cash generation – based on current forecasts, the portfolio is
expected to continue to support annual dividend payments of 5.5 pence
per Ordinary Share, paid quarterly
• All assets are constantly monitored for changes in their risk profile
– the current investment risk classification of the investments as of
31 December 2024 is listed below:
° Four loan investments equivalent to 67 per cent of the funded portfolio
as of 31 December 2024 were classified in the lowest risk profile, Stage 1
° Two loan investments equivalent to 19 per cent of the funded portfolio
as of 31 December 2024 were classified as Stage 2
° One loan equivalent to 14 per cent of the funded portfolio as of 31
December 2024 was reclassified from Stage 2 to Stage 3 and an impairment
provision of €12.9 million was made against this loan investment
• Income stability – all contractual loan interest and scheduled
amortisation payments paid in full
• Inflation protection – 84 per cent of the portfolio is contracted at
floating interest rates (with floors)
• Solid portfolio performance – the loan book is performing broadly in
line with expectations with its defensive qualities reflected in the
Group’s continued NAV stability in a challenging macro-economic
environment (save for the impact of the impairment provision made in
relation to the Office Portfolio, Ireland loan)
• Borrowers of loans classified as Stage 1 and Stage 2 remain adequately
capitalised and are expected to continue to pay loan interest and
capital repayments in line with contractual obligations
• 81 per cent – share price total return since inception in December
2012
• The average remaining loan term of the portfolio is 1.2 years, with
the final loan being contractually due to repay by the end of 2026 –
as of 31 December 2024 (subject to any permitted extensions which may
be granted in the best interests of the shareholders)
• Significant equity cushion – the weighted average Loan to Value for
the portfolio as of 31 December 2024 is 64 per cent. With the
exception of the Office Portfolio, Ireland loan, a significant equity
cushion continues to exist to the Company’s loan basis.
DIVESTMENT MOMENTUM
In line with the strategic direction of the Group (i.e. the orderly
realisation of assets and the return of capital to shareholders) no new
loans or commitments were made during 2024.
During the year the Group funded £9.9 million in relation to loan
commitments made in prior years which were unfunded. In addition, the
Group capitalised £1.6 million of interest on one loan in line with the
facility agreement.
Repayments received during the year amounted to £109.4 million relating to
five loans which were repaid in full as follows:
• £42.6 million, Hotel, Scotland
• €32.8 million, Three Shopping Centres, Spain
• €22.9 million, Hotel, Dublin
• €12.2 million, Shopping Centre, Spain
• £8.8 million, Hotel and Office, Northern Ireland
In addition, subsequent to year end, one £47.3 million loan (Hotels,
United Kingdom) was repaid in full.
As of 31 December 2021 to 2024 the Group had cash commitments as shown in
the table below.
2021 2022 2023 2024
Funded loans (before impairments) £412.0m £425.9m £262.7m £159.1m
Unfunded Cash Commitments £44.5m £49.0m £36.2m £23.0m
Total £456.5m £474.9m £298.9m £182.1m
The contractual maturity of the Group’s portfolio is set out in the
Investment Manager’s report and shows that as of 31 December 2024, 53 per
cent of invested loan balances held were expected to mature in 2025 and we
look forward to reporting on the progress of repayments over the coming
year.
NAV PERFORMANCE
The table below shows the NAV per share movements over the 12 months to 31
December 2024 by quarter and for the year.
Q1 Q2 Q3 Q4 2024
NAV at beginning of the period 104.35 104.45 104.92 105.61 104.35
Operating income available to 1.82 2.32 2.09 1.88 8.11
distribute (1)
Impairment provision released/(made) on 0.05 0.00 0.00 (5.59) (5.54)
assets classified as Stage 3 (2)
Reclassification of realised FX gains
from not distributable to distributable (1.72) (0.64) 0.00 0.25 (2.11)
income following loan repayments (3)
Realised FX hedging gains reclassified
as available to distribute following 1.56 0.40 0.00 0.00 1.96
loan repayments (4)
Unrealised FX gains/(losses) (5) 0.27 (0.23) (0.03) (0.29) (0.28)
Dividends declared (1.88) (1.38) (1.37) (1.37) (6.00)
NAV as end of period 104.45 104.92 105.61 100.49 100.49
(1) Operating Income available to distribute comprises loan income
recognised in the period less operating costs incurred and before any
impairment is taken into account. It includes realised foreign exchange
gains and losses that are available to distribute except where the
realised gains and losses relate to the settlement of hedges that were
previously rolled forward and the gain or loss on that roll forward was
classified as unavailable to distribute (see notes 3 and 4 below). These
movements are shown separately in the table above.
(2) In March 2024, a loan against which an impairment had been made
against during 2023 was settled in full and part of the impairment
provided for was not utilized and released back as a credit to the income
statement. In October 2024 a loan classified as Stage 3 had an impairment
provision made against it.
(3) On occasion, the Group may realise a gain or loss on the roll forward
of a hedge if it becomes necessary to extend a capital hedge beyond the
initial anticipated loan term. If this situation arises the Group will
separate the realised FX gain or loss from other realised FX gains or
losses and not consider it available to distribute or as a reduction in
distributable profits. The FX gain or loss will only be transferred to
distributable income when the rolled hedge matures or is settled due to
the loan repayment, and the final net gain or loss on the capital hedges
over the life of the loan can be determined. The reconciliation of NAV
above shows the reversing of such an FX gain (or proportion thereof) in Q1
and Q2 following the repayment and/or the partial repayment of such loans.
(4) This relates to the transfer of historic realised gains on capital
hedges that were rolled (as described under note (3) from undistributable
to distributable income due to the final settlement of capital hedges (or
a portion thereof where a loan has only partially repaid) less realised FX
losses during the month on the repayment of loan amounts and the
settlement (or portion thereof) of the rolled hedges.
(5) Unrealised foreign exchange gain/losses relate to the net impact of
changes in the valuation of foreign exchange hedges and the sterling
equivalent value of Euro loan investments (using the applicable month end
rate). Mismatches between the hedge valuations and the loan investments
may occur depending on the shape of the forward FX curve and this causes
some movement in the NAV. These unrealised FX gains / losses are not
considered part of distributable reserves.
CAPITAL REDEMPTIONS AND SHARE PRICE
During the year, the Company redeemed a total of 119,761,309 shares for a
total of £125.0 million as follows:.
Number of shares Price at which shares Total capital returned
redeemed redeemed to Shareholders
Feb-24 19,402,403 £1.0308 £19,999,996
Mar-24 24,110,333 £1.0369 £25,000,003
Jul-24 76,248,573 £1.0492 £80,000,002
2024 119,761,309 £125,000,001
Following the redemption in July 2024 and as of 31 December 2024 the
Company had 193,929,633 shares in issue and the total number of voting
rights was 193,929,633.
Subsequent to year end, in February 2025, the Company redeemed a further
45,889,830 shares at a price of £ 1.0024 per share, resulting in an
additional £ 46.0 million being returned to shareholders. Following this
redemption, the Company has 148,039,803 shares in issue and the total
number of voting rights is 148,039,803. This followed the repayment of one
loan (Hotels, United Kingdom) subsequent to year end which I referred to
above.
During the year the Company’s share price has traded in a range of between
97.8 and 89.0 pence per share. The year end share price was 91.8 pence
reflecting a 8.6 per cent discount to NAV.
DIVIDENDS
Total dividends of 5.5 pence per Ordinary Share were declared in relation
to the year ended 31 December 2024 in line with the target of 5.5 pence
per Ordinary Share. These 2024 financial statements show modest income
reserves which are lower than the announced dividends of 1.375 pence per
share in respect of the fourth quarter of 2024. However, given the current
level of cash flow generated by the portfolio, the Board decided to
maintain its annual dividend target of 5.5 pence per share. Dividend
payments can continue to be made by the Company (as a Guernsey registered
limited company) as long as it passes the solvency test (i.e. it is able
to pay its debts as they come due).
The Board is also mindful of shareholder appetite for a regular source of
income and as such continues to target 5.5 pence per Ordinary Share per
annum (payable quarterly) going forward for as long as feasible during the
orderly realisation.
BOARD COMPOSITION AND DIVERSITY
The Board believes strongly in the value and importance of diversity in
the boardroom and we continue to consider the recommendations of the
Davies, Hampton Alexander and Parker Reports and these recommendations
will be taken into account should the appointment of a new director be
required.
I remain very pleased with the current composition of the Board both in
terms of experience, skills and diversity which places us well for the
upcoming challenges.
As at 31 December 2024, the Company met the targets specified in the
Listing Rules 9.8.6R(9)(a)(i) and (ii) with the Board comprising 50 per
cent women, one of whom is the Senior Independent Director. However, the
Company has not met the target under Listing Rule 9.8.6R(9)(a)(iii) of
having one Director from a minority ethnic background. Please refer to the
Corporate Governance Statement for the Board’s diversity statement.
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 a review of the ongoing
cash flows and the level of cash balances as of the reporting date as well
as forecasts of future cash flows. After making enquiries of the
Investment Manager, Investment Adviser and the Administrator and having
reassessed the principal risks, the Directors considered it appropriate to
adopt the going concern basis of accounting in preparing these
Consolidated Financial Statements.
Notwithstanding the above, and as disclosed in these financial statements,
the strategy of orderly realisation and return of capital to shareholders
over time may result in some material uncertainty as to the longer term
future of the Company and the Group and its longer term ability to
continue as a going concern. The financial statements have not been
modified in respect of this matter.
OUTLOOK
Economic pressures and geopolitical tensions are forecast to continue into
2025.
The focus of the Group for 2025 will be the continued orderly realisation
of the Group’s assets and the return of cash to shareholders over time.
The Board believes it is important to have clear messaging to you, our
shareholders, and we will continue to inform you of the Group’s progress
through our quarterly updates. We welcome any comments you have on our
communication and supply of information to you.
My thanks to all of our services providers for their continued support
over the period.
On behalf of the Board, I would like to close by thanking shareholders for
your commitment and support. I look forward to briefing you again on the
Group’s progress later this year.
John Whittle | Chairman
2 April 2025
Strategic and Business Review
Strategic Report
The Strategic Report describes the business of the Group and details the
uncertainties, principal and emerging risks associated with its
activities.
CORPORATE PURPOSE
Following the EGM held on 27 January 2023, the general corporate purpose
of the Company and the Group is to pursue a strategy of orderly
realisation and the return of capital over time to shareholders.
OBJECTIVE, INVESTMENT POLICY AND BUSINESS MODEL
The Objective and Investment Policy describes the Group’s strategy and
business model and is set out in the Overview section of these Annual
Accounts.
The Investment Manager is Starwood European Finance Partners Limited, a
Company incorporated in Guernsey with registered number 55819 and
regulated by the Commission. The Investment Manager has appointed Starwood
Capital Europe Advisers, LLP (the “Investment Adviser”), an English
limited liability partnership authorised and regulated by the Financial
Conduct Authority, to provide investment advice, pursuant to an Investment
Advisory Agreement.
PERFORMANCE
A review of performance is contained in the Investment Highlights and
Portfolio Review sections of the Investment Manager’s Report.
A number of performance measures are considered by the Board, the
Investment Manager and Investment Adviser in assessing the Company’s
success in achieving its objectives. The Key Performance Indicators
(“KPIs”) used are established industry measures to show the progress and
performance of the Group and are as follows:
• The movement in NAV per Ordinary Share;
• The movement in share price and the discount / premium to NAV;
• The payment of targeted dividends;
• The portfolio yield;
• Ongoing charges as a percentage of undiluted NAV; and
• Weighted average loan to value for the portfolio.
Details of the KPIs achieved are shown in the Financial Highlights
section.
RISK MANAGEMENT
It is the role of the Board to review and manage all risks associated with
the Group, both those impacting the performance and the prospects of the
Group and those which threaten the ongoing viability. It is the role of
the Board to mitigate these either directly or through the delegation of
certain responsibilities to the Audit Committee and Investment Manager.
The Board performs a review of a risk matrix at each Board meeting.
The Board considers the following principal risks could impact the
performance and prospects of the Group but do not threaten the ability of
the Company or the Group to continue in operation and meet its
liabilities. In deciding which risks are principal risks the Board
considers the potential impact and probability of the related events or
circumstances, and the timescale over which they may occur. Consequently,
it has put in place mitigation plans to manage those identified risks.
Details of the principal and emerging risks considered as part of the
review of the risk matrix are highlighted below.
Principal Risks
Financial Market Volatility (risk that dividends do not meet the targeted
levels and that the share price discount persists and widens)
Subsequent to the EGM held on 27 January 2023 the Group’s strategy is for
an orderly realisation of its assets and the return of capital to
shareholders. During the realisation period the Company intends to target
a similar per share level of dividends as previously for as long as this
is feasible and to return capital to shareholders subject to maintaining
sufficient cash to fund as yet unfunded commitments on loans and ongoing
operating costs.
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.
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 March 2020 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.
The Board, along with the Investment Manager and the Investment Adviser,
monitor, review and consider the estimates and assumptions that underpin
the targeted returns of the business and, where necessary, communicate any
changes in those estimates and assumptions to the market.
The Board monitors the level of premium or discount of the share price to
NAV per share and deployed a share buyback programme during 2020, 2021 and
2022 in order to support the share price. The new strategy of returning
capital to shareholders over time should mean that, subject to no
unforeseen negative impacts on the value of investments, shareholders will
receive a return of capital invested over time. In 2024, the Company
returned £125.0 million to shareholders (2023 - £85.0 million).
Strategic Risk (risk that the strategy is not achievable)
Subsequent to the EGM held on 27 January 2023 the Group’s strategy is for
an orderly realisation and return of capital to shareholders. It is
anticipated that the return of capital to shareholders will be completed
over a four to five year period from the beginning of 2023.
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.
The Directors regularly receive information on the performance of the
existing loans, including the performance of underlying assets versus
underwritten business plan and the likelihood of any early repayments, or
the need for any loan amendments.
The Board continues to monitor the revised investment strategy and
performance on an ongoing basis.
Market Deterioration Risk (risk of the economies in which the Group
operates either stagnating or going into recession)
The Group’s investments are comprised principally of debt investments in
the UK, the Republic of Ireland and Spain 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 loan defaults or
impairments.
The economic backdrop created by the Covid-19 pandemic, the situation in
Ukraine, and in the Middle East, the recent US elections and the resultant
unstable global political and economic environment in which the Company is
operating all present a significant risk to European and Global economies.
While the Group has no direct or known indirect involvement with Ukraine,
Russia or the Middle East it may be impacted by the consequences of the
instability caused by the ongoing conflicts and political instability.
The impact of the United Kingdom’s departure from the European Union in
2020 still represents a potential threat to the UK economy as well as
wider Europe. On a cyclical view, the national economies across Europe
appear to be in a period of lower growth, and potentially, alongside the
economic impact of Covid-19, the destabilising impact of the conflicts in
Ukraine and the Middle East and the recent US elections moving towards
recession.
In addition there is the impact of the ongoing, albeit dampened, volatile
inflationary environment to consider (driven by interest rates, energy
costs and costs of living). This environment could make it harder for
borrowers to meet their interest obligations to the Group and to
ultimately repay the loans advanced to them.
The Board have considered the impact of market deterioration on the
current and future operations of the Group and its portfolio of loans
advanced. As a result of the cash held in reserve by the Group and the
underlying quality of the portfolio of loans advanced, both the Investment
Manager and the Board still believe the fundamentals of the portfolio
remain positive and that the Group can adequately support the portfolio of
loans advanced despite current market conditions.
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. The Group is mitigated against this
with an average weighted loan to value of the portfolio of 64 per cent.
Therefore, the portfolio should be able to withstand a significant level
of deterioration before additional credit losses are incurred.
The Investment Adviser has also mitigated the risk of credit losses by
undertaking detailed due diligence prior to the signing of each loan.
Whilst the precise scope of due diligence will have depended on the
proposed investment, such diligence will typically have included
independent valuations, building, measurement and environmental surveys,
legal reviews of property title, assessment of the strength of the
borrower’s management team and key leases and, where necessary, mechanical
and engineering surveys, accounting and tax reviews and know your customer
checks.
The Investment Adviser, Investment Manager and Board have also managed
these risks in the past by ensuring a diversification of investments in
terms of geography, market and type of loan. Such diversification will be
harder to achieve as the company pursues a strategy of orderly realisation
and does not enter into any new investments. The Investment Manager and
Investment Adviser operate in accordance with the guidelines, investment
limits and restrictions as determined by the Board. The Directors review
the portfolio against these guidelines on a regular basis.
The Investment Adviser obtains regular performance reporting from all
borrowers and meets with all borrowers on a regular basis to monitor
developments in respect of each loan and reports to the Investment Manager
and the Board periodically and on an ad hoc basis where considered
necessary.
The Group’s loans are held at amortised cost. The performance of each loan
is reviewed quarterly by the Investment Adviser for any indicators of
significant increase in credit risk, impaired or defaulted loans. The
Investment Adviser also provides their assessment of any expected credit
loss for each loan advanced. The results of the performance review and
allowance for expected credit losses are discussed with the Investment
Manager and the Board.
Two loans within the portfolio are classified as Stage 2 as at 31 December
2024 (increased risk of default). These loans account for 19 per cent of
the portfolio funded by the Group as at 31 December 2024. No expected
credit losses have been recognised against any of these loans, because of
the strong LTVs across the loan portfolio and strong contractual
agreements with borrowers, including against these Stage 2 loans.
One loan (accounting for 14 per cent of the funded portfolio as at 31
December 2024) is currently classed as Stage 3 (ie the loan is considered
to be credit impaired). An impairment provision of £10.8 million has been
provided in these accounts for this loan as at 31 December 2024.
The reasons, estimates and judgements supporting this assessment are
described in the Investment Manager’s report.
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.
The loans in place at 31 December 2024 have been structured so that 84 per
cent of the funded portfolio are floating rate and 100 per cent of these
floating rate loans are subject to interbank rate floors such that the
interest cannot drop below a certain level, which offers some protection
against downward interest rate risk.
The remaining 16 per cent by value of the loans are fixed rate, which
provides protection from downward interest rate movements to the overall
portfolio (but also prevents the Group from benefiting from any interbank
rate rises on these positions).
Foreign Exchange Risk
The majority of the Group’s investments are Sterling denominated (82 per
cent of the funded portfolio as at 31 December 2024) with the remainder of
the funded portfolio being Euro denominated. The Group is subject to the
risk that the exchange rates move unfavourably and that a) foreign
exchange losses on the Euro loan principals are incurred and b) that Euro
interest payments received are lower than anticipated when converted back
to Sterling and therefore returns are lower than the underwritten returns.
The Group manages this risk by entering into forward contracts to hedge
the currency risk. All non-Sterling loan principal is hedged back to
Sterling to the maturity date of the loan.
Interest payments are normally hedged for the period for which prepayment
protection is in place. However, the risk remains that loans are repaid
earlier than anticipated and forward contracts need to be broken early.
In these circumstances, the forward curve may have moved since the forward
contracts were placed which can impact the rate received. In addition, if
the loan repays after the prepayment protection, interest after the
prepayment-protected period may be received at a lower rate than
anticipated leading to lower returns for that period. Conversely, the rate
could have improved, and returns may increase.
As a consequence of the hedging strategy employed as outlined above, the
Group is subject to the risk that it will need to post cash collateral
against the mark to market on foreign exchange hedges which could lead to
liquidity issues or leave the Group unable to hedge changes in
non‑Sterling investments (e.g. extensions of non-Sterling loans).
The Company had approximately £18.9 million (€22.8 million) of hedged
notional exposure with Lloyds Bank plc at 31 December 2024 (converted at
31 December 2024 FX rates).
As at 31 December 2024, the hedges were in the money. If the hedges move
out of the money and at any time this mark to market exceeds £15 million,
the Company is required to post collateral, subject to a minimum transfer
amount of £1 million. This situation is monitored closely, however, and as
at 31 December 2024, the Company had sufficient liquidity to meet
foreseeable cash collateral requirements.
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 commercially sensitive data, breach of data physical and electronic,
amongst other potential consequences. This risk is managed and mitigated
by regular reviews of the Group’s operational and financial control
environment. The matter is also contained within service providers surveys
which are completed by the Group’s service providers and are regularly
reviewed by the Board. No adverse findings in connection with the service
provider surveys have been found. The Company and its service providers
have policies and procedures in place to mitigate this risk, the
cybercrime risk continues to be closely monitored.
Regulatory risk
The Group is also subject to regulatory risk as a result of any changes in
regulations or legislation. Constant monitoring by the Investment Adviser,
Investment Manager and the Board is in place to ensure the Group keeps up
to date with any regulatory changes and compliance with them.
Operational risk
The Group has no employees and is reliant on the performance of
third-party service providers. Failure by the Investment Manager,
Investment Adviser, Administrator or any other third-party service
provider to perform in accordance with the terms of its appointment could
have a material detrimental impact on the operation of the Group.
The Board maintains close contact with all service providers to ensure
that the operational risks are minimised.
Emerging Risks
Emerging risks to the Group are considered by the Board to be trends,
innovations and potential rule changes relevant to the real estate
mortgage and financial sector. The challenge to the Group is that emerging
risks are known to some extent but are not likely to materialise or have
an impact in the near term. The Board regularly reviews and discusses the
risk matrix and has identified climate change as an emerging risk.
Climate change
The consequences that climate change could have are potentially severe but
highly uncertain. The potential high impact of possible losses has done a
lot to raise the awareness of this risk in investment circles. The Board,
in conjunction with the Investment Manager and Investment Adviser,
considered the possible physical and transitional impact of climate change
on properties secured on loans provided by the Group and includes the
consideration of such factors in valuation instructions of the collateral
properties and in considering any potential expected credit losses on
loans. The Investment Adviser considered the possible physical and
transitional impact of climate change as part of the origination process.
In addition, the Board, in conjunction with the Investment Adviser, is
monitoring closely the regulation and any developments in this area (see
‘Environmental, Social and Corporate’ section for further information).
ASSESSMENT OF PROSPECTS
The Group’s strategy of an orderly realisation and return of capital to
shareholders (approved by the shareholders in January 2023) is central to
an understanding of its prospects. The Group’s focus is twofold:
i) to proactively manage the investments already made to ensure that the
loans continue to perform and provide positive returns to the Group, and
ii) return capital to shareholders on a timely basis subject to ensuring
the Group can continue to fund as yet unfunded loan commitments
(£23.0 million as at 31 December 2024) and meet its operating costs.
The Group updates its plan and financial forecasts on a quarterly basis
and detailed financial forecasts are maintained and reviewed by the Board
regularly.
ASSESSMENT OF VIABILITY
The Directors have tested the potential impact on the Group of a number of
scenarios by quantifying their financial impact. These scenarios are based
on aspects of the following selected principal risks, which are detailed
in this Strategic Report, and as described below:
• Market deterioration risk; specifically, the risk that the loans
classified as Stage 3 & 2 default, resulting in a loss of interest
income, a loss of the repayment of principal for the loan classified
as Stage 3 and a delay in the repayment of principal for loans
classified as Stage 2;
• Interest rate risk; specifically, that Sonia and Euribor rates fall to
zero per cent from 2026;
• Foreign exchange risk; specifically, that the value of Sterling vis a
vis Euro decreased significantly resulting in the mark to market value
of the forward foreign exchange contracts reducing.
These scenarios represent ‘severe but plausible’ circumstances that the
Group could experience. The scenarios tested included:
• A high level of loan default meaning that the Stage 3 loan does not
repay both the principal and the interest due on it, that the Group
stopped receiving interest on the Stage 2 loans in the portfolio from
their current maturity dates and that the outstanding principal on
these loans was not received until 12 months after the loan maturity
date plus Sonia and Euribor rates falling to zero per cent from 2026
onwards; and
• A deterioration in the valuation of the forward foreign exchange
contracts because of a 12.5% reduction in the value of Sterling
compared to Euros.
The results of this stress testing showed that the Group would be able to
withstand a high level of underlying loan default or impairment resulting
from any of the risks identified or reduction in the value of Sterling
compared to Euro over the period of the financial forecasts albeit that
less cash will be returned to Shareholders (and may be returned later than
currently anticipated) and that the regular quarterly dividend may need to
be reduced (compared to the target) to reflect the reduced cash available.
VIABILITY STATEMENT
All seven of the loan assets held as of 31 December 2024 are contractually
due to repay by the end of 2026 based on the current loan maturity profile
(subject to any permitted extensions which may be granted in the best
interests of the shareholders). However, the Board have considered
the Group’s possible working capital requirements, assuming no further
income or loan repayment receipts after 2026.
Cashflow projections are prepared regularly. The Board intends to continue
to pay its target dividends of 5.5 pence per share and return surplus cash
to shareholders following each loan repayment, whilst it remains prudent
to do so and taking into account the commitments, liabilities and expected
duration of the Group at the time.
Having conducted a robust analysis on this basis, the Directors remain
satisfied that the Group can meet its liabilities as they fall due over
the period under consideration to December 2027, if the Group continues in
operation up to that date. The Group is likely to operate a cashflow
deficit in 2027 if all the loans have repaid by then. Cash reserves will
be held to cover this and will be reassessed at each loan repayment prior
to cash being returned to shareholders.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE (“ESG”)
As an investment company, the Board and the Investment Manager and
Investment Adviser consider the Group’s direct activities to have a
minimal direct impact on the environment. Nevertheless, the Board
regularly monitors and discusses ESG matters both at the Board meetings
and with the Investment Manager and Investment Adviser.
The Investment Manager and Investment Adviser are part of the Starwood
Capital Group (SCG), which is a signatory to the UN Principles for
Responsible Investments (UNPRI). In assessing new loans SCG evaluates
environmental risks associated with any investments as part of the
underwriting process. A formal scope of work is followed by the Investment
Adviser, which requires an environmental site assessment to be performed
which identifies environmental conditions that may have a material adverse
impact on the property being assessed or its immediate surrounding area
and an assessment of a property’s sustainability and marketability through
the review of its environmentally friendly and unfriendly characteristics.
The Board recognises that it has no direct control over a borrower’s
company policy towards environment and social responsibility and whilst it
is an important part of the due diligence process in understanding the
impact of such issues, decisions are not weighted towards those
investments with stronger environmental and social characteristics. It
should be noted that a number of the loans made by the Group involve
refurbishment projects and these will often improve the environmental
impact of the real estate concerned. Additionally, whilst it is not an
investment criteria, the Group’s loan portfolio is significantly funded in
sectors with positive social impact such as hospitality and healthcare.
In carrying out its activities and in its relationship with the community,
the Group aims to conduct itself responsibly, ethically and fairly;
including in relation to social and human rights issues. This approach is
built into the Investment Adviser’s origination and underwriting process.
Our risk management framework is intended to facilitate an enterprise wide
view of risk that supports a strong and collaborative risk management
culture within the Board and with its relationship with SCG.
The Board (through its relationships with SCG, its brokers and other
advisers) is focused on maintaining a productive dialogue with
shareholders and gathering feedback to inform the decision making at Board
level.
SCG, with in excess of 5,000 employees worldwide, takes its social
responsibilities to its employees very seriously offering a challenging,
fast‑paced and collegial environment to its employees. SCG strives to
create diverse and inclusive workplaces where all employees can perform to
their full potential and to be a good corporate citizen for their
communities by supporting charitable organisations that promote education
and social wellbeing.
As an investment fund, the Group outsources many of its activities to
external service providers and, therefore, the Group has no direct
Greenhouse Gas Emissions to report from its own operations and is
currently not required to report on any other emission producing sources.
While there is some travel involved for the Directors and representatives
from the Investment Adviser, the Company’s service providers are Guernsey
office-based companies, and the majority of the Directors are based in
Guernsey, thus having a relatively low impact on the environment and
negating the need for long commutes or flights to and from Board meetings.
The Group has no employees and the Board is composed entirely of
non-executive Directors. Therefore, the Group is not within scope of the
Modern Slavery Act 2015 and is therefore not obliged to make a human
trafficking statement. However, the business of the Company is conducted
ethically and with integrity and has a zero tolerance policy towards
modern slavery.
BOARD DIVERSITY
The Board considers that its members have a balance of skills,
qualifications and experience which are relevant to the Company. The Board
supports the recommendations of the Davies Report, the Hampton Alexander
Review and the Parker Review and believes in the value and importance of
diversity in the boardroom and it continues to consider the
recommendations of these reports and reviews. Please refer to the
Corporate Governance Statement for the Board’s diversity statement.
The Company has no employees and therefore has no disclosures to make in
this regard.
John Whittle | Chairman
2 April 2025
Investment Manager’s Report
MARKET SUMMARY AND INVESTMENT OUTLOOK
Our commentary has often started on the topic of the interest rate
environment given its importance in commercial real estate. A notable
deviation in this area from the beginning of last year to the end of 2024
is that expectations for interest rate decreases have been missed and
current bond yields are actually now higher in the United States (“US”)
and the United Kingdom (“UK”) than at the beginning of 2024. In addition,
current expectations of the pace of future interest rate cuts over the
next year are slower than at the beginning of 2024.
Key relevant central bank policy rates at the beginning of 2024 had hit
peak levels with a range of 5.50 per cent to 5.25 per cent for the US
Federal Funds rate and at 5.25 per cent for the Bank of England base rate.
The European Central Bank Deposit Facility Rate was 4.0 per cent. These
levels are post Global Financial Crisis highs which have not been seen
since 2008 for the UK and Europe and not since 2001 for the US. The higher
interest rate environment has been driven by inflation levels which had
risen sharply in the face of global supply chain challenges and energy
price volatility which were caused by a combination of the stresses of the
recovery, inactivity post COVID and global geopolitical events. Inflation
had risen in 2022 to the highest levels since the early 1980s.
By the beginning of 2024 the aggressive central bank rate hikes had
appeared to have done their job and inflation had materially decreased
towards more normal levels and it was clear the direction in interest
rates would be down. The market predicted base rate decreases of 1.5 per
cent or more for both the UK and US. While inflation had largely been
tempered throughout 2024, central banks in the US and the UK in particular
continued to be hawkish on managing inflation and in the end the Bank of
England only reduced the base rate by 0.50 per cent to 4.75 per cent and
the Federal Reserve by 1.0 per cent to a range of 4.50 percent to 4.25 per
cent. With a low growth rate and less inflationary pressure the European
Central Bank has been able to maintain a lower level and has made four
rate cuts totalling a 1.0 per cent decrease and leaving the deposit rate
at 3.0 per cent.
There is also now a slower expectation of future rate cuts and the bond
market is also concerned by current political uncertainties including the
transition to a new Trump presidency and the implementation of the
economic policies of the new UK government. As a result, UK and US bond
rates were higher at the beginning of 2025 than they were this time last
year. US 10 Year Treasury and UK Gilt yields started the year at 4.6 and
4.6 per cent respectively versus 3.9 and 3.6 per cent at the beginning of
last year. Looking at the key benchmark for the base rate used for
financing real estate there is a more mixed picture with Sterling rates
higher at the beginning of this year compared to last year but Euro rates
lower. The Sterling and Euro 5-year swaps started the year at 4.0 per cent
and 2.2 per cent versus 3.4 per cent and 2.3 per cent at the beginning of
last year.
The market had anticipated that a stabilised interest rate environment
would lead to more stability in real estate valuations and a pickup of
real estate transactions volumes in 2024 versus 2023 which was a trough
year. After a period of yield expansion in 2022 and 2023 we saw a turn in
direction early in 2024 to yield compression in most asset classes outside
of Office. The more stable environment supported a pick up in transaction
volumes of 20 per cent in the UK with similar trends around European
markets. We saw some significantly larger transactions go through in 2024.
These larger transactions were mostly for portfolios and there has been
very limited volume in high value single asset transactions. As such, it
is not surprising that despite the increase, volumes for the UK are still
22 per cent lower than the 10 year average.
We commented at the beginning of last year that bank sentiment was
meaningfully better with a high degree of confidence in US Commercial
Mortgage Backed Securities (“CMBS”) bond issuance (which acts as a
bellwether for real estate finance sentiment globally). The predictions of
a high volume of transactions and significant tightening in spreads did
play out in that market. The 2024 US CMBS transaction volume was in excess
of $100 billion which was the third highest year since the Great Financial
Crisis (“GFC”) and over double the 2023 level. Hotel, Industrial and
Multi-family residential were the largest contributions to the volumes
with a very low proportion of Office. The spread on the highest rated
“AAA” bonds for floating rate single asset, single borrower CMBS declined
from over 200 basis points in late 2023 to mid-100s during 2024.
After a difficult couple of years for Office there is now some data
illustrating improving sentiment coming through into the transaction
market particularly for the best quality product. 2024 was a low year for
Office CMBS but 2025 started strongly for office financing with a jumbo
Manhattan office CMBS for Tishman Speyer and Harry Crown’s Spiral building
at Hudson Yards that closed in early January. The deal had a highly
successful execution with pricing consistent with the best CMBS in the
market and a significant over-subscription in spite of the notably large
size of the deal which, at $2.65 billion, is one of the largest CMBS
across all asset classes in recent years. There are indications that a
number of further Office CMBS are in the pipeline for early 2025 both in
the US and the UK.
On the transaction side we have already seen this sentiment coming through
with two very substantial sovereign wealth fund investments into London
offices with Norges paying £305.7 million for a 25 per cent interest in a
predominantly office and retail portfolio in Mayfair and Broadgate REIT
announcing the formation of a new Joint Venture with Modon Holding to
deliver 2 Finsbury Avenue which is a 750,000 square foot world-class
office development at Broadgate. CBRE reported £1 billion of London office
transactions in January alone which compares to £5 billion of total volume
for 2024. According to Knight Frank core deals accounted for just £1
billion of a total of London investment transactions in 2024 but they
expect higher volumes with a total of £5 billion that has been set aside
by 80 investors from all over the world to invest in core London offices.
Underpinning this appetite is a strong occupational market. An example of
this is the number of leases signed above the £100 per square foot barrier
in the City office market. The Financial Times recently reported that
there have been a record 17 leases signed above that level in 2024 which
is a larger number than in all previous history.
Banks have had a strong year globally. The STOXX Banks index which
includes the largest European banks is up 23.3 per cent in the year and US
banks were up more than 30 per cent. Higher rates have helped banks
increase net interest margins and contributed to the highest average
return on equity since the GFC. Higher for longer rates and structural
hedging by banks will help net interest margins hold up and the outlook
for mergers and acquisitions is healthy following a number of slower years
so 2025 is likely to be another good year for banks. Within commercial
real estate lending many banks saw faster than expected repayment rates
and lower volumes of available transactions and so they adjusted their
approach to new lending opportunities to maintain or grow their lending
books with lower pricing and increased loan sizes.
We saw strength of demand and a price tightening across all sources of
real estate lending during the course of the year. In addition to the
healthy bank and CMBS lending covered earlier, the corporate bond market
recovered in both issuance volumes and pricing and is now fully reopened
after a couple of difficult years. There is also good appetite from
insurance lenders and other alternative lenders. Overall, the credit side
of the real estate market starts the year in great shape and will provide
a support for real estate transactions in 2025.
PORTFOLIO STATISTICS
As at 31 December 2024, the portfolio was invested in line with the
Group’s investment policy and is summarised below.
31 December 31 December
2024 2023
Number of investments 7 12
Percentage of funded portfolio in floating rate 84.3% 90.5%
loans (1)
Funded Loan Portfolio unlevered annualised total 9.1% 8.2%
return (1)
Weighted average portfolio LTV – to Group first £ 20.6% 14.7%
(1)
Weighted average portfolio LTV – to Group last £ 63.5% 61.8%
(1)
Average remaining loan term 1.2 years 1.4 years
Net Asset Value £194.9 m £327.3 m
Loans advanced at amortised cost (including £149.5 m £264.1 m
accrued income and net of impairment provision)
Cash £45.7 m £63.8 m
Other liabilities (including financial assets held (£0.3 m) (£0.6 m)
at fair value through profit or loss)
(1) Alternative Performance Measure
The maturity profile of investments as at 31 December 2024 is shown below.
Value of funded
Remaining years to % of funded
portfolio
contractual maturity* portfolio
(£m)
0 to 1 years £84.6 m 53.2%
1 to 2 years £74.5 m 46.8%
* excludes any permitted extensions. Note that borrowers may elect to
repay loans before contractual maturity.
PORTFOLIO DIVERSIFICATION
The Group continues to achieve good portfolio diversification as shown in
the tables below:
% of funded
Country
portfolio
UK 81.7%
Republic of Ireland 13.7%
Spain 4.6%
% of funded
Sector
portfolio
Hospitality 39.2%
Office 17.6%
Light industrial 17.1%
Healthcare 15.7%
Life Sciences 9.7%
Residential 0.7%
% of funded
Loan type
portfolio
Whole loans 66.0%
Junior & Mezzanine 34.0%
% of funded
Loan currency
portfolio*
Sterling 81.7%
Euro 18.3%
* The currency split refers to the underlying loan currency; however, the
capital and interest during protected periods on all non-Sterling exposure
is hedged back to Sterling.
INVESTMENT DEPLOYMENT
As at 31 December 2024, the Group had seven investments and commitments of
£182.1 million as follows:
Sterling Sterling
Sterling Total
Transaction equivalent equivalent (Drawn
unfunded
balance (1) (2) and Unfunded)
commitment (3)
Hospitals, UK £25.0 m £25.0 m
Hotel, North Berwick £15.0 m £15.0 m
Life Science, UK £15.5 m £4.0 m £19.5 m
Hotels, United £47.3 m £47.3 m
Kingdom
Industrial Estate, UK £27.2 m £19.0 m £46.2 m
Total Sterling Loans £130.0 m £23.0 m £153.0 m
Office Portfolio, £7.3 m £7.3 m
Spain
Office Portfolio, £21.8 m £21.8 m
Ireland
Total Euro Loans £29.1 m £29.1 m
Total Portfolio £159.1 m £23.0 m £182.1 m
(1) Euro balances translated to Sterling at period end exchange rates.
(2) Balances shown are funded balances before any impairments.
(3) Excludes interest of up to circa £0.8 million which may be capitalised
in respect of Office Portfolio, Ireland which, if capitalised, would be
repayable on maturity.
Between 1 January and 31 December 2024, the following significant
investments activity occurred (included in the table above):
Additional funding by the Group
As the Group is now pursuing a strategy of orderly realisation no new
loans were closed in 2024.
During the year the Group funded £9.9 million in relation to loan
commitments made in prior years which were unfunded. In addition, the
Group capitalised £1.6 million of interest on one loan in line with the
facility agreement.
Loan Repayments
During the year borrowers repaid at total of £109.4 million. As detailed
below a total of five loans were repaid.
Details of loans repaid in 2024:
• €12.2 million, Shopping Centre, Spain
• €32.8 million, Three Shopping Centres, Spain
• £8.8 million, Hotel and Office, Northern Ireland
• €22.9 million, Hotel, Dublin
• £42.6 million, Hotel, Scotland
PORTFOLIO OVERVIEW
The Group continues to closely monitor and manage the credit quality of
its loan exposures and repayments.
The Group’s exposure is spread across seven investments. 99 per cent of
the total funded loan portfolio as of 31 December 2024 is spread across
five asset classes; Hospitality (39 per cent), Office (17 per cent), Light
Industrial (17 per cent), Healthcare (16 per cent) and Life Sciences
(10 per cent).
Hospitality exposure (39 per cent) comprises two loan investments. One
loan (76 per cent of hospitality exposure) had two underlying key UK
gateway city hotel assets, both of which completed comprehensive
refurbishment programmes during 2024. In line with the underwritten
business plan, the sponsor of this loan successfully refinanced the loan
post year end in January 2025, repaying the Company’s loan in full. The
second hospitality loan (24 per cent of hospitality exposure) comprises
one hotel, which has also been recently refurbished. Trading performance
improved during 2024 following the refurbishment project. This loan
sponsor is also preparing to refinance the Company’s loan during 2025. The
weighted average Loan to Value of the hospitality exposure as of 31
December 2024 was 57 per cent.
The Group’s office exposure (17 per cent) comprises two loan investments.
The weighted average Loan to Value of loans with office exposure is 95 per
cent. The value used to calculate the Loan to Value for the Stage 1 office
loan uses the latest independent lender instructed valuation. The value
used for the Stage 3 office loan (which was downgraded from a Stage 2
asset in October 2024) is the marked down value as per the loan impairment
recognised in October 2024. No material valuation changes are considered
to have occurred since that time. The higher Loan to Value of this sector
exposure reflects the wider decrease in market sentiment driven by post
pandemic trends and higher interest rates. These factors have resulted in
reduced investor appetite for office exposure and a decline in both
transaction volumes and values. We note however, there has been a more
positive recent outlook for real estate given interest rates have begun to
reduce.
The largest office investment is a mezzanine loan which represents 74 per
cent of this exposure and is classified as a Stage 3 risk rated loan. As
outlined in previous factsheets, the underlying assets comprise seven well
located European city centre CBD buildings and have historically been well
tenanted, albeit certain assets are expected to require capital
expenditure to upgrade to Grade-A quality to retain existing tenants upon
future lease expiry events. A 50 per cent loan impairment provision
related to this asset was announced on 21 October 2024 as a result of new
operational information received from the borrower. Following an analysis
of potential future scenarios and outcomes, the Board decided to make this
provision. As noted in the announcement, the potential outcomes could
recover a greater or lesser amount of the loan. The Investment Adviser
continues to actively advise on this position to maximise recovery. No
material changes to the value of this loan are considered to have occurred
since October 2024 and therefore the loan risk classification and
impairment provision remain unchanged. This remains under frequent review
and the Company will provide updates as appropriate.
Light Industrial and Healthcare exposures comprise 17 per cent and 16 per
cent, respectively, totalling 33 per cent of the total funded portfolio
(across two investments) and provide good diversification into asset
classes that continue to have very strong occupational and investor
demand. The weighted average Loan to Value of these exposures is 59 per
cent.
LIQUIDITY AND HEDGING
The Group had no debt outstanding or debt facilities at year end and has
significant liquidity available with cash held of £45.7 million as at 31
December 2024 to fund existing unfunded loan cash commitments (totaling
£23.0 million as at 31 December 2024), working capital and collateral
calls on its hedging arrangements.
The Group has, in certain circumstances, the obligation to post cash
collateral under its hedging facilities. However, cash would not need to
be posted until the hedges were more than £15 million out of the money.
The mark to market of the hedges at 31 December 2024 was £1.0 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
Sterling (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 later of the
maturity date or expected final repayment date of the loan. 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.
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 was introduced, 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.
Recognise a loss allowance equal to 12 months
At Initial Recognition expected credit losses resulting from default
events that are possible within 12 months.
After initial recognition:
Credit risk has not increased significantly
Stage 1 since initial recognition.
Recognise 12 months expected credit losses.
Credit risk has increased significantly since
initial recognition.
Stage 2
Recognise lifetime expected losses.
Interest revenue recognised on a gross basis.
Credit impaired financial asset.
Recognise lifetime expected losses.
Stage 3
Interest revenue recognised on a net basis
(i.e., losses are “above the line” and impact
P&L and NAV).
For the purposes of classifying between stages 1 to 3 after initial
recognition, the Group considers a change in credit risk based on a
combination of the following factors:
• Underlying income performance is at a greater than 10 per cent
variance to the underwritten loan metrics;
• Loan to Value is greater than 75-80 per cent;
• Loan to Value or income covenant test results are at a variance of
greater than 5-10 per cent of loan default covenant level;
• Late payments have occurred and not been cured;
• Loan maturity date is within six months and the borrower has not
presented an achievable refinance or repayment plan;
• Covenant and performance milestones criteria under the loan have
required more than two waivers;
• Increased credit risk has been identified on tenants representing
greater than 25 per cent of underlying asset income;
• Income rollover / tenant break options exist such that a lease up of
more than 30 per cent of underlying property will be required within
12 months in order to meet loan covenants and interest payments; and
• Borrower management team quality has adversely changed.
The Group closely monitors all loans in the portfolio for any
deterioration in credit risk. As at 31 December 2024, assigned
classifications are:
• Stage 1 loans – four loan investments equivalent to 67 per cent of the
funded portfolio are classified in the lowest risk profile, Stage 1.
• Stage 2 loans – two loan investments equivalent to 19 per cent of the
funded portfolio are classified as Stage 2. The average loan to value
of these exposures was 54% per cent. The average age of valuation
report dates used in the loan to value calculation was 16 months old.
While these loans are considered to be higher risk than at initial
recognition, no loss has been recognised on a twelve-month and
lifetime expected credit losses basis. Therefore, no impairment in the
value of these loans has been recognised. The drivers for classifying
these deals as Stage 2 are typically either one or a combination of
the below factors:
◦ lower underlying property values following receipt of updated formal
appraisals by independent valuers or agreed and in exclusivity sale
values;
◦ sponsor business plans progressing more slowly than originally
underwritten meaning that trading performance has lagged expectation
and operating financial covenants under the facility agreements have
breached; and
◦ additional equity support is required to cover interest or operating
shortfalls as a result of slower lease up or operations taking longer
to ramp up.
The Stage 2 loans continue to benefit from headroom to the Group’s
investment basis. The Group has a strategy for each of these deals which
targets full loan repayment over a defined period of time. Timing of
repayment will vary depending on the level of equity support from
sponsors. Typically, where sponsors are willing to inject additional
equity to partially pay down the loans and support their business plan
execution, then the Group will grant some temporary financial covenant
headroom. Otherwise, sponsors are running sale processes to sell assets
and repay their loans.
• Stage 3 loan – one loan equivalent to 14 per cent of the funded
portfolio is classified as Stage 3. This investment had a loan to
value of 110 per cent at year end. This value is based on the marked
down value of the loan following the October 2024 announcement
regarding the reclassification of this loan as a Stage 3 loan and
impairment of the asset.
Since announcing the £10.8 million (€12.9 million) impairment provision
against this loan in October 2024 no material changes to the value of this
loan are considered to have occurred.
The assessments regarding these loan classifications were made based on
information in our possession at the date of reporting, our assessment of
the risks of each loan and certain estimates and judgements around future
performance of the assets.
FAIR VALUE OF PORTFOLIO VS AMORTISED COST
The table below represents the value of the loans based on a discounted
cash flow basis using different discount rates.
The effective interest rate (“EIR”) – i.e. the discount rate at which
future cash flows equal the amortised cost, is 9.4 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. The Group considers the EIR of 9.4 per cent to be
relatively conservative as many of these loans were part of a business
plan which involved transformation and many of these business plans are
either completed or well advanced in execution and therefore significantly
de-risked from the original underwriting and pricing. The volatility of
the fair value to movements in discount rates is low due to the low
remaining duration of loans.
Discount Rate Fair Value % of Book Value
7.4% £152,935,395 102.3%
7.9% £152,062,018 101.7%
8.4% £151,199,872 101.1%
8.9% £150,348,755 100.6%
9.4% £149,508,470 100.0%
9.9% £148,678,820 99.4%
10.4% £147,859,619 98.9%
10.9% £147,050,682 98.4%
11.4% £146,251,829 97.8%
LOAN TO VALUE
Given the need for the Group and most of its peers to record loans at
amortised cost, the loan to value of companies in our sector has
understandably been an area of focus for many of our shareholders and
stakeholders seeking to understand underlying risk further.
In order to try to assist in understanding the underlying credit risk, we
have always quoted the last £ loan to value (“last LTV”) of our portfolio
and have outlined further detail below on our approach to this
calculation.
Methodology
Our methodology to calculate the last LTV for each individual loan is:
Total loan drawn less any deductible lender controlled cash reserves and
less any amortization received to date (including any debt provided by
other lenders which rank alongside or senior to the Group’s position)
Market value determined by the last formal lender valuation received by
the reporting date for loans classified as Stage 1 and State 2 and marked
down value per the loan impairment for the loan classified as Stage 3
Each individual loan LTV is then weighted by the amount of the loan
currently drawn (in the Group only, ignoring the position of other third
party lenders) to give a weighted average last LTV across the Group’s
portfolio.
Valuations Process
The following describes the valuation basis that is used in our
calculation. As the vast majority of our portfolio is originated directly
by the Investment Adviser, the Group has discretion over when and how to
instruct valuations. We consider this to be a strength of our valuation
process as we have control over timing and complete access to the detail
of the valuation process and the output.
Where loans are not directly originated the lender could have a lack of
control over the timing and no input to the process which we prefer to
avoid where possible.
• On the origination of a loan, for a straight forward standing
investment asset (for example, an occupied office), the independent
open market value determined by an independent valuer under RICS
guidelines will be used.
• After loan origination the Group has the right under loan documents to
obtain valuations on an annual basis at the expense of the borrower
(based on loan anniversary, not Group financial year end). Where a
follow on valuation has been done we use the latest valuation number
in our calculations. However, the Group does not instruct independent
third party valuations on a strict annual basis, only when it is
considered necessary and useful to obtain one.
• For the Stage 3 asset held as at 31 December 2024, the marked down
value per the loan impairment is used.
On the basis of the methodology outlined, at 31 December 2024 the Group
had an average last LTV of 63.5 per cent (2023: 61.8 per cent).
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.
Light
Change in Valuation Hospitality Office Industrial & Other Total
Healthcare
-15% 67.0% 111.9% 69.1% 58.3% 74.7%
-10% 63.3% 105.7% 65.2% 55.1% 70.5%
-5% 59.9% 100.2% 61.8% 52.2% 66.8%
0% 56.9% 95.1% 58.7% 49.6% 63.5%
5% 54.2% 90.6% 55.9% 47.2% 60.4%
10% 51.8% 86.5% 53.4% 45.1% 57.7%
15% 49.5% 82.7% 51.0% 43.1% 55.2%
Dividend Policy
The Company has paid dividends of 5.5 pence per Ordinary Share in respect
of the year ended 31 December 2024 (2023: 6.0 pence per Ordinary Share) in
line with the target dividend rate of 5.5 pence per share. Dividends are
recognised in the Consolidated Statement of Changes in Equity when
declared. Dividends are usually paid within one month of the declaration
date. The target annual dividend for 2025 is 5.5 pence per Ordinary Share
paid quarterly.
The Company may pay dividends provided that the Board of Directors is
satisfied on reasonable grounds that the Company will, immediately after
payment, satisfy the solvency test (as defined in the Companies (Guernsey)
Law, 2008, as amended), and satisfy any other requirement in its
memorandum and articles.
EVENTS AFTER THE REPORTING PERIOD
The following loan amortisation (both scheduled and unscheduled) has been
received since the year-end up to 2 April 2025:
• Life Science, UK £1,430,000
The following loans have been repaid since year end up to 2 April 2025:
• Hotels, United Kingdom £47,334,280
On 24 January 2025 the Directors declared a dividend in respect of the
fourth quarter of 2024 of 1.375 pence per Ordinary Share payable on 28
February 2025 to shareholders on the register at 7 February 2025.
In February 2025, the £4,036,499 unfunded commitment on Life Sciences, UK
was cancelled.
Starwood European Finance
Partners Limited | Investment Manager
2 April 2025
Governance
Board of Directors
JOHN WHITTLE | Non-executive Director – Chairman of the Board
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 and Audit Committee Chairman of The
Renewable Infrastructure Group Ltd (FTSE 250), Sancus Lending Group Ltd
(listed on AIM), and Chenavari Toro Limited Income Fund Limited (listed on
the SFS segment of the Main Market of the London Stock Exchange). 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.
GARY YARDLEY | Non-executive Director
Gary is a Fellow of the Royal Institution of Chartered Surveyors and holds
a degree in estate management from Southbank University and an MBA. He has
been a senior deal maker in the UK and European real estate market for
over 25 years. Gary was formally Managing Director & Chief Investment
Officer of Capital & Counties Property PLC (“Capco”) and led Capco’s real
estate investment and development activities. Leading Capco’s team on the
redevelopment of Earls Court, Gary was responsible for acquiring and
subsequently securing planning consent for over 11m sq. ft. at this
strategic opportunity area capable of providing over 7,500 new homes for
London. Gary was also heavily involved in the curation and growth of the
Covent Garden estate for Capco, now an established premier London
landmark. Gary is a Chartered Surveyor with over 30 years’ experience in
UK & European real estate. He is a former CIO of Liberty International and
former equity partner of King Sturge and led PwC’s real estate team in
Prague and Central Europe in the early 1990s. Gary has returned to Prague
and became Managing Director of West Bohemia Developments a.s, in August
2023, leading a major development opportunity on the D5 Highway adjacent
to the German border. Gary now resides in the Czech Republic.
SHELAGH MASON | Non-executive Director – Management Engagement Committee
Chairman and Senior Independent Director
Shelagh Mason is a solicitor specialising in English commercial property
who retired as a consultant with Collas Crill LLP in 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 until 28 February 2022, she was a
Non-Executive Director of the Renewables Infrastructure Fund, a FTSE 250
company, standing down after nine years on the board. In addition to the
Company, she has a non-executive position with Ruffer Investment Company
Limited, a FTSE 250 company. 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 she also holds the
IOD Company Direction Certificate and Diploma with distinction. Shelagh is
a resident of Guernsey.
CHARLOTTE DENTON | Non-executive Director - Audit Committee Chairman
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. During
Charlotte’s executive career she worked in various locations through roles
in diverse organisations, including KPMG, Rothschild, Northern Trust, a
property development startup and a privately held financial services
group. She has served on boards for nearly twenty years and is currently a
Non-Executive Director of various entities including the GP boards of
Private Equity groups Cinven and Hitec, and the Investment Manager for
NextEnergy. She is also on the board of Pershing Square Holdings Limited,
a FTSE 100 company and is the non-executive chairman of Achilles
Investment Company Limited, which is listed on the Specialist Fund Segment
of the Main Market of the London Stock Exchange. Charlotte is a resident
of Guernsey.
Report of the Directors
PRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE
The Principal Activities and Investment Objective are fully detailed in
the Objective and Investment Policy section.
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 as a registered closed-ended investment company. The
Company’s Ordinary Shares were admitted to the premium segment of the
Financial Conduct Authority’s (“FCA”) Official List and to trading on the
Main Market of the London Stock Exchange as part of its IPO which
completed on 17 December 2012. Further issues have taken place since IPO
and are listed under “Capital” below. The issued capital during the year
comprises the Company’s Ordinary Shares denominated in Sterling and are
traded on the Main Market of the London Stock Exchange.
The Company makes its investments through Starfin Lux S.à.r.l (indirectly
wholly owned via a 100 per cent 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 per cent shareholding in Starfin Public
Holdco 2 Limited). References to the Group refer to the Company and its
subsidiaries.
DIVIDEND POLICY
The Company has a target dividend of 5.5 pence per Ordinary Share per
annum, based on quarterly dividend payments.
DIVIDENDS PAID AND PAYABLE
In 2024 the Company paid dividends of 1.875 pence per Ordinary Share for
the fourth quarter of 2023 and 1.375 pence per Ordinary Share for the
first three calendar quarters of 2024. To date, the Company has paid a
total of £11,714,548 in respect of 2024 (5.5 pence per Ordinary Share)
(2023: £21,534,446, 6.0 pence per Ordinary Share).
CAPITAL ISSUED
As part of the Company’s IPO completed on 17 December 2012, 228,500,000
Ordinary Shares of the Company, with an issue price of 100 pence per
share, were admitted to the premium segment of the UK Listing Authority’s
Official List and to trading on the Main Market of the London Stock
Exchange.
The following issues have been made since the IPO:
Number of Price (pence per
Admission Date
Ordinary Shares Ordinary Share)
21 March 2013 8,000,000 104.25
9 April 2013 1,000,000 104.50
12 April 2013 600,000 104.00
23 July 2015 23,780,000 103.00
29 September 2015 42,300,000 102.75
12 August 2016 70,839,398 103.05
15 May 2019 38,200,000 104.75
CAPITAL REDEEMED
The capital redemptions announced and implemented in 2023 resulted in a
total redemption of 81,901,754 shares for an aggregate of £85,002,623 in
2023.
During the year, the Company’s redeemed a total of 119,761,309 shares for
a total of £125.0 million as follows:
Number of shares Price at which shares Total Capital returned
redeemed redeemed to Shareholders
Feb 24 19,402,403 £1.0308 £19,999,996
Mar 24 24,110,333 £1.0369 £25,000,003
Jul 24 76,248,573 £1.0492 £80,000,002
119,761,309 £125,000,001
Following these redemptions in 2024 and as at 31 December 2024, the
Company had 193,929,633 shares in issue and the total number of voting
rights was 193,929,633. Of the shares in issue as at 31 December 2023, 38
per cent were redeemed during the year.
Subsequent to year end, in February 2025, the Company redeemed a further
45,889,830 shares at a price of £1.0024 per share, resulting in an
additional £46.0 million being returned to shareholders. Following this
redemption, the Company has 148,039,803 shares in issue and the total
number of voting rights is 148,039,803.
During the year the Company’s share price has traded in a range of between
97.8 and 89.0 pence. The year end share price was 91.8 pence reflecting a
8.6 per cent discount to NAV.
Between August 2020 and October 2022 the Company had bought back an
aggregate amount of 17,626,702 million shares at an average cost per share
of 91.5 pence per share. These shares were held in treasury as at 31
December 2022 and were cancelled in June 2023 before the return of capital
to shareholders commenced.
SUBSTANTIAL INTERESTS
Information provided to the Company by major shareholders pursuant to the
FCA’s Disclosure Guidance and Transparency Rules ("DGTR") is published via
a Regulatory Information Service and is available on the Company’s
website. The Company has been notified under Rule 5 of the DGTR of the
following holdings of voting rights in its shares as at 31 December 2024
and as at the date of this report.
% holding of % holding of
Name Ordinary Shares at Ordinary Shares at
31 December 2024 3 March 2025
BlackRock 19.53 19.66
City of London 8.34 8.39
Close Brothers Asset Management 8.14 8.14
Waverton Investment Management 7.15 7.12
Shroder Investment Management 6.64 6.64
Almitas Capital 4.67 4.67
Premier Miton Investors 3.99 3.99
Staude Capital 3.67 3.67
Nomura International as principal 2.55 2.68
UBS Wealth 2.49 2.49
DIRECTORS’ INTERESTS IN SHARES
The interests of the Directors (and their connected persons) in the
Company's shares are shown in the table below. Changes in directors
shareholding between 2023 and 2024 are as a result of the compulsory share
redemptions which took place during the year.
Ordinary Shares at Ordinary Shares at
Name
31 December 2024 31 December 2023
John Whittle 16,602 26,857
Shelagh Mason 55,305 89,461
Charlotte Denton 21,788 35,244
Gary Yardley - -
The Directors have adopted a code of Directors’ dealings in Ordinary
Shares, which is based on EU Market Abuse Regulation and was subsequently
adapted to reflect the standards of the UK Market Abuse Regulation
("MAR"), which came into effect on 1 January 2021, following the European
Union (Withdrawal) Act 2018. MAR came into effect across the EU (including
the UK) on 3 July 2016. The Board is responsible for taking all proper and
reasonable steps to ensure compliance with MAR by the Directors and
reviews such compliance on a regular basis.
BUSINESS REVIEW
The Group’s performance during the year to 31 December 2024, its position
at that date and the Group’s future developments are detailed in the
Chairman’s Statement, the Strategic Report and the Investment Manager’s
Report.
EVENTS AFTER THE REPORTING PERIOD
Details of events after the reporting period are contained in note 23 to
the consolidated financial statements.
INDEPENDENT AUDITOR
As previously communicated in the 2023 Annual Report, the Directors, at
the recommendation of the Audit Committee, conducted a tender in the
Summer of 2022 for the position of Independent Auditor to the Company for
the audit of the year-ending 31 December 2023 as a form of best practice
given PricewaterhouseCoopers CI LLP had served as the Company’s
Independent Auditor for two consecutive terms of five years. Following a
competitive tender process, the Audit Committee recommended that the Board
continue to engage PricewaterhouseCoopers CI LLP, who have been engaged
since the Company’s inaugural meeting on 22 November 2012 and have been
re-appointed at each AGM held since. PricewaterhouseCoopers CI LLP have
indicated their willingness to continue as Auditor. The Directors, at the
recommendation of the Audit Committee, will place a resolution before the
AGM to re-appoint them as independent auditor for the ensuing year, and to
authorise the Directors to determine their remuneration.
INVESTMENT MANAGER AND SERVICE PROVIDERS
The Investment Manager during the year was Starwood European Finance
Partners Limited (the “Investment Manager”), incorporated in Guernsey with
registered number 55819 and regulated by the GFSC and Alternative
Investment Fund Management Directive. The Investment Manager has appointed
Starwood Capital Europe Advisers, LLP (the “Investment Adviser”), an
English limited liability partnership authorised and regulated by the FCA,
to provide investment advice pursuant to an Investment Advisory Agreement.
The company secretarial, fund accounting and administration services for
both the Company and Investment Manager were delegated to Apex Fund and
Corporate Services (Guernsey) Limited (the “Administrator”) during the
year.
ORDERLY REALISATION AND RETURN OF CAPITAL TO SHAREHOLDERS
Under the Company’s discount control mechanisms (contained within its
previous Articles of Association), the Company would have been required to
offer to redeem up to 75 per cent of the shares in issue as the Company’s
discount to its Net Asset Value per share was greater than 5 per cent or
more during the six-month period ending 31 December 2022 (the “Tender
Offer”).
However, on 31 October 2022, the Company announced, that following a
review of the Company’s strategy and advice sought from its advisers, the
Board intended to recommend to shareholders that the investment objective
and policy of the Company were amended such that the Board can pursue a
strategy of orderly realisation and the return of capital over time to
shareholders (the “Proposed Orderly Realisation”). If approved by the
shareholders, the Company would seek to return cash to shareholders in an
orderly manner as soon as reasonably practicable following the repayment
of loans, while retaining sufficient working capital for ongoing
operations and the funding of committed but currently unfunded loan cash
commitments.
On 28 December 2022, a Circular relating to the Proposed Orderly
Realisation and containing a Notice of Extraordinary General Meeting to be
held on 27 January 2023 (the “EGM”) was published. The Circular set out
details of, and sought shareholder approval for, certain Proposals.
The Proposals were:
a) a change to the Company’s Investment Policy to reflect the fact that
the Company will cease making any new investments and will pursue a
realisation strategy of the remaining assets in the Company’s portfolio;
and
b) adoption of the New Articles which provide for the periodic Compulsory
Redemption of the Company’s Shares at the discretion of the Directors to
allow cash to be returned to Shareholders following the full or partial
realisation of assets.
On 27 January 2023, these Proposals were approved at the EGM.
The Investment Objective and Policy which applied prior to the approval of
the Proposals, and for the whole of 2022, are set out in the 2021 Annual
Report. The Company maintains share repurchase powers, as approved at the
10 June 2022 Annual General Meeting, that allow the Company to repurchase
Ordinary Shares in the Market up to 14.99 per cent of the share capital,
subject to annual renewal of the Shareholder authority. It is not the
intention of the Company to raise fresh capital including through a
placing programme (subject to the publication of a prospectus of the
Company) and through opportunistic tap issues following the approval of
the Proposals at the EGM.
During the year the Company redeemed 119,761,309 shares for an aggregate
of £125.0 million. As at 31 December 2024 the Company had 193,929,633
shares in issue and the total number of voting rights was 193,929,633.
Subsequent to year end, in February 2025, the Company redeemed a further
45,889,830 shares at a price of £1.0024 per share, resulting in an
additional £46.0 million being returned to shareholders. Following this
redemption, the Company has 148,039,803 shares in issue and the total
number of voting rights was 148,039,803.
SHARE BUYBACKS
The Company renewed its authority at the recent AGM to purchase in the
market up to 14.99 per cent of the Ordinary Shares in issue on 13 June
2024 at a price not exceeding: (i) five per cent above the average of the
mid-market values of the Ordinary Shares for the five Business Days before
the purchase is made; or (ii) the higher of the last independent trade or
the highest current independent bid for the Ordinary Shares.
The Directors will give consideration to repurchasing Shares under this
authority, but are not bound to do so, where the market price of an
Ordinary Share trades at more than 7.5 per cent below the Net Asset Value
per Share for more than 3 months, subject to available cash not otherwise
required for working capital purposes or the payment of dividends in
accordance with the Company’s dividend policy.
If not previously used, this authority shall expire at the conclusion of
the Company’s AGM in 2025. While the Directors do not currently intend to
buyback any shares as redemptions are more equitable to shareholders, the
Directors intend to seek annual renewal of this buyback authority from
Shareholders each year at the Company’s AGM.
John Whittle | Chairman
2 April 2025
Directors’ Remuneration Report
REMUNERATION POLICY & COMPONENTS
The Board endeavours to ensure the remuneration policy reflects and
supports the Company’s strategic aims and objectives throughout the year
under review. It has been agreed that, due to the small size and structure
of the Company, a separate Remuneration Committee would be inefficient;
therefore, the Board as a whole is responsible for discussions regarding
remuneration.
As per the Company’s Articles of Incorporation, all Directors are entitled
to such remuneration as is stated in the Company’s Prospectus or as the
Company may determine by ordinary resolution; to not exceed the aggregate
overall limit of £300,000 per annum. Subject to this limit, it is the
Company’s policy to determine the level of Directors’ fees, having regard
for the level of fees payable to non-executive Directors in the industry
generally, the role that individual Directors fulfil in respect of
responsibilities related to the Board, Management Engagement Committee and
Audit Committee and the time dedicated by each Director to the Company’s
affairs. Base fees are set out in the table below.
Fees and Fees and
Expenses Expenses
Director Role
2024 2023
£ £
John Whittle Chairman with effect from 1 January 60,000 60,000
2022
Management Engagement
Shelagh Mason Committee Chairman and Senior 45,000 45,000
Independent Director with effect from
1 September 2020
Charlotte Denton Audit Committee Chairman with effect 50,000 50,000
from 1 January 2022
Gary Yardley Non-Executive Director with effect 42,000 42,000
from 6 September 2021
Aggregate fees 197,000 197,000
Aggregate expenses 2,279 7,739
Total fees and 199,279 204,739
expenses
As outlined in the Articles of Incorporation, the Directors may also be
paid for all reasonable travelling, accommodation and other out-of-pocket
expenses properly incurred in the attendance of Board or Committee
meetings, general meetings, or meetings with shareholders or debentures of
the Company or otherwise in discharge of their duties; and all reasonable
expenses properly incurred by them seeking independent professional advice
on any matter that concerns them in the furtherance of their duties as
Directors of the Company.
No Director has any entitlement to pensions, paid bonuses or performance
fees, has been granted share options or been invited to participate in
long-term incentive plans. No loans have been originated by the Company
for the benefit of any Director. No Directors waived their entitlement to
director's fees during the year.
None of the Directors have a service contract with the Company. Each of
the Directors have entered into a letter of appointment with the Company.
The letters of appointment were reviewed and amended in 2019 by an
external party to ensure that they were in line with market standards
prevailing at the time. Each Director is subject to annual re-election.
The Directors do not have any interests in contractual arrangements with
the Company or its investments during the year under review, or
subsequently. Each appointment can be terminated in accordance with the
Company’s Articles and without compensation. As outlined in the letters of
appointment, each appointment can be terminated at the will of both
parties with one month’s notice either by (i) written resignation; (ii)
unauthorised absences from Board meetings for 12 months or more; (iii)
written request of the other Directors; or (iv) a resolution of the
shareholders.
Directors’ and Officers’ liability insurance cover is maintained by the
Company but is not considered a benefit in kind nor constitutes a part of
the Directors’ remuneration. The Company’s Articles indemnify each
Director, Secretary, agent and officer of the Company, former or present,
out of assets of the Company in relation to charges, losses, liabilities,
damages and expenses incurred during the course of their duties, in so far
as the law allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
By order of the Board
John Whittle | Chairman
2 April 2025
Corporate Governance Statement
The Company is a member of the Association of Investment Companies (the
“AIC”). The Board has considered the Principles and Provisions of the AIC
Code of Corporate Governance dated February 2019 (the “AIC Code”). The AIC
Code addresses the Principles and Provisions set out in the UK Corporate
Governance Code (July 2018) (the “UK Code”) effective for accounting
periods commencing on or after 1 January 2019, as well as setting out
additional Provisions on issues that are of specific relevance to the
Company. The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the Financial
Reporting Council (the “FRC”) and the Guernsey Financial Services
Commission (the “GFSC”) provides more relevant information to
shareholders. Except as disclosed within the report, the Board is of the
view that throughout the year ended 31 December 2024 the Company has
complied with the Principles and Provisions of the AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk). It
includes an explanation of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them relevant for investment
companies.
By complying with the AIC Code, the Company is deemed to comply with both
the UK Code issued by the FRC and the Code of Corporate Governance issued
by the GFSC (the “GFSC Code”).
The Company also intends to comply with the majority of principles of the
Revised UK Code dated 22 January 2024, which comes into effect from
financial years beginning 1 January 2025.
The AIC Code has been endorsed by the FRC as ensuring investment company
boards fully meet their obligations to the UK Code and UKLR 6.6.6 of the
UK Listing Rules as applicable for overseas closed ended investment funds.
Except as disclosed within the report, the Board is of the view that
throughout the year ended 31 December 2024, the Company complied with the
principles and provisions of the AIC Code. Key issues affecting the
Company’s corporate governance responsibilities, how they are addressed by
the Board and application of the AIC Code are presented below. There is no
information that is required to be disclosed under UKLR 6.6.1R.
The UK Code includes provisions relating to: the role of the chief
executive; executive Directors’ remuneration; and the need for an internal
audit function which are not considered by the Board to be relevant to the
Company, being an externally managed investment company. The Company has
therefore not reported further in respect of these provisions.
The Guernsey Financial Services Commission Finance Sector Code of
Corporate Governance (“GFSC Code”) came into force in Guernsey on
1 January 2012 and was amended in February 2016, June 2021 and July 2023.
The Company is deemed to satisfy the GFSC Code provided that it continues
to conduct its governance in accordance with the requirements of the AIC
Code. The Company accepts that it is not adhering to Provision 19 of the
UK Code, and will not adhere to the same under the Revised UK Code, as the
Chairman has been appointed since inception and intends to act until the
completion of the Company's orderly realisation.
Provisions 32, 33, and 35 through to 41 of the UK Code have also not been
adhered to as the Board do not believe that the Company is of sufficient
size or scale to warrant a Remuneration Committee. The Company will not
adhere to the same under the Revised UK Code when this becomes effective.
CHAIRMAN
Appointed to the position of Chairman of the Board on 1 January 2022, John
Whittle is responsible for leading the Board in all areas, including
determination of strategy, organising the Board’s business and ensuring
the effectiveness of the Board and individual Directors. He also
endeavours to produce an open culture of debate within the Board.
The Chairman’s appointment was in line with the previously released
succession plan. Prior to the Chairman’s appointment, a job specification
was prepared which included an assessment of the time commitment
anticipated for the role. Discussions were undertaken to ensure that the
Chairman was sufficiently aware of the time needed for his role and agreed
to this upon signature of his letter of appointment.
Other significant business commitments of the Chairman were disclosed to
the Company prior to his appointment to the Board and a current list of
commitments is set out in his biography.
The effectiveness and independence of the Chairman is evaluated on an
annual basis as part of the Board’s performance evaluation; the Management
Engagement Committee Chairman is tasked with collating feedback and
discussing with the Chairman on behalf of the rest of the Board.
As per the Company’s Articles, all Directors, including the Chairman, must
disclose any interest in a transaction that the Board and Committees will
consider. To ensure that all Board decisions are independent, the said
conflicted Director is not entitled to vote in respect of any arrangement
connected to the interested party but may be counted in the quorum.
JOHN WHITTLE | Chairman
BOARD
Independence and Disclosure
The Chairman confirms that the initial Board, consisting of Messrs.
Jonathan Bridel (resigned 31 December 2020), Stephen Smith (resigned
31 December 2021) and himself were selected prior to the Company’s launch
and were able to assume all responsibilities at an early stage,
independent of the Investment Manager and Investment Adviser. Shelagh
Mason was appointed as a non-executive Director on 1 September 2020 and
Charlotte Denton and Gary Yardley were appointed as non- executive
Directors on 1 January 2021 and 6 September 2021, respectively, in
accordance with the Board’s Succession Planning Memorandum. The Board is
composed entirely of independent non-executive Directors, who meet as
required without the presence of the Investment Manager or service
providers to scrutinise the achievement of agreed goals, objectives and
monitor performance. Through the Audit Committee and the Management
Engagement Committee they are able to ascertain the integrity of financial
information and confirm that all financial controls and risk management
systems are robust and analyse the performance of the Investment Manager
and other service providers on a regular basis.
Following the annual performance evaluation, it was deemed that the
Directors had been proven to challenge the Investment Manager throughout
the year under review, as minuted and recorded, therefore for the purposes
of assessing compliance with the AIC Code, the Board as a whole considers
that each Director is independent of the Investment Manager and free from
any business or other relationship that could materially interfere with
the exercise of their independent judgment. If required, the Board is able
to access independent professional advice. The Investment Manager is also
requested to declare any potential conflicts surrounding votes, share
dealing and soft commissions on an annual basis to the Board to help with
the assessment of investments.
Open communication between the Investment Manager and the Board is
facilitated by regular Board meetings, to which the Investment Manager is
invited to attend and update the Board on the current status of the
Company’s investments, along with ad hoc meetings as required.
Coming to mutual agreement on all decisions, it was agreed that the Board
had acted in the best interests of the Company to the extent that, if
deemed appropriate, a Director would abstain or have his objection noted,
which would be reflected within the minutes.
Similar to the process outlined above for the appointment of the Chairman,
a job specification was prepared for each initial directorship which
included an assessment of the time commitment anticipated for the role to
ensure each Director was aware of the time commitment needed for the role.
The Directors’ other significant business commitments were disclosed to
the Company prior to their appointment to the Board and were publicly
disclosed in the Company’s Prospectus dated 28 November 2012. A similar
process was followed as part of the succession planning outlined below.
Any subsequent changes have been declared. Certain of these commitments
can be identified in each Director’s biography. Details of the skills and
experience provided by each Director can also be found in their
biographies, alongside identification of the role each Director currently
holds in the Company.
The terms and conditions of appointment for non-executive Directors are
outlined in their letters of appointment and are available for inspection
by any person at the Company’s registered office during normal business
hours and at each AGM for fifteen minutes prior to and during the meeting.
The letters of appointment were previously reviewed by an external party
and amended to ensure that they are in line with current market standards.
There is no executive Director function in the Company; all day-to-day
functions are outsourced to external service providers.
Development
The Board believes that the Company’s Directors should develop their
skills and knowledge through participation at relevant courses. The
Chairman is responsible for reviewing and discussing the training and
development of each Director according to specific needs. Upon
appointment, all Directors participate in discussions with the Chairman
and other Directors to understand the responsibilities of the Directors,
in addition to the Company’s business and procedures.
The Company also provides regular opportunities for the Directors to
obtain a thorough understanding of the Company’s business by regularly
meeting members of the senior management team from the Investment Manager,
Investment Adviser and other service providers, both in person, by phone
and through virtual meetings.
Balance of the Board and Diversity Policy
The Directors believe that the Board is well-balanced, with a wide array
of skills, experience and knowledge that ensures it functions effectively
and that no single Director may dominate the Board’s decision making
process.
The Board’s position on diversity can be seen in the Strategic Report. All
Directors currently sit on all the Committees, with the exception of the
Chairman, who is not a member of the Audit Committee; additionally, no
single Director fills more than one Committee chairmanship post.
Statement in accordance with UK LR 6.6.6. (R) (9) on Board Diversity
As at 31 December 2024, the Company met the targets specified in the UK LR
6.6.6. (R) (9) (i) and (ii) with the Board comprising 50 per cent women,
one of whom is the Senior Independent Director.
The Board has not met the target under UK LR 6.6.6. (R) (9) (iii) of
having one Director from a minority ethnic background. All Board
appointments are based on merit and objective criteria, taking into
account the benefits of diversity. It is the Board’s intention to meet the
target specified in UK LR 6.6.6. (R) (9) (iii) as the board is refreshed
over time. However, given that the Company is pursuing a strategy of
orderly realisation and return of capital to shareholders, it maybe that
the Company is dissolved before this intention is realised.
We set out below the diversity data required by the Listing Rules
disclosure requirements.
Gender: as at 31 December 2024
Number of Senior
Number of Percentage of
Positions on Board
Board members the Board
(Chair, SID) (1)
Men 2 50% 1
Women 2 50% 1
Not specified/ prefer not - 0% -
to say
(1) As the Company does not have a CEO, CFO, executives or employees the
above tables do not include this information.
Ethnic Background: as at 31 December 2024
Number of
Number of Senior
Percentage of
Board Positions on
the Board Board
members
(Chair, SID)
(1)
White British or other white 4 100% 2
(including minority-white groups)
Mixed/multiple ethnic groups - 0% -
Asian/Asian British - 0% -
Black/African/Caribbean/Black British - 0% -
Other ethnic group, including Arab - 0% -
Not specified/prefer not to say - 0% -
(1) As the Company does not have a CEO, CFO, executives or employees the
above tables do not include this information.
Approach to data collection
Each Board member is requested to provide the information above on a
strictly confidential and voluntary basis through which the individual
self-reports their ethnicity and gender identity.
Annual Performance Evaluation
The Board’s balance is reviewed on a regular basis as part of a
performance evaluation review. Using a pre-determined template based on
the AIC Code’s provisions as a basis for review, the Board undertook an
evaluation of its performance, and in addition, an evaluation focusing on
individual commitment, performance and contribution of each Director was
conducted. The Chairman then met with each Director to fully understand
their views of the Company’s strengths and to identify potential
weaknesses. If appropriate, new members are proposed to resolve any
perceived issues, or a resignation is sought. Following discussions and
review of the Chairman’s evaluation by the other Directors, the Management
Engagement Committee Chairman reviewed the Chairman’s performance.
Training and development needs are identified as part of this process,
thereby ensuring that all Directors are able to discharge their duties
effectively.
Given the Company’s size and the structure of the Board, no external
facilitator or independent third party was used in the performance
evaluation. The need to appoint an external facilitator is reviewed by the
Board on an annual basis.
Re-election and Board Tenure
There is currently no Nomination Committee for the Company as it is deemed
that the size, composition and structure of the Company would mean the
process would be inefficient and counterproductive. The Board therefore
undertakes a thorough process of reviewing the skill set of the individual
Directors, and proposes new, or renewal of current appointments to the
Board.
Each Director is required to be elected by shareholders at the AGM
following his appointment by the Board. As part of the recommendations of
the AIC Code, the Directors put themselves forward for annual re-election.
In light of this, all Directors, are therefore submitting themselves for
re-election.
The Audit Committee members and the Board confirm that all Directors have
proven their ability to fulfil all legal responsibilities and to provide
effective independent judgment on issues of strategy, performance,
resources and conduct. The Board therefore has no hesitation in
recommending to Shareholders that all Directors are re-elected.
Appointment Process
The Director appointment process involves identifying gaps and needs in
the Board’s composition and then reviewing the skill set of potential
candidates with a view to making an appointment that fills the identified
gaps and meets the future leadership needs of the Company. Currently there
is no gap that needs to be filled. Should a gap be identified, the Board
would engage an independent search consultancy with no connection to the
Company or its Directors, to assist in sourcing a candidate with the
relevant skills and experience.
Succession Planning
The Company enters its thirteenth year in 2025 and the Board is mindful of
the current strategy of orderly realisation and return of capital to the
shareholders.
As disclosed in previous reports, it was the Board’s intention that John
Whittle would remain on the Board until December 2023 in light of (i) John
Whittle’s extensive familiarity with the Company; (ii) the previously
challenging market circumstances facing the Company; and (iii) the
extensive rotation of the Board in recent years. Given the shareholder
approval to progress the Orderly Realisation and Return of Capital, as
passed by shareholder resolution at the Extraordinary General Meeting on
27 January 2023, the Board are of the view that it is in shareholders’
best interests that John Whittle remains on the Board until the completion
of the Orderly Realisation and Return of Capital to Shareholders. This
will ensure that the Board and shareholders will benefit from the
significant experience and knowledge of the Company and its portfolio that
John Whittle has developed since the Company’s IPO.
In terms of new appointments, with the approval of the Orderly Realisation
and Return of Capital and the previously announced succession plan being
implemented, the Directors believe that the current composition of three
Guernsey Directors and one Director acting from outside of Guernsey is
effective and meets the current and expected future leadership needs of
the Company. To the extent applicable or required, the Board will continue
to consider diversity when making the new appointments to the Board.
At present, the Directors wish to leave the succession and the tenure
policy of the Chairman open indefinitely, with no changes currently
planned.
BOARD AND COMMITTEES
Board
Matters reserved for the Board include review of the Company’s overall
strategy and business plans; approval of the Company’s half-yearly and
annual reports; review and approval of any alteration to the Group’s
accounting policies or practices and valuation of investments; approval of
any alteration to the Company’s capital structure; approval of the
dividend policy; appointments to the Board and constitution of Board
committees; observation of relevant legislation and regulatory
requirements; and performance review of key service providers. The Board
also retains ultimate responsibility for committee decisions; every
committee is required to refer to the Board, who will make the final
decision.
Terms of reference that contain a formal schedule of matters reserved for
the Board of Directors for decision has been approved and can be reviewed
at the Company’s registered office.
The meeting attendance record is displayed in the Corporate Governance
Statement. The Company Secretary acts as the Secretary to the Board.
Audit Committee
The Board has established an audit committee which was composed of all the
independent members of the Board other than Chairman of the Board. The
Chairman of the Board, although not a member of the committee, may still
attend the meetings upon invitation by the audit committee Chairman. The
audit committee, its membership and its terms of reference are kept under
regular review by the Board, and it is confident that all members have
sufficient financial skills and experience, and competence relevant to the
Company’s sector. John Whittle was the audit committee Chairman until 31
December 2021. Charlotte Denton was appointed on 24 March 2021 to the
audit committee and has become chairman of the audit committee with effect
from 1 January 2022.
The audit committee met three times during 2024 (2023: four times). The
Company Secretary acts as the Secretary to the audit committee.
Owing to the size and structure of the Company, there is no internal audit
function. The audit committee has reviewed the need for an internal audit
function and perceived that the internal financial and operating control
systems in place within the Group and its service providers.
The audit committee is intended to assist the Board in discharging its
responsibilities for the integrity of the Group’s consolidated financial
statements, as well as aiding the assessment of the Group’s internal
control effectiveness and objectivity of the external Auditors. Further
information on the audit committee’s responsibilities is given in the
Report of the Audit Committee.
Formal terms of reference for the audit committee are available at the
registered office and on the Company’s website and are reviewed on a
regular basis.
Management Engagement Committee
The Company has established a Management Engagement Committee which
comprises all the Directors, with Shelagh Mason as the Chairman of the
committee. The Management Engagement Committee’s main function is to
review and make recommendations on any proposed amendment to the
Investment Management Agreement and keep under review the performance of
the Investment Manager; and undertake an assessment of the Investment
Manager’s scope and responsibilities as outlined in the service agreement
and prospectus on a formal basis every year. Discussions on the Investment
Manager’s performance are also conducted regularly throughout the year by
the Board. Reviews of engagements with other service providers, such as
the Administrator, to ensure all parties are operating satisfactorily are
also undertaken by the Management Engagement Committee so as to ensure the
safe and accurate management and administration of the Company’s affairs
and business and that they are competitive and reasonable for
Shareholders.
The Management Engagement Committee met twice during 2024 (2023: twice)
and undertook a review of the key service providers to the Group and the
Company, utilising a service provider questionnaire. No material
weaknesses were identified and the recommendation to the Board was that
the current arrangements were appropriate and provided good quality
services and advice to the Company and the Group.
Formal terms of reference for the Management Engagement Committee are
available at the registered office and the Company’s website and are
reviewed on a regular basis.
Management
Scheduled Ad hoc Audit
Engagement
Board Board(1) Committee
Committee
John Whittle 4 9 3 2
Shelagh Mason 4 8 3 2
Charlotte Denton 4 6 3 2
Gary Yardley 4 9 3 2
Total Meetings for year 4 9 3 2
(1) The ad hoc Board meetings are convened at short notice to deal with
administrative matters. It is not therefore always logistically feasible,
or a necessity, for every director to attend such meetings.
The Company Secretary acts as the secretary to the Management Engagement
Committee.
Board and Committee Meeting Attendance
Individual attendance at Board and committee meetings is set out above.
In addition to the scheduled quarterly and additional ad hoc meetings, the
Directors and the Investment Manager have been provided with a number of
videoconference or telephone investment briefings by the Investment
Adviser in order to keep the Directors and the Investment Manager fully
apprised and up to date with the current investment status and progress.
During 2018, a committee of one Director was appointed to approve
dividends should a quorum of two Directors not be available.
BOARD REMUNERATION
As outlined in the Prospectus, Directors are paid in accordance with
agreed principles aimed at focusing on long-term performance of the
Company. Further information can be found in the Directors’ Remuneration
Report.
COMPANY SECRETARY
Reports and papers, containing relevant, concise and clear information,
are provided to the Board and Committees in a timely manner to enable
review and consideration prior to both scheduled and ad-hoc specific
meetings. This ensures that Directors are capable of contributing to, and
validating, the development of Company strategy and management. The
regular reports also provide information that enables scrutiny of the
Company’s Investment Manager and other service providers’ performance.
When required, the Board has sought further clarification of matters with
the Investment Manager and other service providers, both by means of
further reports and in-depth discussions, in order to make more informed
decisions for the Company.
Under the direction of the Chairman, the Company Secretary facilitates the
flow of information between the Board, Committees, the Investment Manager
and other service providers through the development of comprehensive,
detailed meeting packs, agendas and other media. These are circulated to
the Board and other attendees in sufficient time to review the data.
Full access to the advice and services of the Company Secretary is
available to the Board; in turn, the Company Secretary is responsible for
advising on all governance matters through the Chairman. The Articles and
schedule of matters reserved for the Board indicate the appointment and
resignation of the Company Secretary is an item reserved for the full
Board. A review of the performance of the Company Secretary is undertaken
by the Board on a regular basis.
FINANCIAL AND BUSINESS INFORMATION
An explanation of the Directors’ roles and responsibilities in preparing
the Annual Report and Audited Consolidated Financial Statements for the
year ended 31 December 2024 is provided in the Statement of Directors’
Responsibilities.
Further information enabling shareholders to assess the Company’s
performance, business model and strategy can be sourced in the Chairman’s
Statement, the Strategic Report and the Report of the Directors.
GOING CONCERN
The Directors also consider it appropriate to prepare the financial
statements on the going concern basis, as explained in the ‘Basis of
preparation’ paragraph in note 2(a) of the financial statements which
includes consideration of the changes to the Company's Investment
Objective and Investment Policy approved at the EGM held in January 2023.
RISK CONTROL
In addition to the earlier assessment of principal risks and uncertainties
contained within the Strategic Report, the Board is required annually to
review the effectiveness of the Group’s key internal controls such as
financial, operational and compliance controls and risk management. The
controls are designed to ensure that the risk of failure to achieve
business objectives is minimised and are intended to provide reasonable
assurance against material misstatement or loss. This is not absolute
assurance that all risks are eliminated.
Through regular meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial,
regulatory and operational issues. The Board maintains an organisational
and committee structure with clearly defined lines of responsibility and
delegation of authorities.
RISK MANAGEMENT
As part of the compilation of the risk register for the Company,
appropriate consideration has been given to the relevant control processes
and that risk is considered, assessed and managed as an integral part of
the business. The Company’s system of internal control includes inter alia
the overall control exercise, procedures for the identification and
evaluation of business risk, the control procedures themselves and the
review of these internal controls by the Audit Committee on behalf of the
Board. Each of these elements that make up the Company’s system of
internal financial and operating control is explained in further detail as
below.
(i) Control Environment
The Company is ultimately dependent upon the quality and integrity of the
staff and management of the Investment Manager, the Investment Adviser and
its Fund Administration & Company Secretarial service provider. In each
case, qualified and able individuals have been selected at all levels. The
staff of both the Investment Manager and Administrator are aware of the
internal controls relevant to their activities and are also collectively
accountable for the operation of those controls. Appropriate segregation
and delegation of duties is in place.
The Audit Committee undertakes a review of the Company’s internal
financial and operating controls on a regular basis. The Auditors of the
Company consider internal controls relevant to the Company’s preparation
and fair presentation of the consolidated financial statements in order to
design their audit procedures, but not for the purpose of expressing an
audit opinion on the effectiveness of the Company’s internal controls.
In its role as a third-party fund administration services provider, Apex
Fund and Corporate Services (Guernsey) Limited produces an annual SOC 1
Type 2 Report on the internal control procedures in place within Apex Fund
and Corporate Services (Guernsey) Limited and this is subject to review by
the Audit Committee and the Board.
(ii) Identification and Evaluation of Business Risks
Another key business risk is the performance of the Company’s investments.
This is managed by the Investment Manager, which undertakes regular
analysis and reporting of business risks in relation to the loan
portfolio, and then proposes appropriate courses of action to the Board
for their review.
(iii) Key Procedures
In addition to the above, the audit committee’s key procedures include a
comprehensive system for reporting financial results to the Board
regularly, as well as quarterly impairment reviews of loans conducted by
the Board as a whole (including reports on the underlying investment
performance).
Although no system of internal control can provide absolute assurance
against material misstatement or loss, the Company’s system is designed to
assist the Directors in obtaining reasonable assurance that problems are
identified on a timely basis and dealt with appropriately. The Company,
given its size, does not have an internal audit function. It is the view
of the Board that the controls in relation to the Company’s operating,
accounting, compliance and IT risks performed robustly throughout the
year. In addition, all have been in full compliance with the Company’s
policies and external regulations, including:
• Investment policy, as outlined in the IPO documentation, and
subsequently amended by EGMs held on 2 May 2014, 9 March 2015,
6 May 2016 and 27 January 2023;
• Personal account dealing and the control and dissemination of price
sensitive information, as outlined in MAR;
• Whistleblowing Policy;
• Anti-Bribery Policy;
• Applicable Financial Conduct Authority Regulations;
• UK Listing Rules, and Disclosure Guidance and Transparency Rules;
• Treatment and handling of confidential information;
• Conflicts of interest;
• Compliance policies; and
• Anti-money laundering regulations.
There were no protected disclosures made pursuant to the Company’s
whistleblowing policy, or that of service providers in relation to the
Company, during the year to 31 December 2024.
In summary, the Board considers that the Company’s existing internal
financial and operating controls, coupled with the analysis of risks
inherent in the business models of the Company and its subsidiaries,
continue to provide appropriate tools for the Company to monitor, evaluate
and mitigate its risks.
ALTERNATIVE INVESTMENT FUND MANAGEMENT DIRECTIVE (“AIFMD”)
The AIFMD, which was implemented across the EU on 22 July 2013 with the
transition period ending 22 July 2014, aims to harmonise the regulation of
Alternative Investment Fund Managers (“AIFMs”) and imposes obligations on
managers who manage or distribute Alternative Investment Funds (“AIFs”) in
the EU or who market shares in such funds to EU investors. Following the
UK’s cessation of EU membership on 31 January 2020, the FCA has
implemented an equivalent regulation (“UK AIFMD”) for the marketing of
AIFs in the UK and to UK investors.
After seeking professional regulatory and legal advice, the Company was
established in Guernsey such that, upon implementation of AIFMD it would
be a Non-EU/UK AIF, with Starwood European Finance Partners Limited
appointed to act as the Non-EU/UK AIFM.
In accordance with AIFMD disclosure obligations, note 6 provides a summary
of realised and unrealised gains and losses.
The Investment Manager does not receive an additional fee, to that stated
in notes 3 and 22, as a result of acting as the AIFM. The Board of the
Investment Manager received an aggregate fee of £1,840,831 for the year
ended 31 December 2024 (£2,910,525 for the year ended 31 December 2023).
The marketing of shares in AIFs that are established outside the EU/UK
(such as the Company) to investors in an EU member state/ UK is prohibited
unless certain conditions are met. Certain of these conditions are outside
the Company’s control as they are dependent on the regulators of the
relevant third country (in this case Guernsey) and the relevant EU member
state/UK entering into regulatory co-operation agreements with one
another.
The AIFM has given written notification to the FCA, pursuant to Regulation
59 of the Alternative Investment Fund Managers Regulations 2013 (SI
1773/2013) (the “AIFM Regulations”) of its intention to market the shares
to investors in the United Kingdom in accordance with the AIFM Regulations
and the rules and guidance of the FCA.
The AIFM has given written notification to the Netherlands Authority for
the Financial Markets (“AFM”) pursuant to Article 1:13b section 1 and 2 of
the Act on the Financial Supervision (Wet op het financieel toezicht) (the
“AFS”) of its intention to market the shares to investors in the
Netherlands in accordance with the AFS, any rules and regulations
promulgated pursuant thereto and the rules and guidance of the AFM.
On 12 February 2016, the AIFM obtained a marketing licence in Sweden in
accordance with Chapter 5, Section 10 of the Swedish Alternative
Investment Fund Managers Act (Sw. lag (2013:561) om förvaltare av
alternativa investeringsfonder). This enables shares in the Company to be
marketed to professional investors in Sweden.
Currently, the National Private Placement Regime (“NPPR”) provides a
mechanism to market Non-EU AIFs that are not allowed to be marketed under
the AIFMD domestic marketing regimes. The Board is utilising NPPR in order
to market the Company, specifically in the UK, Sweden and the Netherlands.
The Board works with the Company’s advisers to ensure the necessary
conditions are met, and all required notices and disclosures are made
under NPPR.
Any regulatory changes arising from implementation of the AIFMD (or
otherwise) that limit the Company’s ability to market future issues of its
shares may adversely affect the Company’s ability to carry out its
investment policy successfully and to achieve its investment objective,
which in turn may adversely affect the Company’s business, financial
condition, results of operations, NAV and/or the market price of the
Ordinary Shares.
The Board, in conjunction with the Company’s advisers, will continue to
monitor the development of the AIFMD and its impact on the Company. The
Company will continue to use NPPR pending further consultation from the
European Securities and Marketing Authority (“ESMA”).
The Board has considered the disclosure obligations under Articles 22 and
23 and can confirm that the Company complies with the various
organisational, operational and transparency obligations.
The Board has considered requirements of Articles 6 and 7 of Regulation
2019/2088 on sustainability-related disclosures in the financial services
sector dated 27 November 2019 and have made the necessary disclosures on
the Company’s website.
FOREIGN ACCOUNT TAX COMPLIANCE ACT (“FATCA”) AND THE OECD COMMON REPORTING
STANDARDS (“CRS”)
FATCA became effective on 1 January 2013 and is being gradually
implemented internationally. The legislation is aimed at determining the
ownership of US assets in foreign accounts and improving US Tax compliance
with respect to those assets.
More than 100 jurisdictions, including all 38 member countries of the
Organisation for Economic Co-operation and Development (“OECD”) and the
G20 members, have committed to implement the Common Reporting Standard for
automatic exchange of tax information (“CRS”). Building on the model
created by FATCA, the CRS creates a global standard for the annual
automatic exchange of financial account information between the relevant
tax authorities.
The Board in conjunction with the Company’s service providers and advisers
have ensured that the Company complies with FATCA and CRS’s requirements
to the extent relevant to the Company.
SECTION 172 STATEMENT
Whilst directly applicable to UK domiciled companies, the intention of the
AIC Code is that the below matters set out in section 172 of the UK
Companies Act, 2006 are reported.
Risk Management
In order to minimise the risk of failure to achieve business objectives,
the Company actively identifies, evaluates, manages and mitigates risk as
well as continually evolving the approach to risk management. For further
details in connection with Risk Management of the Company, please refer to
the Strategic Report and the Corporate Governance Statement.
Our People
The Company has no employees, however, to succeed we need to manage the
Company’s performance by bringing through talent to the Board while
ensuring we operate as effectively as possible, as demonstrated with the
succession plan. For further details in connection with the succession
plan, please refer to the Corporate Governance Statement.
Business Relationships
In order for the Company to succeed, it must develop and maintain
long-term relationships with service providers, borrowers and other key
stakeholders.
Community and Environment
As an investment company, the Group’s activities have minimal direct
impact on the environment. Please refer to the Strategic Report for more
details in connection with the impact of the Group’s operations on the
community and environment.
Business Conduct
The Company is committed to act responsibly and ensure that the business
operates in a responsible and effective manner and with high standards in
order to meet its objectives.
Shareholders
The Board place a great deal of importance on communication with all
shareholders and envisage to continuing effective dialogue with all
shareholders. Please refer to section below for more details on how the
Company engages with the shareholders.
Throughout 2025, the Board of the Company, both individually and together,
will continue to review and challenge how the Company can continue to act
in good faith to promote the success of the Company for the benefit of its
stakeholders in the decisions taken.
DIALOGUE WITH SHAREHOLDERS
The Directors place a great deal of importance on communication with
shareholders. The Company’s Chairman, Investment Manager and the Broker,
offer to meet with large shareholders at least annually, together with the
Investment Adviser, and calls are undertaken on a regular basis with
shareholders. The Board also receives regular reports from the Broker on
shareholder issues. Publications such as the Annual Report and
Consolidated Financial Statements and quarterly factsheets are reviewed
and approved by the Board prior to circulation and are widely distributed
to other parties who have an interest in the Company’s performance and are
available on the Company’s website.
Following meetings with multiple large shareholders in October 2022, the
Company’s Proposed Orderly Realisation was progressed and approved at the
EGM on 27 January 2023, following which the Company is seeking to return
cash to Shareholders in an orderly manner as soon as reasonably
practicable following the repayment of loans, while retaining sufficient
working capital for ongoing operations.
All Directors are available for discussions with the shareholders, in
particular the Chairman (John Whittle), Senior Independent Director
(Shelagh Mason) and the Audit Committee Chairman (Charlotte Denton), as
and when required.
Should a situation arise where shareholders cast a vote of 20 per cent or
more against a board recommendation the Directors will consult with
shareholders to understand their reasons behind this vote. The Board will
publish the views received from the shareholders within six months of the
shareholder meeting.
CONSTRUCTIVE USE OF AGM
The Notice of AGM is sent out at least 20 working days in advance of the
meeting. All shareholders have the opportunity to put questions to the
Board or Investment Manager, either formally at the Company’s AGM,
informally following the meeting, or in writing at any time during the
year via the Company Secretary. The Company Secretary is also available to
answer general shareholder queries at any time throughout the year.
By order of the Board
John Whittle | Chairman
2 April 2025
Report of the Audit Committee
The Board is supported by the Audit Committee, which during the year
comprised of Charlotte Denton, as Chairman, Shelagh Mason, and Gary
Yardley. John Whittle, as Chairman of the Board, does not sit on the Audit
Committee. The Board has considered the composition of the Audit Committee
and is satisfied that it has sufficient recent and relevant skills and
experience. In particular the Board has considered the requirements of the
AIC Code that the Audit Committee should have at least one Member who has
recent and relevant financial experience and that the Audit Committee as a
whole has competence relevant to the sector in which the Company invests.
The Board considers all of the relevant requirements to have been met.
ROLE AND RESPONSIBILITIES
The primary role and responsibilities of the Audit Committee are outlined
in the Audit Committee’s terms of reference, available at the registered
office, including:
• Reviewing the Group’s internal financial controls, and the Group’s
internal control and risk management systems;
• Monitoring the need for an internal audit function annually;
• Monitoring and reviewing the scope, independence, objectivity and
effectiveness of the external Auditor, taking into consideration
relevant regulatory and professional requirements;
• Making recommendations to the Board in relation to the appointment,
re-appointment and removal of the external Auditor and approving their
remuneration and terms of engagement, which in turn can be placed
before the shareholders for their approval at the AGM;
• Development and implementation of the Group’s policy on the provision
of non-audit services by the external Auditor, as appropriate;
• Reviewing the arrangements in place to enable Directors and staff of
service providers to, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters
insofar as they may affect the Group;
• Providing advice to the Board on whether the consolidated financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess the
Group’s performance, business model and strategy; and
• Reporting to the Board on how the Committee discharged all relevant
responsibilities at each Board meeting.
Financial Reporting
The primary role of the Audit Committee in relation to the financial
reporting is to review with the Administrator, Investment Manager and the
Auditor the appropriateness of the Annual Report and Audited Consolidated
Financial Statements and Interim Condensed Consolidated Financial
Statements, concentrating on, amongst other matters:
• The quality and acceptability of accounting policies and practices;
• The clarity of the disclosures and compliance with financial reporting
standards and relevant financial and governance reporting
requirements;
• Material areas in which significant judgements have been applied or
there has been discussion with the Auditor;
• Whether the Annual Report and Audited Consolidated Financial
Statements, taken as a whole, is fair, balanced and understandable and
provides the information necessary for the shareholders to assess the
Group’s performance, business model and strategy; and
• Any correspondence from regulators in relation to the Group’s
financial reporting.
To aid its review, the Audit Committee considers reports from the
Administrator and Investment Manager and also reports from the Auditor on
the outcomes of their half-year review and annual audit. The Audit
Committee supports PricewaterhouseCoopers CI LLP (“PwC”) in applying the
necessary professional scepticism their role requires.
The Audit Committee met three times during the year under review;
individual attendance of Directors is outlined in the Corporate Governance
Statement. The main matters discussed at those meetings were:
• Review and approval of the external Auditor and when tabled,
consideration of the final audit findings report;
• Discussion and approval of the fee for the external audit;
• Detailed review of the Annual Report and Audited Consolidated
Financial Statements and recommendation for approval by the Board;
• Review and approval of the interim review findings report of the
external Auditor;
• Detailed review of the Interim Condensed Consolidated Financial
Statements and recommendation for approval by the Board;
• Discussion of reports from the external Auditor following their
interim review and annual audit;
• Assessment of the effectiveness of the external Auditor as described
below;
• Assessment of the independence of the external Auditor;
• Review of the Group’s key risks and internal controls; and
• Consideration of the AIC Code, FRC Guidance on Audit Committees and
other regulatory guidelines.
The Committee has also reviewed and considered the whistleblowing policy
in place for the Administrator and other service providers and is
satisfied the relevant staff can raise concerns in confidence about
possible improprieties in matters of financial reporting or other matters
insofar as they may affect the Company.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit Committee
appointed for the purpose, shall attend each AGM of the Company, prepared
to respond to any shareholder questions on the Audit Committee’s
activities.
Internal Audit
The Audit Committee considers at least once a year whether or not there is
a need for an internal audit function. Currently, the Audit Committee does
not consider there to be a need for an internal audit function, given that
there are no employees in the Group and all outsourced functions are with
parties / administrators who have their own internal controls and
procedures.
SIGNIFICANT ISSUES IN RELATION TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the year, the Audit Committee considered a number of significant
risks in respect of the Annual Report and Audited Consolidated Financial
Statements. The Audit Committee reviewed the external audit plan at an
early stage and concluded that the appropriate areas of audit risk
relevant to the Group had been identified and that suitable audit
procedures had been put in place to obtain reasonable assurance that the
consolidated financial statements as a whole would be free of material
misstatements.
The table below sets out the Audit Committee’s view of the key areas of
risk and how they have addressed the issues.
Significant Issues Actions to Address Issue
Loans advanced at the year-end, totalling £149.5
million (note 10), are measured at amortised cost.
Loans advanced make up a significant part of the
consolidated statement of financial position and due to
the nature of this balance, the measurement is subject
to estimation uncertainty.
The assumptions and estimates regarding the receipt and
timing of scheduled and unscheduled payments of loans
advanced could significantly impact the net asset value
of the Group. The specific areas of estimation
uncertainties encompass the impact of variations in
both the amount and timing of expected cash flows for
each loan measured at amortised cost. In addition
income from loans advanced is measured in accordance
with the effective interest rate method. The
requirement to estimate the expected cash flows when
forming an effective interest rate model is also
Amortised cost subject to significant management judgements and
estimates. The Audit Committee reviews the controls in
measurement of place around the loan models and is notified regularly
by the Investment Manager of any changes to underlying
loans advanced assumptions made in the loan models.
The Audit Committee discusses with the Investment
Manager and Investment Adviser the reasons for the
changes in key assumptions made in the loan models such
as changes to expected drawdown or repayment dates or
other amendments to expected cash flows such as changes
in interbank rates on floating loans. The Audit
Committee ensures that any changes made to the models
are justifiable based on the latest available
information.
A separate income rationalisation which is prepared
outside of the detailed loan models is provided to the
Board on a quarterly basis as a secondary check on the
revenue being recognised in the loan models. This is
also reviewed by the Audit Committee and questions
raised where appropriate.
The Group's loans advanced, which are measured at
amortised cost, fall within the scope of IFRS 9's
expected credit loss (“ECL”) model. The assessment,
recognition, and measurement of the ECL involves
numerous assumptions and judgments. The ECL is also
subject to a high level of estimation uncertainty due
to the forward-looking information considered when
assessing significant increases in credit risk and when
measuring and recognising an ECL.
The Audit Committee reviews the investment process of
the Investment Manager and Investment Adviser including
the controls in place around deal sourcing, investment
analysis, due diligence, asset management and the role
of the Investment Adviser’s investment committee and
the Investment Manager’s Board.
The Audit Committee receives regular updates and
reports on the performance of each loan and discusses
with the Investment Manager and Investment Adviser
Expected credit whether there are any indicators of significant
increase in credit risk or impaired or defaulted loans.
losses on loans The Audit Committee also assesses the expected credit
loss methodology focusing on the estimation of
advanced probability of default, exposure at default and loss
given default.
Formal loan performance reviews and credit risk
assessments are also prepared by the Investment Adviser
and Investment Manager which are reviewed at each Audit
Committee meeting and the Audit Committee considers
whether there are any indicators that would warrant a
change to the ECL assessed for each loan advanced.
All existing loans advanced as at 31 December 2024 were
assessed so as to ensure compliance with IFRS 9. As
disclosed in note 2 and in the Investment Manager’s
report, at 31 December 2024, one loan (accounting for
14.0 per cent of the funded portfolio as at 31 December
2024), was classified as Stage 3, two loans were
classified as Stage 2 and the remaining loans were
classified as Stage 1. An impairment provision of
£10,849,579 has been provided in these accounts for the
loan classified as Stage 3 as at 31 December 2024. No
further expected credit loss provision has been made in
respect of the loans classified as Stage 2 and Stage 1
REVIEW OF EXTERNAL AUDIT PROCESS EFFECTIVENESS
The Audit Committee communicated regularly with the Investment Manager,
Investment Adviser and Administrator to obtain a good understanding of the
progress and effectiveness of the audit process. Similarly, feedback in
relation to the effectiveness of the Investment Manager, Investment
Adviser and other service providers in performing their relevant roles was
sought from relevant involved parties, including the audit partner and
team. The external Auditor is invited to attend the Audit Committee
meetings at which the interim and annual consolidated financial statements
are considered, also enabling the Auditor to meet and discuss any matters
with the Audit Committee without the presence of the Investment Manager or
the Administrator.
During the year, the Audit Committee reviewed the external Auditor’s
performance, considering a wide variety of factors including:
• The quality of service, the Auditor’s specialist expertise, the level
of audit fee, identification and resolution of any areas of accounting
judgement, and quality and timeliness of papers analysing these
judgements;
• Review of the audit plan presented by the Auditor, and when tabled,
the final audit findings report;
• Meeting with the Auditor regularly to discuss the various papers and
reports in detail;
• Furthermore, interviews of appropriate staff in the Investment
Manager, Investment Adviser and Administrator to receive feedback on
the effectiveness of the audit process from their perspective; and
• Compilation of a checklist with which to provide a means to
objectively assess the Auditor’s performance.
AUDITOR’S TENURE AND OBJECTIVITY
The Group’s current Auditor, PwC, have acted in this capacity since the
Company’s inaugural meeting on 22 November 2012. The Committee reviews the
Auditor’s performance on a regular basis to ensure the Group receives an
optimal service and make regular enquiries to confirm the quality findings
of audit work undertaken by both the firm and lead engagement partner on
the audit. Subject to annual appointment by shareholder approval at the
AGM, the appointment of the Auditor is formally reviewed by the Audit
Committee on an annual basis. PwC follows the FRC Ethical Standards and
their rotation rules require the lead audit partner to rotate every 5
years, key partners involved in an audit every 7 years and PwC’s own
internal policy would generally expect senior staff to have consideration
given to the threats to their independence after 7 years and to be rotated
after 10 years. Rotation ensures a fresh look without sacrificing
institutional knowledge.
Rotation of audit engagement partners, key partners involved in the audit
and other staff in senior positions is reviewed on a regular basis by the
lead audit engagement partner. Adrian Peacegood is currently serving his
second year of five as engagement partner.
PwC regularly updates the Audit Committee on the rotation of audit
partners, staff, level of fees, details of any relationships between the
Auditor and the Group, and also provides overall confirmation of its
independence and objectivity. There are no contractual obligations that
restrict the Group’s choice of Auditor. Any non-audit work would be
reviewed by the Audit Committee to confirm it remains appropriate under
the FRC Ethical Standard and approved by the Audit Committee Chairman
prior to the Auditor undertaking any work.
Following a review of PwC’s tenure, the Audit Committee recommended that
the Board of Directors conduct a competitive tender process for the role
of the Company’s independent auditor for the audit of the year-ended 31
December 2023. Following the completion of the competitive tender process,
the Audit Committee were satisfied that PwC were still best placed to
service the Company as its independent auditors and as such will be
recommending their continued appointment by the Board.
CONCLUSIONS IN RESPECT OF THE CONSOLIDATED FINANCIAL STATEMENTS
The production and the audit of the Annual Report and Audited Consolidated
Financial Statements is a comprehensive process requiring input from a
number of different contributors. In order to reach a conclusion on
whether the Group’s consolidated financial statements are fair, balanced
and understandable, as required under the AIC Code, the Board has
requested that the Audit Committee advise on whether it considers that the
Annual Report and Consolidated Financial Statements fulfils these
requirements. In outlining its advice, the Audit Committee has considered
the following:
• The comprehensive documentation that is in place outlining the
controls in place for the production of the Annual Report and Audited
Consolidated Financial Statements, including the verification
processes in place to confirm the factual content;
• The detailed reviews undertaken at various stages of the production
process by the Investment Manager, Investment Adviser, Administrator,
Auditor and the Audit Committee that are intended to ensure
consistency and overall balance;
• Controls enforced by the Investment Manager, Investment Adviser,
Administrator and other third-party service providers to ensure
complete and accurate financial records and security of the Group’s
assets; and
• The existence and content of a controls report that has been reviewed
and reported upon by the Administrator’s service Auditor regarding the
internal controls of the Administrator, such as the SOC 1 Type 2
Report.
As a result of the work performed, the Audit Committee has concluded that
it has acted in accordance with its’ terms of reference and has ensured
the independence and objectivity of the external Auditor. It has reported
to the Board that the Annual Report for the year ended 31 December 2024,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s performance,
business model and strategy. The Board’s conclusions in this respect are
set out in the Statement of Directors’ Responsibilities.
The Audit Committee has recommended to the Board that the external auditor
be re-appointed for the 2025 year end annual report.
Charlotte Denton | Audit Committee
Chairman
2 April 2025
Statement of Directors’ Responsibilities
The Directors are responsible for preparing consolidated financial
statements for each financial year which give a true and fair view, in
accordance with applicable laws and regulations, of the state of affairs
of the Company and of the profit or loss of the Company for that year.
Company law requires the Directors to prepare financial statements for
each financial year. The consolidated financial statements have been
prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (“IFRS”). In preparing the consolidated
financial statements, the Directors are required to:
• Select suitable accounting policies and apply them consistently;
• Make judgments and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
consolidated financial statements; and
• Prepare the consolidated financial statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors; the work conducted by the Auditor does
not involve consideration of the maintenance and integrity of the website
and, accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the consolidated financial statements since they
are initially presented on the website. Legislation in Guernsey governing
the preparation and dissemination of the consolidated financial statements
may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the consolidated financial
statements comply with the Companies (Guernsey) Law, 2008, as amended.
They are also responsible for safeguarding the assets of the Company and
the Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their knowledge:
• They have complied with the above requirements in preparing the
consolidated financial statements;
• There is no relevant audit information of which the Company’s Auditor
is unaware;
• All Directors have taken the necessary steps that they ought to have
taken to make themselves aware of any relevant audit information and
to establish that the Auditor is aware of said information;
• The consolidated financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company and Group; and
• The Chairman’s Statement, Strategic Report, Investment Manager’s
Report, Report of the Directors, Corporate Governance Report and
Report of the Audit Committee include a fair review of the development
and the position of the Company and the Group, together with a
description of the principal risks and uncertainties that they face
and take into account the results of the EGM.
The UK Code, as adopted through the AIC Code by the Company, also requires
Directors to ensure that the Annual Report and Consolidated Financial
Statements are fair, balanced and understandable. In order to reach a
conclusion on this matter, the Board has requested that the Audit
Committee advise on whether it considers that the Annual Report and
Consolidated Financial Statements fulfil these requirements The process by
which the Committee has reached these conclusions is set out in the Report
of the Audit Committee. Furthermore, the Board believes that the
disclosures set out in the Annual Report provide the information necessary
for shareholders to assess the Company’s performance, business model and
strategy.
Having taken into account all the matters considered by the Board and
brought to the attention of the Board during the year ended 31 December
2024, as outlined in the Chairman Statement, Investment Manager’s Report,
Corporate Governance Statement, Strategic Report and the Report of the
Audit Committee, the Board has concluded that the Annual Report and
Audited Consolidated Financial Statements for the year ended 31 December
2024, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
For Starwood European Real Estate Finance Limited
John Whittle | Chairman
2 April 2025
Financial Statements
Independent Auditor’s Report to the Members of Starwood European Real
Estate Finance Limited
Report on the audit of the consolidated financial statements
OUR OPINION
In our opinion, the consolidated financial statements give a true and fair
view of the consolidated financial position of Starwood European Real
Estate Finance Limited (the “company”) and its subsidiaries (together “the
group”) as at 31 December 2024, and of their consolidated financial
performance and their consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards as adopted by
the European Union and have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
WHAT WE HAVE AUDITED
The group’s consolidated financial statements comprise:
• the consolidated statement of financial position as at 31 December
2024;
• the consolidated statement of comprehensive income for the year then
ended;
• the consolidated statement of changes in equity for the year then
ended;
• the consolidated statement of cash flows for the year then ended; and
• the notes to the consolidated financial statements, comprising
material accounting policy information and other explanatory
information.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on
Auditing (“ISAs”). Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
INDEPENDENCE
We are independent of the group in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial
statements of the group, as required by the Crown Dependencies’ Audit
Rules and Guidance. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
OUR AUDIT APPROACH
OVERVIEW
Audit scope
• The company is registered in Guernsey, with subsidiaries located in
Guernsey and Luxembourg and engages Starwood European Finance Partners
Limited (the “Investment Manager”) to manage its assets. The
consolidated financial statements are a consolidation of the financial
statements of the company and all the subsidiaries.
• We conducted our audit of the consolidated financial statements based
upon the books and records provided by Apex Fund and Corporate
Services (Guernsey) Limited (the “Administrator”) and its related
group entities to whom the board of directors has delegated the
provision of certain functions. Along with the Investment Manager, we
also interacted with Starwood Capital Europe Advisers, LLP (the
“Investment Adviser”) in completing aspects of our overall audit work.
• We conducted our audit work in Guernsey, and we tailored the scope of
our audit taking into account the types of investments within the
group, the involvement of the third parties referred to above, and the
industry in which the group operates. We performed an audit of the
consolidated financial information of the company and its Guernsey and
Luxembourg subsidiaries, and we consider them all as one component.
• Scoping was performed at the group level, irrespective of whether the
underlying transactions took place within the company or within any of
the subsidiaries. Our testing was performed on a consolidated basis
using thresholds which are determined with reference to the overall
group performance materiality and the risks of material misstatement
identified.
KEY AUDIT MATTERS
• Amortised cost measurement of loans advanced
• Expected credit losses (“ECLs”) on loans advanced
MATERIALITY
• Overall group materiality: £4.4 million (2023: £6.5 million) based on
2.25% (2023: 2%) of consolidated net assets.
• Performance materiality: £3.3 million (2023: £4.9 million).
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the consolidated financial statements.
In particular, we considered where the directors made subjective
judgements; for example, in respect of significant accounting estimates
that involved making assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also addressed the risk
of management override of internal controls, including among other
matters, consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditor’s professional
judgement, were of most significance in the audit of the consolidated
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to
fraud) identified by the auditor, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the key audit
matter
Amortised cost measurement of loans
advanced
Loans advanced at the year-end, • We understood and evaluated the
totalling £149.5 million (note 10), controls in place at the
are measured at amortised cost and Administrator, the Investment
comprise both fixed and floating Manager, and the Investment
rate loans. Adviser over the amortised cost
measurement of the loans
advanced.
• We assessed the accounting policy
Loans advanced make up a significant for loans advanced for compliance
part of the consolidated statement with International Financial
of financial position and due to the Reporting Standards as adopted by
nature of this balance, the the European Union and planned
subsequent measurement is subject to and executed our audit procedures
estimation uncertainty. to ensure that the loans advanced
were accounted for in accordance
with the stated accounting
policy.
The assumptions and estimates • We tested the mathematical
regarding the receipt and timing of accuracy of the models used by
scheduled and unscheduled payments management to value the loans
of loans advanced could advanced at amortised cost using
significantly impact the net asset the effective interest rate
value of the group and this is method. Additionally, we verified
considered to be a key source of a sample of the assumptions and
estimation uncertainty as described inputs into the amortised cost
in note 2c of the consolidated models by comparing them with the
financial statements. associated agreements and other
legal documentation.
• Back-testing procedures were
conducted to support our
The specific areas of estimation conclusions regarding the
uncertainties encompass the impact reliability of the cash flow
of variations in both the amount and forecasting applied by the
timing of expected cash flows for Investment Adviser.
each loan measured at amortised
cost.
Based on the audit work described
above we have nothing to report to
Due to the level of estimation those charged with corporate
uncertainties and the significance governance.
of the balance of loans advanced in
the consolidated statement of
financial position, this was
considered a key audit matter.
• We understood and evaluated the
controls in place relating to the
ECL assessment, recognition and
measurement processes.
• We understood and evaluated the
assumptions and judgements made
by the Investment Adviser in
respect of the ECL for each loan
advanced which include:
◦ obtaining the Investment
Adviser’s impairment papers and
assessing the ECL methodology,
focussing on the estimation of
probability of default, exposure
at default and loss given
default, and how forward-looking
information was considered in
this regard;
Expected credit losses on loans ◦ evaluating the consistency and
advanced appropriateness of the Investment
Adviser’s assumptions applied in
The Group's loans advanced, which determining whether any loan
are measured at amortised cost, fall advanced was performing,
within the scope of IFRS 9's underperforming or
expected credit loss (“ECL”) model. non-performing, including
The assessment, recognition, and consideration as to whether a
measurement of the ECL involve significant increase in credit
numerous assumptions and judgments. risk of each borrower had
The ECL is also subject to a high occurred during the year;
level of estimation uncertainty due ◦ obtaining evidence to support a
to the forward-looking information sample of key assumptions
considered when assessing presented in the assessment of
significant increases in credit risk the ECL, including consideration
and when measuring and recognising of the financial information on
an ECL. the borrower and the collateral
in place to assess their ability
to meet future payment
commitments, and progress against
The specific areas of assumptions business plans including
and judgments include significant management’s assessment of the
increases in the credit risk of a LTV ratio headroom for each of
borrower, changes in the probability the loans;
of default, fluctuations in the ◦ inspecting the Investment
valuation of underlying collateral Adviser’s application of its ECL
and the Loan-To-Value (LTV) ratio criteria to evaluate the
headroom, as well as the borrowers' appropriateness and completeness
ability to execute their business of the loans moved between ECL
plans and achieve projected stages;
financial performance to meet ◦ recalculating a targeted sample
contractual obligations. of the Investment Adviser’s
sensitivity analysis of the LTV
ratios headroom;
◦ engaging our Real Estate
Due to the level of estimation valuation experts to work with
uncertainties, this was considered a our audit team through the
key audit matter. inspection of a sample of
third-party real estate valuation
reports on the underlying
properties against which
collateral is held by the group
for the loans advanced, and which
underpin the LTV considerations
applied in the ECL modelling; and
◦ inspecting a sample of compliance
certificates signed by each
respective underlying borrower in
respect of compliance with
covenants as at the year-end.
Based on the audit work described
above we have nothing to report to
those charged with corporate
governance.
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed enough work
to be able to give an opinion on the consolidated financial statements as
a whole, taking into account the structure of the group, the accounting
processes and controls, the industry in which the group operates, and we
considered the risk of climate change and the potential impact thereof on
our audit approach.
The company is registered in Guernsey with two subsidiaries located in
Guernsey and three underlying subsidiaries located in Luxembourg. The
consolidated financial statements are a consolidation of the company and
all the subsidiaries. We have considered whether the consolidated
subsidiaries included within the group comprise separate components for
the purpose of our audit scope. However, we have taken into account the
group’s financial reporting system and the related controls in place at
the Administrator, the Investment Manager, and at the Investment Adviser,
and based on our professional judgement have tailored our audit scope to
account for the group’s consolidated financial statements as a single
component.
Scoping was performed at the group level, irrespective of whether the
underlying transactions took place within the company or within the
subsidiaries. The group audit was led, directed, controlled and reviewed
by PricewaterhouseCoopers CI LLP and all audit work for material items
within the consolidated financial statements was performed in Guernsey by
PricewaterhouseCoopers CI LLP.
The books and records relating to the company and the subsidiaries are
maintained by the Administrator and its related group entities and
therefore we were not required to engage with component auditors. Our
testing was therefore performed on a consolidated basis using thresholds
which are determined with reference to the overall group materiality and
the risks of material misstatement identified.
MATERIALITY
The scope of our audit was influenced by our application of materiality.
We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate
on the consolidated financial statements as a whole.
Based on our professional judgement, we determined materiality for the
consolidated financial statements as a whole as follows:
Overall group materiality £4.4 million (2023: £6.5 million).
How we determined it 2.25% of consolidated net assets.
We believe consolidated net assets to be the
appropriate basis for determining materiality
Rationale for benchmark since this is a key consideration for members of
applied the company when assessing financial
performance. It is also a generally accepted
measure used for companies in this industry.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality
in determining the scope of our audit and the nature and extent of our
testing of account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance materiality was 75%
(2023: 75%) of overall materiality, amounting to £3.3 million (2023: £4.9
million) for the group financial statements.
In determining the performance materiality, we considered a number of
factors – the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls - and concluded that an amount at
the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £0.2 million (2023:
£0.3 million) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
REPORTING ON OTHER INFORMATION
The other information comprises all the information included in the Annual
Report and Audited Consolidated Financial Statements (the “Annual Report”)
but does not include the consolidated financial statements and our
auditor’s report thereon. The directors are responsible for the other
information.
Our opinion on the consolidated financial statements does not cover the
other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to
report based on these responsibilities.
RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the consolidated financial
statements
As explained more fully in the statement of Director’s responsibilities,
the directors are responsible for the preparation of the consolidated
financial statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by the European
Union, the requirements of Guernsey law and for such internal control as
the directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are
responsible for assessing the group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either
intend to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these
consolidated financial statements.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for
testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to enable us
to draw a conclusion about the population from which the sample is
selected.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the audit. We
also:
• Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the group’s internal control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
the directors.
• Conclude on the appropriateness of the directors’ use of the going
concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the group’s ability to continue as
a going concern over a period of at least twelve months from the date
of approval of the consolidated financial statements. If we conclude
that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause the group to cease to continue as a going
concern.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement that we
have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and only for
the members as a body in accordance with Section 262 of The Companies
(Guernsey) Law, 2008 and for no other purpose. We do not, in giving these
opinions, 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.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are required to report to you
if, in our opinion:
• we have not received all the information and explanations we require
for our audit;
• proper accounting records have not been kept; or
• the consolidated financial statements are not in agreement with the
accounting records.
We have no exceptions to report arising from this responsibility.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the company’s compliance with
the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate
governance statement as other information are described in the Reporting
on other information section of this report.
The company has reported compliance against the 2019 AIC Code of Corporate
Governance (the “Code”) which has been endorsed by the UK Financial
Reporting Council as being consistent with the UK Corporate Governance
Code for the purposes of meeting the company’s obligations, as an
investment company, under the Listing Rules of the FCA.
Based on the work undertaken as part of our audit, we have concluded that
each of the following elements of the corporate governance statement,
included within the Strategic Report and Corporate Governance Statement,
is materially consistent with the consolidated financial statements and
our knowledge obtained during the audit, and we have nothing material to
add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The directors’ statement in the consolidated financial statements
about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the group’s ability to
continue to do so over a period of at least twelve months from the
date of approval of the consolidated financial statements;
• The directors’ explanation as to their assessment of the group’s
prospects, the period this assessment covers and why the period is
appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in operation and
meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability
of the group was substantially less in scope than an audit and only
consisted of making inquiries and considering the directors’ process
supporting their statements; checking that the statements are in alignment
with the relevant provisions of the Code; and considering whether the
statement is consistent with the consolidated financial statements and our
knowledge and understanding of the group and its environment obtained in
the course of the audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the consolidated financial
statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken
as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group's position,
performance, business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit
Committee.
We have nothing to report in respect of our responsibility to report when
the directors’ statement relating to the company’s compliance with the
Code does not properly disclose a departure from a relevant provision of
the Code specified under the Listing Rules for review by the auditors.
OTHER MATTER
The company is required by the Financial Conduct Authority Disclosure
Guidance and Transparency Rules to include these consolidated financial
statements in an annual financial report prepared under the structured
digital format required by DTR 4.1.15R – 4.1.18R and filed on the National
Storage Mechanism of the Financial Conduct Authority. This auditor’s
report provides no assurance over whether the structured digital format
annual financial report has been prepared in accordance with those
requirements.
As explained in note 21 to the consolidated financial statements, in
addition to our responsibility to audit and express an opinion on the
consolidated financial statements in accordance with ISAs and Guernsey
law, we have been requested by the directors to express a non-statutory
opinion on the consolidated financial statements in accordance with
auditing standards generally accepted in the United States of America. We
have reported separately in this respect within the Annual Report.
Adrian Peacegood
For and on behalf of
PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
2 April 2025
Independent Auditor’s Report to the Directors of Starwood European Real
Estate Finance Limited (US GAAS)
Report on the audit of the consolidated financial statements
OPINION
We have audited the accompanying consolidated financial statements of
Starwood European Real Estate Finance Limited and its subsidiaries
(together “the Group”), which comprise the consolidated statements of
financial position as of 31 December 2024 and 31 December 2023 and the
related consolidated statements of comprehensive income, of changes in
equity and of cash flows for the years then ended, including the related
notes (collectively referred to as the “consolidated financial
statements”).
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Group as
of 31 December 2024 and 31 December 2023, and the results of its
operations, changes in its equity, and its cash flows for the years then
ended in accordance with International Financial Reporting Standards as
adopted by the European Union.
BASIS FOR OPINION
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America (US GAAS). Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the consolidated financial statements
section of our report. We are required to be independent of the Group and
to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audit. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
RESPONSIBILITIES OF MANAGEMENT FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The directors are responsible for the preparation and fair presentation of
the consolidated financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union, and for
the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for
assessing the Group’s ability to continue as a going concern for at least,
but not limited to, twelve months from the end of the reporting period,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of
assurance but is not absolute assurance and therefore is not a guarantee
that an audit conducted in accordance with US GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that,
individually or in the aggregate, they would influence the judgment made
by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with US GAAS, we:
• Exercise professional judgment and maintain professional scepticism
throughout the audit.
• Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, and
design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements.
• Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control. Accordingly, no such
opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by the
directors, as well as evaluate the overall presentation of the
consolidated financial statements.
• Conclude whether, in our judgment, there are conditions or events,
considered in the aggregate, that raise substantial doubt about the
Group’s ability to continue as a going concern for a reasonable period
of time.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit
findings, and certain internal control-related matters that we identified
during the audit.
OTHER INFORMATION
The directors are responsible for the other information included in the
annual report. The other information comprises all the information
included in the Annual Report and Audited Consolidated Financial
Statements but does not include the consolidated financial statements and
our auditor’s report thereon. Our opinion on the consolidated financial
statements does not cover the other information, and we do not express an
opinion or any form of assurance thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and consider whether a
material inconsistency exists between the other information and the
consolidated financial statements or the other information otherwise
appears to be materially misstated. If, based on the work performed, we
conclude that an uncorrected material misstatement of the other
information exists, we are required to describe it in our report.
RESTRICTION OF USE
This independent auditor’s report, including the opinion, has been
prepared for and only for the directors and for no other purpose.
We do not, in giving these opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior
consent in writing.
PricewaterhouseCoopers CI LLP
Chartered Accountants,
Guernsey, Channel Islands
2 April 2025
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2024
1 January 2024 to 1 January 2023 to
Notes 31 December 2024 31 December 2023
£ £
Income
Income from loans advanced 10 18,522,158 31,923,037
Short term deposits interest 2,656,832 1,222,122
income
Net foreign exchange gains 6 531,720 1,809,952
Total income 21,710,710 34,955,111
Expenses
Net impairment loss on loans 10 10,706,101 3,476,360
advanced
Investment management fees 3(a), 22 1,840,831 2,910,524
Audit and non-audit fees 5 420,683 290,376
Administration fees 3(b) 322,424 353,610
Legal and professional fees 231,590 248,936
Directors' fees and expenses 4, 22 199,279 204,739
Other expenses 161,138 442,863
Credit facility commitment 56,610 604,878
fees
Broker's fees 3(d) 50,000 50,000
Credit facility interest and 8,333 514,651
amortisation of fees
Total operating expenses 13,996,989 9,096,937
Operating profit for the year 7,713,721 25,858,174
before tax
Taxation 20 96,985 607,193
Operating profit for the year 7,616,736 25,250,981
Other comprehensive loss
Items that may be
reclassified to profit or
loss
Exchange differences on
translation of foreign 2(k) (137,024) (60,422)
operations
Other comprehensive loss for (137,024) (60,422)
the year
Total comprehensive income 7,479,712 25,190,559
for the year
Weighted average number of 7 244,872,140 378,184,423
shares in issue
Basic and diluted earnings 7 3.11 6.66
per Ordinary Share (pence)
The accompanying notes form an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
as at 31 December 2024
As at As at
Notes 31 December 2024 31 December 2023
£ £
Assets
Cash and cash equivalents 8 45,686,362 63,837,644
Prepayments 9 22,822 24,225
Revolving credit facility 12 - 8,333
capitalised cost
Financial assets at fair value 11 1,012,805 993,204
through profit or loss
Loans advanced 10 149,508,470 264,096,284
Total assets 196,230,459 328,959,690
Current liabilities
Trade and other payables 13 1,348,763 1,627,985
Total current liabilities 1,348,763 1,627,985
Net assets 194,881,696 327,331,705
Capital and reserves
Share capital 15 193,676,118 313,280,868
Retained earnings 1,549,089 14,257,318
Translation reserve (343,511) (206,481)
Total equity 194,881,696 327,331,705
Number of Ordinary Shares in issue 15 193,929,633 313,690,942
Net asset value per Ordinary Share 100.49 104.35
(pence)
These consolidated financial statements were approved and authorised for
issue by the Board of Directors on 2 April 2025, and signed on its behalf
by:
Chairman Director
The accompanying notes form an integral part of these consolidated
financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2024
Year ended 31 December 2024
Retained Translation
Share capital Total Equity
earnings reserves
£ £
£ £
Balance at 1 January 313,280,868 14,257,318 (206,481) 327,331,705
2024
Shares redeemed (119,604,750) (5,395,251) - (125,000,001)
Dividends paid - (14,929,720) - (14,929,720)
Operating profit for - 7,616,736 - 7,616,736
the year
Other comprehensive - - (137,024) (137,024)
loss for the year
Balance at 31 193,676,118 1,549,083 (343,505) 194,881,696
December 2024
Year ended 31 December 2023
Retained Translation
Share capital Total Equity
earnings reserves
£ £
£ £
Balance at 1 January 395,075,556 21,218,267 (146,059) 416,147,764
2023
Shares redeemed (81,794,688) (3,207,935) - (85,002,623)
Dividends paid - (29,003,995) - (29,003,995)
Operating profit for - 25,250,981 - 25,250,981
the year
Other comprehensive - - (60,422) (60,422)
loss for the year
Balance at 31 December 313,280,868 14,257,313 (206,481) 327,331,705
2023
The accompanying notes form an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 December 2024
1 January 2024 to 1 January 2023 to
31 December 2024 31 December 2023
£ £
Operating activities:
Operating profit for the year before 7,713,721 25,858,174
tax
Adjustments:
Net impairment loss on loans 10,706,101 3,476,360
Income from loans advanced (18,522,158) (31,923,037)
Short term deposits interest income (2,656,832) (1,222,122)
Decrease in receivables and 1,403 2,567
prepayments
Decrease in trade and other payables (117,686) (312,832)
Net unrealised gains on foreign (19,601) (286,543)
exchange derivatives
Net foreign exchange gains (527,878) (1,523,409)
Net foreign exchange losses on foreign 2,737,627 4,988,870
exchange derivatives
Credit facility commitment fees 56,610 604,878
Credit facility interest and 8,333 514,651
amortisation of fees
Currency translation difference 864,010 1,969,811
243,650 2,147,368
Loan repayments and amortisation 109,362,030 166,897,162
Interest income received 18,760,417 32,199,782
Commitment and exit fee income from 1,812,766 1,345,427
loans advanced
Loans advanced (9,883,286) (7,338,190)
Corporate taxes paid (188,237) (290,396)
Net cash inflow from operating 120,107,340 194,961,153
activities
Cash flows from investing activities
Short term deposits interest income 2,656,832 1,222,122
Net cash inflow from investing 2,656,832 1,222,122
activities
Cash flows from financing activities
Shares redemptions (125,000,001) (85,002,623)
Dividends paid (14,929,720) (29,003,995)
Repayments under credit facility - (19,000,000)
Credit facility commitment fees paid (111,267) (715,131)
Credit facility interest and - (377,796)
amortisation paid
Net cash outflow from financing (140,040,988) (134,099,545)
activities
Net (decrease) / increase in cash and (17,276,816) 62,083,730
cash equivalents
Cash and cash equivalents at the start 63,837,644 3,576,155
of the year
Net foreign exchange losses on cash (874,466) (1,822,241)
and cash equivalents
Cash and cash equivalents at the end 45,686,362 63,837,644
of the year
The accompanying notes form an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
1. GENERAL INFORMATION
Starwood European Real Estate Finance Limited (the “Company”) was
incorporated with limited liability in Guernsey under the Companies
(Guernsey) Law, 2008, as amended, on 9 November 2012 with registered
number 55836, and has been authorised by the Guernsey Financial Services
Commission (the “GFSC”) as a registered closed-ended investment scheme.
The registered office and principal place of business of the Company is 1,
Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1
2HL.
The Company has appointed Starwood European Finance Partners Limited as
the Investment Manager (the “Investment Manager”), a company incorporated
in Guernsey and regulated by the GFSC. The Investment Manager has
appointed Starwood Capital Europe Advisers, LLP (the “Investment
Adviser”), an English limited liability partnership authorised and
regulated by the FCA, to provide investment advice pursuant to an
Investment Advisory Agreement. The administration of the Company is
delegated to Apex Fund and Corporate Services (Guernsey) Limited (the
“Administrator”).
On 12 December 2012, the Company announced the results of its IPO, which
raised net proceeds of £223.9 million. The Company’s Ordinary Shares were
admitted to the premium segment of the UK FCA’s Official List and to
trading on the Main Market of the London Stock Exchange as part of its IPO
which completed on 17 December 2012. Further issues took place in March
2013, April 2013, July 2015, September 2015, August 2016 and May 2019. On
10 August 2020 the Company announced the appointment of Jefferies
International Limited as buy-back agent to effect share buy backs on
behalf of the Company. During the years ended 2020, 2021 and 2022 the
Company bought back a total of 17,626,702 Ordinary Shares at an average
cost of 91.51 pence per share. These Ordinary Shares were held in treasury
until they were cancelled in June 2023.
Following the Company’s Extraordinary General Meeting (“EGM”) on 27
January 2023, the Company’s objective is to conduct an orderly realisation
of the assets of the Group and the return of capital to Shareholders. In
line with this objective the Board will endeavour to realise all of the
Group’s investments in a manner that achieves a balance between maximising
the net value received from those investments and making timely returns to
Shareholders. This has resulted in a total redemption of 119,761,309
shares (2023: 81,901,754 shares) for an aggregate of £125,000,001 in 2024.
As at 31 December 2024 the Company had 193,929,633 shares (2023:
313,690,942 shares) in issue. Further details and background is covered in
the Corporate Summary section of this report.
The consolidated financial statements comprise the financial statements of
the Company, Starfin Public Holdco 1 Limited (the “Holdco 1”), Starfin
Public Holdco 2 Limited (the “Holdco 2”), Starfin Lux S.à.r.l (“Luxco”),
Starfin Lux 3 S.à.r.l (“Luxco 3”) and Starfin Lux 4 S.à.r.l (“Luxco 4”)
(together the “Group”) as at 31 December 2024.
Current investments are all debt obligations of corporate entities
domiciled or with significant operations in the UK and the European’s
internal market. As the Group is now pursuing a strategy of orderly
realisation no new investments were made in 2023 or 2024.
2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been
consistently applied to the years presented, unless otherwise stated.
a) Going Concern
Note 17 includes the Group’s objectives, policies and processes for
managing its capital, its financial risk management objectives, details of
financial instruments and exposure to credit risk and liquidity risk. The
Directors, at the time of approving these Annual Accounts, are required to
satisfy themselves that they have reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. At the EGM of the Group held on 27 January 2023,
following a recommendation from the Board as published in the Circular and
EGM Notice dated 28 December 2022, the resolutions for the Proposed
Orderly Realisation received shareholder votes in favour amounting to
99.97 per cent of the shareholder votes cast, voting for a change to the
Group’s Objective and Investments Policy which would lead to the orderly
realisation of the Group’s assets and a return of cash to shareholders.
The Directors have undertaken a rigorous review of the Group’s ability to
continue as a going concern, reviewing the ongoing cash flows and the
level of cash balances and available liquidity facilities.
After making enquiries of the Investment Manager and the Administrator and
reviewing the viability model prepared by the Investment Adviser, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for at least one year from
the date the consolidated financial statements were signed. Accordingly,
the Directors continue to adopt a going concern basis in preparing these
consolidated financial statements.
In addition to a going concern statement, the Directors have undertaken a
longer-term viability assessment of the Group, the results of which can be
found in the Strategic Report. A range of scenarios have been evaluated as
part of this analysis. The worst case scenario evaluated was a high level
of loan default meaning that the loan classified as Stage 3 did not repay
both the principal and the interest due on it, that the Group stopped
receiving interest on the loans classified as Stage 2 and that the
outstanding principal on these loans was not received until 12 months
after the loan maturity date plus Sonia and Euribor rates falling to zero
per cent from 2026 onwards. In this scenario the Group is still able to
meet its liabilities as they fall due albeit that less cash will be
returned to Shareholders (and may be returned later then currently
anticipated) and that the regular quarterly dividend may need to be
reduced (compared to the target) to reflect the reduced cash available.
b) Statement of compliance
The Company has prepared its consolidated financial statements in
accordance with the Companies (Guernsey) Law, 2008 (as amended) and
International Financial Reporting Standards (“IFRS”) as adopted by the
European Union, which comprise standards and interpretations approved by
the International Accounting Standards Boards (“IASB”) together with the
interpretations of the IFRS Interpretations Committee (“IFRIC”) as
approved by the International Accounting Standards Committee (“IASC”)
which remain in effect and were adopted by the European Union. The
Directors of the Company have taken the exemption in Section 244 of the
Companies (Guernsey) Law, 2008 (as amended) and have therefore elected to
only prepare consolidated and not separate financial statements
for the year.
(i) Standards and amendments to existing standards effective 1 January
2024
The group has applied the following standards and amendments for the first
time for its annual reporting period commencing 1 January 2024:
• Classification of Liabilities as Current or Non-current and
Non-current liabilities with covenants – Amendments to IAS 1.
The amendments listed above did not have any material impact on the
amounts recognised in prior periods and are not expected to significantly
affect the current or future periods.
(ii) New standards, amendments and interpretations effective after 1
January 2024 and have not been early adopted
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2024, and have not
been early adopted in preparing the Group’s consolidated financial
statements. None of these are expected to have a material effect on the
consolidated financial statements of the Group.
c) Basis of preparation
These consolidated financial statements have been prepared on a going
concern basis and under the historical cost convention as modified by the
revaluation of certain assets and liabilities to fair value.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires
the use of certain critical accounting estimates. It also requires the
Board of Directors to exercise its judgement in the process of applying
the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements relate to:
(i) Critical accounting estimates and assumptions
• Models used for loans accounted at amortised cost use assumptions and
estimates regarding the receipt and timing of scheduled and
unscheduled payments of loans advanced. Changes in these assumptions
and estimates could impact liquidity risk and the interest income (see
note 17).
• The measurement of both the initial and ongoing expected credit loss
allowance (“ECL”) for financial assets measured at amortised cost is
an area that requires the use of significant assumptions about credit
behaviour such as likelihood of borrowers defaulting and the resulting
losses (see note 2(h)). The determination of ECL using the Loan to
value headroom analysis is a key estimate/judgement.
(ii) Critical accounting judgements
• The functional currency of subsidiary undertakings of the Company,
which is considered by the Directors to be Euro for Luxco 3; Sterling
for all other subsidiaries (see notes 2(e) and 2(k)).
• The operating segments, of which the Directors are currently of the
opinion that the Company and its subsidiaries are engaged in a single
segment of business, being the provision of a diversified portfolio of
real estate backed loans (see note 2(f)).
• A number of significant judgements are also required in applying the
accounting requirements for measuring ECL, such as determining the
criteria for significant increase in credit risk, choosing the
appropriate model and assumptions for the measurement of ECL,
determining the probabilities of default and loss given default (see
note 2(h)).
d) Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and entities controlled by the Company (its subsidiary
undertakings) made up to the end of the reporting period. Control is
achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits directly
from its activities. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Company controls another entity. The Company also
assesses existence of control where it does not have more than 50 per cent
of the voting power but is able to govern the financial and operating
policies by virtue of de-facto control.
Subsidiary Date of Ownership Country of Principal place
of
undertakings Control % Establishment
business
Starfin Lux S.à.r.l 11/30/2012 100 Luxembourg Luxembourg
Starfin Public Holdco 1 9/11/2017 100 Guernsey Guernsey
Limited
Starfin Public Holdco 2 9/11/2017 100 Guernsey Guernsey
Limited
Starfin Lux 3 S.à.r.l 9/19/2017 100 Luxembourg Luxembourg
Starfin Lux 4 S.à.r.l 12/11/2017 100 Luxembourg Luxembourg
Subsidiary undertakings are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The Group applies the acquisition method to account for business
combinations.
Acquisition-related costs are expensed as incurred. No consideration,
other than for the par value of any share capital or capital
contributions, has been paid in respect of the acquisition of subsidiary
undertakings. The Company acquired the subsidiaries at the time of their
initial establishment and hence they had no net assets at the date of the
acquisition.
Intercompany transactions, balances, income and expenses on transactions
between Group companies are eliminated on consolidation. Profits and
losses resulting from intercompany transactions that are recognised in
assets are also eliminated.
e) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment in
which the entity operates (the “functional currency”). Therefore, the
Directors have considered in assessing the functional currency of each of
the Group’s entities:
• the share capital of all members of the Group is denominated in
Sterling except for Luxco 3 share capital which is denominated in
Euro;
• the dividends are paid in Sterling;
• Euro non-investment transactions represent only a small proportion of
transactions in the Luxembourg entities; and
• proportion of non Sterling investments in each portfolio of Luxembourg
entities.
The functional and presentation currency of each Group entity is Sterling,
apart from Luxco 3 for which the functional currency is Euro. Luxco 3
holds loans and investments in Euro currencies. The Directors have also
adopted Sterling as the Group’s presentation currency (as the Group holds
a significant proportion of its assets in the UK, although this may vary
from time to time with all resulting exchange differences are recognised
in other comprehensive income, capital was raised in Sterling, Group
expenses are primarily incurred in Sterling and performance is measured in
Sterling) and, therefore, the consolidated financial statements for the
Group are presented in Sterling.
f) Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as
the Board, as the Board makes strategic decisions. The Directors, after
having considered the way in which internal reporting is provided to them,
are of the opinion that the Company and its subsidiaries are engaged in a
single segment of business, being the provision of a diversified portfolio
of real estate backed loans. Equally, based on the internal reporting
provided, the Directors do not analyse the portfolio based on geographical
segments.
g) Financial assets and liabilities
Classification and subsequent measurement
The Group classifies its financial assets into the following measurement
categories: at amortised cost, at fair value through profit or loss and at
fair value through other comprehensive income. The classification depends
on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial
recognition.
Financial assets measured at amortised cost
A financial asset is measured at amortised cost if both of the following
conditions are met: (a) the financial asset is held within a business
model whose objective is to hold financial assets in order to collect
contractual cash flows and (b) the contractual terms of the financial
asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding. The
carrying amount of these assets is adjusted by any expected credit loss
allowance recognised and measured as described in note 2(h). Interest
income from these financial assets is included in “Income from loans
advanced” using the effective interest rate method.
Financial assets at fair value through other comprehensive income
A financial asset is measured at fair value through other comprehensive
income if both of the following conditions are met: (a) the financial
asset is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets and (b) the
contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the
principal amount outstanding. Movements in the carrying amount are taken
through other comprehensive income, except for the recognition of
impairment gains and losses, interest revenue and foreign exchange gains
and losses on the instrument’s amortised cost which are recognised in
profit or loss.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial
instruments that (a) either designated in this category upon initial
recognition or subsequently or (b) not classified in any of the other
categories. Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair value with net
changes in fair value recognised in the Consolidated Statement of
Comprehensive Income. This category includes currency forward contracts.
Gains or losses on currency forward contracts are recognised within “Net
foreign exchange gains or losses”.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are carried in
the statement of financial position at fair value with net changes in fair
value recognised in profit or loss. These comprise currency forward
contracts which represent contractual obligations to purchase domestic
currency and sell foreign currency on a future date.
Financial liabilities measured at amortised cost
Financial liabilities that are not classified through profit or loss,
including bank loans, are measured at amortised cost.
Recognition and measurement
Regular purchases and sales of financial assets are recognised on the
trade date, the date on which the Group commits to purchase or sell the
asset. Financial assets not carried at fair value through profit or loss
are initially recognised at fair value plus transaction costs. Financial
assets carried at fair value through profit or loss are initially
recognised at fair value, and transaction costs are expensed in the
Consolidated Statement of Comprehensive Income. Financial assets at fair
value through profit or loss and financial assets at fair value through
other comprehensive income are subsequently carried at fair value.
Financial assets at amortised cost are subsequently measured using the
effective interest method and are subject to impairment using the expected
credit loss model. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired.
Derecognition
Financial assets are derecognised when the rights to receive cash flows
from the investments have expired or have been transferred and the Group
has transferred substantially all risks and rewards of ownership.
Financial liabilities are derecognised when they are extinguished, that
is, when the obligation specified in the contract is discharged or
cancelled or expires.
Amortised cost and effective interest rate
The amortised cost is the amount at which the financial asset or financial
liability is measured at initial recognition minus the principal
repayments, plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and the
maturity amount and, for financial assets, adjusted for any loss
allowance.
The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of financial
assets or financial liability to the gross carrying amount of a financial
asset (i.e., its amortised cost before any loss allowance) or to the
amortised cost of a financial liability. The calculation does not consider
expected credit losses and includes transaction costs and all fees paid or
received that are integral to the effective interest rate.
Fair value estimation
The fair value of financial assets, which comprise derivatives not
designated as hedges, are valued based on the difference between the
agreed price of selling or buying the financial instruments on a future
date and the price quoted on the year end date for selling or buying the
same or similar financial instruments.
h) Expected credit loss measurement
The following describes the valuation basis that is used in our
calculation. As the vast majority of our portfolio is originated directly
by the Investment Adviser, the Group has discretion over when and how to
instruct valuations. We consider this to be a strength of our valuation
process as we have control over timing and complete access to the detail
of the valuation process and the output. Where loans are not directly
originated the lender could have a lack of control over the timing and no
input to the process which we prefer to avoid where possible. Further
details on the valuation process are covered in the Investment Manager’s
Report.
The Group follows a three-stage model for impairment based on changes in
credit quality since initial recognition as summarised below:
• A financial instrument that is not credit-impaired on initial
recognition is classified as Stage 1 and has its credit risk
continuously monitored by the Group. The expected credit loss (“ECL”)
is measured over a 12 month period of time.
• If a significant increase in credit risk since initial recognition is
identified, the financial instrument is moved to Stage 2 but is not
yet deemed to be credit-impaired. The ECL is measured on a lifetime
basis.
• If the financial instrument is credit-impaired it is then moved to
Stage 3. The ECL is measured on a lifetime basis.
The Group’s financial assets at amortised cost were all classified within
Stage 1 at inception for the following reasons:
• All loans are the subject of very detailed underwriting, including the
testing of resilience to aggressive downside scenarios with respect to
the loan specifics, the market and general macro economic changes, and
therefore the Group considers that value of losses given default
(“LGD”) currently have a nil value for all loans;
• Loans have very robust covenants in place which trigger as an early
warning (long before there would be any indicators of significant
increase in credit risk) and this enables the Investment Adviser to
become highly involved in the execution of business plans to avoid
ECL;
• Loans have strong security packages and many are amortising with
relatively short terms which further reduces the risk; and
• All loans have significant loan-to-value headroom which further
mitigates the risk of ECL.
As at 31 December 2024, one loan, with an amortised cost value of
£10,925,208 (net of impairment provision of £10,849,579), was classified
as Stage 3 (31 December 2023: one loan with £11,189,028 (net of impairment
provision of £3,476,360)); two loans, with an amortised cost value of
£31,232,866, were classified as Stage 2 (31 December 2023: four loans with
a value of £81,869,634) and the remaining loans are classified as Stage 1.
An impairment provision of £10,849,579 has been recognised against the
loan classified as Stage 3 but no expected credit loss has been recognised
at 31 December 2024 (2023: £nil) against the loans classified as Stage 2
as although the credit risk has increased for these loans, the Group does
not anticipate realising a loss in the event of a default. The paragraph
below describes how the Group determines when a significant change in
credit risk has occurred, such that a loan would be reclassified to Stage
1, Stage 2 or Stage 3.
The Group considers that for prepayments the ECL is by default nil as
these are non-monetary items with no credit risks. For trade and other
receivables the Group applies the simplified approach which requires
expected lifetime losses to be recognised from initial recognition of the
receivables.
Significant increase in credit risk - Stage 2
The Group uses both quantitative and qualitative criteria which is
monitored no less than quarterly in order to assess whether an increase in
credit risk has occurred. Increased credit risk would be considered if,
for example, all or a combination of the following has occurred:
• Underlying income performance is at a greater than 10 per cent
variance to the underwritten loan metrics;
• Loan to Value is greater than 75-80 per cent;
• Loan to Value or income covenant test results are at a variance of
greater than 5-10 per cent of loan default covenant level (note that
loan default covenant levels are set tightly to ensure that an early
cure is required by the borrower should they breach which usually
involves decreasing the loan amount until covenant tests are passed);
• Late payments have occurred and not been cured within 3 days;
• Loan maturity date is within six months and the borrower has not
presented an achievable refinance or repayment plan;
• Covenant and performance milestones criteria under the loan have
required more than two waivers;
• Increased credit risk has been identified on tenants representing
greater than 25 per cent of underlying asset income;
• Income rollover / tenant break options exist such that a lease up of
more than 30 per cent of underlying property will be required within
12 months in order to meet loan covenants and interest payments; and
• Borrower management team quality has adversely changed.
Default and credit-impaired assets - Stage 3
Non-performing financial assets would be classified with Stage 3, which is
fully aligned with the definition of credit- impaired, when one or more of
the following has occurred:
• The borrower is in breach of all financial covenants;
• The borrower is in significant financial difficulty; and
• It is becoming probable that the borrower will enter bankruptcy.
An instrument is considered to have been cured, that is no longer in
default, when it no longer meets any of the default criteria for a
sufficient period of time.
Write-off policy
The Group writes off financial assets, in whole or in part, when it has
exhausted all practically recovery efforts and has concluded there is no
reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include:
• Ceasing enforcement activity; and
• Where the Group’s recovery method is foreclosing on collateral and the
value of the collateral is such that there is no reasonable
expectation of recovering in full.
Sensitivity analysis
The most significant period-end assumptions used for the expected credit
loss estimates are the LGD and probability of default (“PD”) as described
above.
The default probabilities are based on initial loan-to-value (“LTV”)
headroom which the Investment Adviser believes to be a good predictor of
the PD, in accordance with recent market studies of European commercial
real estate loans.
In measuring the LGD for this sensitivity analysis, the loans advanced
have been assessed on a collective basis as they possess similar covenants
and security package characteristics. The selected LGD of 0.30 per cent is
based on the aggregate losses of all AAA rated notes issued in Europe from
1995 to 2020 (totalling €177 billion), according to market studies of
European commercial real estate loans. AAA rated notes are considered the
most representative of the Group’s loan portfolio. The Investment Adviser
considers this to be a reasonable estimate for loss given default
parameter.
As explained above, an impairment provision of £10,849,579 was provided
against an asset classified as Stage 3 as at 31 December 2024. This was an
asset specific impairment which arose due to a unique set of market and
geographical sector circumstances. Each other loan asset has been
individually reviewed and based on the current and reasonably expected
collateral property values over the remaining life of the loans, and after
taking account of any relevant adjustments such as forced sale discounts,
no further losses are expected hence no allowance has been made for an
ECL. Set out below is the sensitivity to the ECL as at 31 December 2024
and 31 December 2023 that could result from reasonable possible changes in
the LTV and LGD actual assumptions used for calculation of ECL as at the
respective year-end. On an individual loan basis, the LTV was increased by
25 per cent, and a new PD determined, which was multiplied by a constant
LGD of 0.30 per cent for all loans and the loan exposure as at each
year-end.
All other variables are held constant.
Reasonable possible shift (absolute 31 December 2024 31 December 2023
value)
ECL ECL
£ £
LTV +25% (2023: +25%)
LGD +0.3% (2023: +0.3%) 120,677 172,755
Change in ECL allowance (+)
i) Cash and cash equivalents
In the Consolidated Statement of Cash Flows, cash and cash equivalents
includes cash in hand, deposits held at call with banks and other
short-term highly liquid investments with original maturities of three
months or less.
j) Share capital
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of new Ordinary Shares are shown in equity as a
deduction, net of tax, from the proceeds.
k) Foreign currency translation
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation where items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Consolidated
Statement of Comprehensive Income. Foreign exchange gains and losses that
relate to loans advanced, borrowings and cash and cash equivalents and all
other foreign exchange gains and losses are presented in the Consolidated
Statement of Comprehensive Income within “net foreign exchange
losses/(gains)”.
Group companies
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency of the Group
are translated into the presentation currency of the Group as follows:
i. assets and liabilities for each Statement of Financial Position
presented are translated at the closing rate at the end of the reporting
period;
ii. income and expenses for each Statement of Comprehensive Income are
translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case income and expenses are translated
at the rate on the dates of the transactions);
iii. share capital is translated at historical cost (translated using the
exchange rates at the transaction date); and
iv. all resulting exchange differences are recognised in other
comprehensive income.
The cumulative amount of translation exchange differences is presented in
a separate component of equity until disposal of the entity.
Luxco 3 has Euro as its functional currency.
l) Interest income
Interest income on financial assets within Stage 1 and 2 is recognised by
applying the effective interest rate to the gross carrying amount of
financial assets. For financial assets that are classified within Stage 3,
interest revenue is calculated by applying the effective interest rate to
their amortised cost (that is net of expected credit loss provision).
Interest on cash and cash equivalents is recognised at amortised cost
basis.
m) Origination, exit and loan arrangement fees
Origination fees paid to the Investment Manager and exit and direct loan
arrangement fees received will be recognised using the effective interest
rate method under loans advanced and amortised over the lifetime of the
related financial asset through income from loans advanced in the
Consolidated Statement of Comprehensive Income. Syndication costs are
recognised in the Consolidated Statement of Comprehensive Income when
incurred.
n) Expenses
All other expenses are included in the Consolidated Statement of
Comprehensive Income on an accruals basis.
o) Taxation
The Company is a tax-exempt Guernsey limited liability company as it is
domiciled and registered for taxation purposes in Guernsey where it pays
an annual exempt status fee under The Income Tax (Exempt Bodies)
(Guernsey) Ordinances 1989 (as amended). Accordingly, no provision for
Guernsey tax is made.
The Holdcos are exempted for Guernsey tax purposes, and therefore no
provision for taxes has been made.
The Luxcos are subject to the applicable general tax regulations in
Luxembourg and taxation is provided based on the results for the year (see
note 20).
p) Other receivables
Trade and other receivables are amounts due in the ordinary course of
business. They are classified as assets. Trade and other receivables are
recognised initially at fair value and subsequently measured at amortised
cost using the effective interest method, less allowance for ECL.
q) Other payables
Trade and other payables are obligations to pay for services that have
been acquired in the ordinary course of business. They are classified as
liabilities. Trade and other payables are recognised initially at fair
value and subsequently measured at amortised cost using the effective
interest rate method.
r) Dividend distributions
Dividend distributions to the Company’s shareholders are recognised as a
liability in the Company’s financial statements in the period in which the
dividends are declared by the Board of Directors.
s) Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount reported on
the Consolidated Statement of Financial Position when there is a legally
enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis or realise the asset and settle the
liability simultaneously.
t) Financial liabilities at amortised cost
Financial liabilities at amortised cost, including bank loans are
initially recognised at fair value and subsequently measured at amortised
cost using the effective interest method. Financial liabilities are
derecognised when the contractual obligation is discharged, cancelled or
expires.
u) Capitalised expenses on credit facilities
Expenses in connection with the process of originating, prolongation, or
restructuring of a credit facility, such as application and underwriting
fees, are capitalised and subsequently amortised over the period of the
relevant credit facility in the Consolidated Statement of Comprehensive
Income within “credit facility interest”.
3. MATERIAL AGREEMENTS
a) Investment management agreement
The Company and the Investment Manager have entered into an investment
management agreement, dated 28 November 2012 (the “Investment Management
Agreement”), (which was amended on 7 March 2014, 14 May 2014, 7 September
2015 and 6 October 2017) pursuant to which the Investment Manager has been
given overall responsibility for the discretionary management of the
Company’s assets in accordance with the Company’s investment objectives
and policy.
The Investment Manager is entitled to a management fee which is calculated
and accrued monthly at a rate equivalent to 0.75 per cent per annum of
NAV. In calculating such fee, there shall be excluded from the NAV
attributable to the Ordinary Shares the uninvested portion of the cash
proceeds of any new issue of Shares (or C Shares) until at least 90 per
cent of such proceeds are invested in accordance with the Company’s
investment policy (or deployed to repay borrowings under any credit
facility of the Group or other liabilities of the Group) for the first
time. The management fee is payable quarterly in arrears.
In addition, the Investment Manager is entitled to an asset origination
fee of 0.75 per cent of the value of all new loan investments made or
acquired by the Group (see note 22). The asset origination fee to be paid
by the Group is expected to be paid upon receipt by the Group of loan
arrangement fees received on the deployment of the Group’s funds.
The Investment Management Agreement is terminable by either the Investment
Manager or the Company giving to the other not less than 12 months’
written notice. The Company is also able to terminate the appointment of
the Investment Manager in the event of a change of control of the
Investment Manager. A change of control shall be deemed to occur where a
person acquires a direct or indirect interest in the Investment Manager,
which is calculated by reference to 15 per cent or more of the voting
rights. In addition the Investment Management Agreement can be terminated
by the Company for any failure to act in good faith with the due skill,
care and diligence which would reasonably be expected from an experienced
manager in the sector and to exercise appropriate prudence in the
management of the Group’s portfolio.
Pursuant to the Investment Management Agreement’s provisions, a
performance fee would apply from 1 January 2018. The amount of such
Performance Fee is 20 per cent of the excess (if any) of the returns
generated by the Group over the Hurdle Total Return (described below). The
measurement period over which the Performance Fee is calculated is two
years, with the payment of any performance fee earned being made at the
end of each such two year period.
The Hurdle Total Return will be achieved when the NAV of the Company at
the end of the two year period, plus the total of all dividends declared
and paid to Ordinary Shareholders in that two year period, is equal to the
NAV of the Company at the start of each two year measurement period, as
increased by 8 per cent per annum, on a simple interest basis (but
excluding performance fees accrued and deemed as a creditor on the balance
sheet at the start of the two year measurement period). No performance fee
will be payable in relation to performance that recoups previous losses
(if any).
To the extent that the Company makes further issues of Ordinary Shares
and/or repurchases or redeems Ordinary Shares, the Hurdle Total Return
will be adjusted accordingly, by reference to the issue proceeds of such
further issues and dividends declared subsequent to such issues. Other
corporate actions will also be reflected as appropriate in the calculation
of the Hurdle Total Return.
The Investment Manager has appointed Starwood Capital Europe Advisers, LLP
(the “Investment Adviser”), an English limited liability partnership
authorised and regulated by the FCA, to provide investment advice pursuant
to an Investment Advisory Agreement.
b) Administration agreement
The Company has engaged the services of Apex Fund and Corporate Services
(Guernsey) Limited (the “Administrator”) to act as Administrator and
Company Secretary. Under the terms of the service agreement dated 25
September 2018, the Administrator is entitled to a fee of no less than
£225,000 per annum for Guernsey registered companies of the Group, €96,000
for Luxembourg registered subsidiaries and further amounts as may be
agreed in relation to any additional services provided by the
Administrator. The Administrator is, in addition, entitled to recover
third party expenses and disbursements.
c) Registrar’s agreement
The Company and Computershare Investor Services (Guernsey) Limited (the
“Registrar”) entered into a Registrar agreement dated 28 November 2012,
pursuant to which the Company appointed the Registrar to act as Registrar
of the Company for a minimum annual fee payable by the Company of £9,996
in respect of basic registration.
d) Brokerage agreement
On 19 June 2020 Jefferies Group LLC (“Jefferies”) was appointed to act as
Broker. Jefferies is entitled to receive a fee of £50,000 per annum plus
expenses.
e) Licence agreement
The Company and Starwood Capital Group Management, LLC (the “Licensor”)
have entered into a trade mark licence agreement dated 28 November 2012
(the “Licence Agreement”), pursuant to which the Licensor has agreed to
grant to the Company a royalty-free, non-exclusive worldwide licence for
the use of the “Starwood” name for the purposes of the Company’s business.
Under the terms of the Licence Agreement, it may be terminated by the
Licensor; (i) if the Investment Management Agreement or any other similar
agreement between the Company and the Investment Manager (or either of
their respective affiliates) is terminated for any reason whatsoever or
expires; (ii) if the Company suffers an insolvency event or breaches any
court order relating to the Licence Agreement; or (iii) upon two months’
written notice without cause.
f) Hedging agreements
The Company and Lloyds Bank plc entered into an international forward
exchange master agreement dated 5 April 2013 and on 7 February 2014 the
Company entered into a Professional Client Agreement with Goldman Sachs,
pursuant to which the parties can enter into foreign exchange transactions
with the intention of hedging against fluctuations in the exchange rate
between Sterling and other currencies. Both agreements are governed by the
laws of England and Wales.
g) Revolving credit facility
Under its investment policy, the Company is limited to borrowing an amount
equivalent to a maximum of 30 per cent of its NAV at the time of drawdown,
of which a maximum of 20 per cent can be longer term borrowings. In
calculating the Company’s borrowings for this purpose, any liabilities
incurred under the Company’s foreign exchange hedging arrangements shall
be disregarded.
On 4 December 2014, the Company entered into a £50 million revolving
credit facility with Lloyds Bank plc (the “Lloyds Facility”) which is
intended for short-term liquidity. The facility available was amended to
£25 million and the term extended in January 2023. In March 2024 the
credit facilities available to the Group (of £25 million) were cancelled
by the Company and their extension not pursued as the Company had
sufficient cash in reserve.
On 18 December 2017, the Group entered into a separate £64 million secured
borrowing facility with Morgan Stanley (the “MS Facility”). This facility
was amended and extended on 14 November 2019 and canceled in August 2023.
4. DIRECTORS’ FEES
31 December 2024 31 December 2023
£ £
Directors’ emoluments 197,000 197,000
Other expenses 2,279 7,739
199,279 204,739
5. AUDIT AND NON-AUDIT FEES
The following table discloses the audit and non audit fees paid to the
auditors for audit and non-audit services and their associated network
firms for non-audit services, where and as applicable.
31 December 31 December
2024 2023
£ £
Audit and non-audit fees expensed in the
Consolidated Statement of Comprehensive Income
Audit of company 118,003 135,000
Audit of subsidiaries 274,330 128,376
Total audit 392,333 263,376
Audit related assurance services (Interim review) 28,350 27,000
Total assurance services 28,350 27,000
Total fees expensed 420,683 290,376
6. NET FOREIGN EXCHANGE GAINS / (LOSSES)
31 December 2024 31 December 2023
£ £
Loans advanced gains - realised 449,103 221,192
Loans advanced losses - realised (2,310,327) (724,358)
Forward contracts gains - realised 2,829,114 5,218,375
Forward contracts losses - realised (8,500) (334,112)
Other gains - realised 43,448 320,918
1,002,838 4,702,015
Loans advanced gains - unrealised 1,305,217 57,994
Loans advanced losses - unrealised (1,795,936) (3,236,599)
Forward contracts gains - unrealised 4,636,868 7,319,116
Forward contracts losses - unrealised (4,617,267) (7,032,573)
(471,118) (2,892,062)
531,720 1,809,952
On occasion, the Group may realise a gain or loss on the roll forward of a
hedge if it becomes necessary to extend a capital hedge beyond the initial
anticipated loan term.
7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
The calculation of basic earnings per Ordinary Share is based on the
operating profit of £7,616,736 (2023: £25,250,981) and on the weighted
average number of Ordinary Shares in issue during the year of 244,872,140
(2023: 378,184,423) Ordinary Shares. The Group has no potentially dilutive
Ordinary Shares, therefore diluted earnings per Ordinary Share is equal to
the basic earnings per Ordinary Share.
The calculation of NAV per Ordinary Share is based on a NAV of
£194,881,696 as at 31 December 2024 (2023: £327,331,705) and the actual
number of Ordinary Shares in issue at 31 December 2024 of 193,929,633
(2023: 313,690,942).
8. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprises bank balances and short term bank
deposits held by the Group. The carrying amount of these represents their
fair value.
31 December 2024 31 December 2023
£ £
Cash at bank 506,395 20,673,973
Short term deposit 45,179,967 43,163,671
45,686,362 63,837,644
Cash and cash equivalents comprises cash held by the Group and short term
deposits held with various banking institutions with original maturities
of three months or less. For further information and the associated risks
refer to note 17.
9. PREPAYMENTS
31 December 2024 31 December 2023
£ £
Prepayments 22,822 24,225
22,822 24,225
10. LOANS ADVANCED
The Group’s accounting policy on the measurement of financial assets is
discussed in note 2(g).
31 December 2024 31 December 2023
£ £
UK
Hotels, United Kingdom 47,083,091 37,355,613
Industrial Estate, UK 27,109,384 27,410,670
Hospitals, UK 25,367,849 25,370,368
Life Science, UK 16,087,880 15,923,105
Hotel, North Berwick 15,144,986 15,241,403
Hotel, Scotland - 43,232,893
Hotel and Office, Northern Ireland - 9,099,325
Ireland
Office Portfolio, Ireland 10,925,208 21,428,669
Hotel, Dublin - 20,332,167
Spain
Office Portfolio, Spain 7,790,072 8,236,586
Three Shopping Centres, Spain - 29,276,457
Shopping Centre, Spain - 11,189,028
149,508,470 264,096,284
The Group accounted for an impairment provision on the Office Portfolio,
Ireland loan of £10,849,579 (€12,831,421) as at 31 December 2024 (2023:
Shopping Centre, Spain of £3,476,360 as at 31 December 2023). The amounts
above are shown net of these provisions.
The table below reconciles the movement of the carrying value of loans
advanced in the year:
31 December 2024 31 December 2023
£ £
Loans advanced at the start of the year 264,096,284 432,459,966
Income from loans advanced 18,522,158 31,923,037
Loans advanced (1) 11,461,744 7,338,190
Impairment reversal on loans advanced 143,478 -
Commitment fees received (514,116) (846,127)
Exit fees received (1,298,650) (499,300)
Foreign exchange losses (2,351,944) (3,681,770)
Impairment loss on loans advanced (10,849,579) (3,476,360)
Interest income received (1) (20,338,875) (32,199,782)
Loan repayments (109,362,030) (166,921,570)
Loans advanced at the end of the year 149,508,470 264,096,284
Loans advanced at fair value 155,403,126 275,556,353
(1) In 2024 this item includes interest capitalised of £1,578,458.
IFRS 7 requires the disclosure of the fair value of financial instruments
not measured at fair value for comparison to their carrying amounts. The
fair value of loans advanced has been determined by discounting the
expected cash flows at a market rate of interest using the discounted cash
flow model. For the avoidance of doubt, the Group carries its loans
advanced at amortised cost in the consolidated financial statements,
consistent with the requirement of IFRS 9 as the Group’s intention and
business model is to collect both interest and the capital repayments
thereof.
The following table sets out the sensitivity to the above reported fair
value to a change in the discount rate used in the discounted cash flow
model:
31 December
Discount Rate
2024
Value increase /
Value calculated
(decrease)
£
£
6.0% (fair value) 155,403,126 5,894,656
7.4% 152,935,395 3,426,925
7.9% 152,062,018 2,553,548
8.4% 151,199,872 1,691,402
8.9% 150,348,755 840,285
9.4% (Carrying value) 149,508,470 -
9.9% 148,678,820 (829,650)
10.4% 147,859,619 (1,648,851)
10.9% 147,050,682 (2,457,788)
11.4% 146,251,829 (3,256,641)
The following table sets out the sensitivity to the above reported fair
value to a change in the discount rate used in the discounted cash flow
model:
31 December
Discount Rate
2023
Value calculated Value increase / (decrease)
£ £
6.1% (fair value) 275,556,353 11,460,070
7.1% 271,608,883 7,512,600
7.6% 269,688,100 5,591,817
8.1% 267,796,133 3,699,850
8.6% 265,932,387 1,836,104
9.1% (Carrying value) 264,096,284 -
9.6% 262,287,256 (1,809,027)
10.1% 260,504,756 (3,591,527)
10.6% 258,748,246 (5,348,037)
11.1% 257,017,205 (7,079,078)
11. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets at fair value through profit or loss comprise currency
forward contracts which represent contractual obligations to purchase
domestic currency and sell foreign currency on a future date at a
specified price.
The underlying instruments of currency forwards become favourable (assets)
or unfavourable (liabilities) as a result of fluctuations of foreign
exchange rates relative to their terms. The aggregate contractual or
notional amount of derivative financial instruments, the extent to which
instruments are favourable or unfavourable, and thus the aggregate fair
values of derivative financial assets and liabilities, can fluctuate
significantly from time to time. The foreign exchange derivatives are
subject to offsetting, enforceable master netting agreements for each
counterparty.
The fair value of financial assets and liabilities at fair value through
profit or loss are set out on the tables below and more information is
provided in Note 17.
Fair values
Notional contract
Assets Liabilities Total
31 December 2024 amount(1)
£ £ £
£
Foreign exchange
derivatives
Currency forwards:
Lloyds Bank plc 49,537,976 1,996,273 (983,468) 1,012,805
Total 49,537,976 1,996,273 (983,468) 1,012,805
(1) Euro amounts are translated at the year end exchange rate
Fair values
Notional contract
Assets Liabilities Total
31 December 2023 amount(1)
£ £ £
£
Foreign exchange
derivatives
Currency forwards:
Lloyds Bank plc 329,276,074 3,826,628 (2,833,424) 993,204
Total 329,276,074 3,826,628 (2,833,424) 993,204
(1) Euro amounts are translated at the year end exchange rate
12. CREDIT FACILITIES
Under its investment policy, the Group is limited to borrowing an amount
equivalent to a maximum of 30 per cent of its NAV at the time of drawdown,
of which a maximum of 20 per cent can be longer term borrowings. In
calculating the Group’s borrowings for this purpose, any liabilities
incurred under the Group’s foreign exchange hedging arrangements shall be
disregarded. In March 2024 the credit facilities available to the Group
(of £25 million) were cancelled by the Company as described in note 3(g)
of these financial statements.
The revolving credit facility capitalised costs are directly attributable
costs incurred in relation to the establishment of the credit loan
facilities which are amortised over the term of the facility. As at 31
December 2024, such costs had been fully amortised (2023: £8,333).
The changes in liabilities arising from financing activities are shown in
the table below.
31 December 2024 31 December 2023
£ £
Borrowings at the start of the year - 18,863,204
Repayments during the year - (19,000,000)
Interest paid during the year - (327,796)
Credit facility amortisation of fees - 311,342
Interest expenses recognised for the - 153,250
year
Borrowings at the end of the year - -
13. TRADE AND OTHER PAYABLES
31 December 2024 31 December 2023
£ £
Audit fees payable 383,513 206,866
Investment management fees payable 364,757 672,075
Tax provision 235,665 342,547
Administration fees payable 196,087 82,556
Accrued expenses 168,741 256,530
Commitment fees payable - 54,654
Directors' fees and expenses payable - 12,757
1,348,763 1,627,985
14. COMMITMENTS
As at 31 December 2024, the Group had outstanding unfunded loan cash
commitments in respect of loans not fully drawn of £23,036,583 (2023:
£36,252,255). As at 31 December 2024 the Group has cash reserves
sufficient to fund these commitments.
As at 31 December 2024, the Group has entered into forward contracts under
the Hedging Master Agreement with Lloyds Bank plc to sell €59,864,623
(2023: €329,276,074) to receive Sterling. At the end of the reporting
period, these forward contracts, on a net basis, were in the money with a
fair value of £1,012,805 (2023: £993,204).
15. SHARE CAPITAL
The authorised share capital of the Company consists of an unlimited
number of redeemable Ordinary Shares of no par value which upon issue the
Directors may classify into such classes as they may determine. The
Ordinary Shares are redeemable at the discretion of the Board.
At the year end, the Company had issued and fully paid up share capital as
follows:
31 December 2024 31 December 2023
Number of shares Number of shares
Ordinary Shares of no par value
193,929,633 313,690,942
Issued and fully paid
Total Ordinary Shares 193,929,633 313,690,942
On 13 June 2023, the Board of the Company announced the cancellation of
17,626,702 shares that were held in treasury.
Rights attached to shares
The Company’s share capital is denominated in Sterling. At any general
meeting of the Company each ordinary share carries one vote. The Ordinary
Shares also carry the right to receive all income of the Company
attributable to the Ordinary Shares, and to participate in any
distribution of such income made by the Company, such income shall be
divided pari passu among the holders of Ordinary Shares in proportion to
the number of Ordinary Shares held by them.
Significant share movements
1 January 2024 to 31 December 2024:
Ordinary Shares Number £
Balance at the start of the year 313,690,942 321,570,857
Shares redeemed in 2024 (119,761,309) (119,604,750)
Balance at the end of the year 193,929,633 201,966,107
Issue costs since inception (8,289,989)
Net proceeds 193,676,118
1 January 2023 to 31 December 2023:
Ordinary Shares Number £
Balance at the start of the year 395,592,696 403,365,545
Shares redeemed to date 2023 (81,901,754) (81,794,688)
Balance at the end of the year 313,690,942 321,570,857
Issue costs since inception (8,289,989)
Net proceeds 313,280,868
16. DIVIDENDS
Dividends will be declared by the Directors and paid in compliance with
the solvency test prescribed by Companies (Guernsey) law, 2008. Under
Guernsey law, companies can pay dividends in excess of accounting profit
provided they satisfy the solvency test prescribed by the Companies
(Guernsey) Law, 2008. The solvency test considers whether a company is
able to pay its debts when they fall due, and whether the value of a
company’s assets is greater than its liabilities. The Group passed the
solvency test for each dividend paid.
Subject to market conditions, the financial position of the Group and the
investment outlook, it is the Directors’ intention to pay quarterly
dividends to shareholders.
The Group paid the following dividends in respect of the year to 31
December 2024:
Dividend rate per Net dividend
Period to: Payment date
Share (pence) paid (£)
31 March 2024 1.375 3,714,950 24 May 2024
30 June 2024 1.375 2,666,532 23 August 2024
30 September 2024 1.375 2,666,532 22 November 2024
31 December 2024(1) 1.375 2,666,532 28 February 2025
(1) Declared on 24 January 2025 and paid on 28 February 2025 to
shareholders on the register as at 7 February 2025.
As this was declared after year end it was not accrued at year end.
The Group paid the following dividends in respect of the year to 31
December 2023:
Dividend rate per Net dividend
Period to: Payment date
Share (pence) paid (£)
31 March 2023 1.375 5,439,400 23 May 2023
30 June 2023 1.375 5,306,680 28 August 2023
30 September 2023 1.375 4,906,662 25 November 2023
31 December 2023(1) 1.875 5,881,705 23 February 2024
(1) Declared on 25 January 2024 and paid on 23 February 2024 to
shareholders on the register as at 2 February 2024.
As this was declared after year end it was not accrued at year end.
17. RISK MANAGEMENT POLICIES AND PROCEDURES
The Group through its investment in whole loans, mezzanine loans and
junior loans is exposed to a variety of financial risks, including market
risk (including market price risk, currency risk and interest rate risk),
credit risk and liquidity risk. The Group’s overall risk management
programme focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the Group’s financial
performance.
It is the role of the Board to review and manage all risks associated with
the Group, mitigating these either directly or through the delegation of
certain responsibilities to the Audit Committee, Investment Manager and
Investment Adviser.
The Board of Directors has established procedures for monitoring and
controlling risk. The Group has investment guidelines that set out its
overall business strategies, its tolerance for risk and its general risk
management philosophy.
In addition, the Investment Manager monitors and measures the overall risk
bearing capacity in relation to the aggregate risk exposure across all
risk types and activities. Further details regarding these policies are
set out below:
a) Market risk
Market risk includes market price risk, currency risk and interest rate
risk.
i. Market price risk
If a borrower defaults on a loan and the real estate market enters a
downturn it could materially and adversely affect the value of the
collateral over which loans are secured. However, this risk is considered
by the Board to constitute credit risk as it relates to the borrower
defaulting on the loan and not directly to any movements in the real
estate market.
The Investment Manager moderates market price risk through a careful
selection of loans within specified limits. The Group’s overall market
position is monitored by the Investment Manager and is reviewed by the
Board of Directors on an ongoing basis.
ii) Currency risk
The Group, via the subsidiaries, operates across Europe and invests in
loans that are denominated in currencies other than the functional
currency of the Company. Consequently the Group is exposed to risks
arising from foreign exchange rate fluctuations in respect of these loans
and other assets and liabilities which relate to currency flows from
revenues and expenses. Exposure to foreign currency risk is hedged and
monitored by the Investment Manager on an ongoing basis and is reported to
the Board accordingly.
The Group and Lloyds Bank plc entered into an international forward
exchange master agreement dated 5 April 2013 and on 7 February 2014 the
Group entered into a Professional Client Agreement with Goldman Sachs,
pursuant to which the parties can enter into foreign exchange transactions
with the intention of hedging against fluctuations in the exchange rate
between Sterling and other currencies. The Group does not trade in
derivatives but holds them to hedge specific exposures and have maturities
designed to match the exposures they are hedging. The derivatives are held
at fair value which represents the replacement cost of the instruments at
the reporting date and movements in the fair value are included in the
Consolidated Statement of Comprehensive Income under net foreign exchange
gains/ (losses). The Group does not adopt hedge accounting in the
financial statements. At the end of the reporting period the Group had 9
(2023: 84) open forward contracts.
As at 31 December 2024 the Group had the following currency exposure:
Danish Krone Sterling Euro Total
31 December 2024
£ £ £ £
Assets
Loans advanced - 130,793,190 18,715,280 149,508,470
Financial assets at fair
value through profit or - 1,012,805 - 1,012,805
loss
Prepayments - 22,700 122 22,822
Cash and cash equivalents (53) 45,492,738 193,677 45,686,362
Liabilities
Trade and other payables - (831,769) (516,994) (1,348,763)
Net currency exposure (53) 176,489,664 18,392,085 194,881,696
Danish Krone Sterling Euro Total
31 December 2023
£ £ £ £
Assets
Loans advanced - 173,633,377 90,462,907 264,096,284
Financial assets at fair
value through profit or - 993,204 - 993,204
loss
Prepayments - 24,225 - 24,225
Cash and cash equivalents (45) 47,350,920 16,486,769 63,837,644
Liabilities
Trade and other payables - (1,233,776) (394,209) (1,627,985)
Net currency exposure (45) 220,767,950 106,555,467 327,323,372
Currency sensitivity analysis
Should the exchange rate of the Euro against Sterling increase or decrease
by 10 per cent with all other variables held constant, the net assets of
the Group at 31 December 2024 would increase or decrease by £1,839,209
(2023: £10,655,547). Should the exchange rate of the Danish Krone against
Sterling increase or decrease by 10 per cent with all other variables held
constant, the net assets of the Group at 31 December 2024 would increase
or decrease by £5 (2023: £5). These percentages have been determined based
on potential volatility and deemed reasonable by the Directors. This does
not include the impact of hedges in place which would be expected to
reduce the impact.
In accordance with the Group’s policy, the Investment Manager monitors the
Group’s currency position, and the Board of Directors reviews this risk on
a regular basis.
iii) Interest rate risk
Interest rate risk is the risk that the value of financial instruments and
related income from loans advanced and cash and cash equivalents will
fluctuate due to changes in market interest rates.
The majority of the Group’s financial assets are loans advanced at
amortised cost, receivables and cash and cash equivalents. The Group’s
investments have some exposure to interest rate risk but this is limited
to interest earned on cash deposits and floating interbank rate exposure
for investments designated as loans advanced.
Loans advanced have been structured to include a combination of fixed and
floating interest and 84.3 per cent (2023: 90.5 per cent) of investments
designed as loans advanced at 31 December 2024 have a floating interbank
interest rate. The interest rate risk is mitigated by the inclusion of
interbank rate floors on floating rate loans, preventing interest rates
from falling below certain levels.
The following table shows the portfolio of the financial assets at 31
December. As at 31 December 2024, there were no interest bearing financial
liabilities (2023: Nil).
31 December 2024 31 December 2023
£ £
Floating rate
Loans advanced(1) 124,140,621 238,725,916
Cash and cash equivalents 45,686,362 63,837,644
Fixed rate
Loans advanced 25,367,849 25,370,368
Total financial assets subject to 195,194,832 327,933,928
interest rate risk
(1) Loans advanced at floating rates include loans with interbank rate
floors.
At 31 December 2024, if interest rates had changed by 100 basis points,
with all other variables remaining constant, the effect on the net profit
and equity would have been as shown in the table below:
31 December 2024 31 December 2023
£ £
Floating rate
Increase of 100 basis points (1) 1,698,270 3,025,636
Decrease of 100 basis points (1,698,270) (3,025,636)
(1) Loans advanced at floating rates include loans interbank rate floors.
These percentages have been determined based on potential volatility and
deemed reasonable by the Directors.
b) Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts
in full when due. The Group’s main credit risk exposure is in the
investment portfolio, shown as loans advanced at amortised cost, where the
Group invests in whole loans and also subordinated and mezzanine debt
which rank behind senior debt for repayment in the event that a borrower
defaults. There is a spread concentration of risk as at 31 December 2024
due to several loans being advanced since origination. There is also
credit risk in respect of other financial assets as a portion of the
Group’s assets are cash and cash equivalents or accrued interest. The
banks used to hold cash and cash equivalents have been diversified to
spread the credit risk to which the Group is exposed. Credit risk is
managed on a group basis. For banks and financial institutions, only
independently rated parties with a minimum rating of ‘A’ are accepted. The
Group also has credit risk exposure in its financial assets classified as
financial assets through profit or loss which is diversified between hedge
providers in order to spread credit risk to which the Group is exposed. At
year-end the derivative exposures were with one counterparty.
The total exposure to credit risk arises from default of the counterparty
and the carrying amounts of financial assets best represent the maximum
credit risk exposure at the year-end date. As at 31 December 2024, the
maximum credit risk exposure was £196,207,637 (2023: £328,927,132).
The Investment Manager has adopted procedures to reduce credit risk
exposure by conducting credit analysis of the counterparties, their
business and reputation which is monitored on an ongoing basis. After the
advancing of a loan a dedicated debt asset manager employed by the
Investment Adviser monitors ongoing credit risk and reports to the
Investment Manager, with quarterly updates also provided to the Board. The
debt asset manager routinely stresses and analyses the profile of the
Group’s underlying risk in terms of exposure to significant tenants,
performance of asset management teams and property managers against
specific milestones that are typically agreed at the time of the original
loan underwriting, forecasting headroom against covenants, reviewing
market data and forecast economic trends to benchmark borrower performance
and to assist in identifying potential future stress points. Periodic
physical inspections of assets that form part of the Group’s security are
also completed in addition to monitoring the identified capital
expenditure requirements against actual borrower investment.
The Group measures credit risk and ECL using probability of default,
exposure at default and loss given default. The Directors consider both
historical analysis and forward looking information in determining any
ECL. The Directors consider the loss given default to be close to zero for
all loans, with the exception of Office Portfolio, Ireland, a Stage 3
loan, referred to below, as all loans are the subject of very detailed
underwriting, including the testing of resilience to aggressive downside
scenarios with respect to the loan specifics, the market and general macro
changes. In addition to this, all loans have very robust covenants in
place, strong security packages and significant loan-to-value headroom.
During the year ended 31 December 2024, one loan moved from Stage 2 to
Stage 3 with an amortised cost value (net of impairment provision) of
£10,925,208; two loans are classified as Stage 2 with an amortised cost
value of £31,232,866 (31 December 2023: four loans are classified as Stage
2 with a value of £81,869,634) and the remaining loans are classified as
Stage 1. The Group accounted for an impairment provision on its loan to
Office Portfolio, Ireland of £10,849,579 (2023: impairment provision on
its loan to Shopping Centre, Spain of £3,476,360).
The Group uses both quantitative and qualitative criteria for monitoring
the loan portfolio as described in note 2(h). The gross carrying amount of
loan portfolio is presented in the table below and also represents the
Group’s maximum exposure to credit risks on these assets.
Total as at Total as at
Stage 1 Stage 2 Stage 3
31 December 31 December
£ £ £ 2024 2023
£ £
Net carrying 107,350,396 31,232,866 10,925,208 149,508,470 264,096,284
amount (1)
(1) The net carrying amount above is shown net of impairment provision on
the Office Portfolio, Ireland loan of £10,849,579 as at 31 December 2024
(2023: Shopping Centre, Spain. £3,476,360).
The Group accounted for an impairment provision on loans to Office
Portfolio, Ireland of £10,849,579 as at 31 December 2024 (2023: impairment
provision on its loan to Shopping Centre, Spain of £3,476,360). The £10.8
million (€12.9 million) loan impairment provision related to Office
Portfolio, Ireland loan was announced on 21 October 2024 as a result of
new operational information received from the borrower.
The Group maintains its cash and cash equivalents across various different
banks to diversify credit risk which have been all rated A1 or higher by
Standard & Poor’s and this is subject to the Group’s credit risk
monitoring policies as mentioned above.
Total as at Total as at
31 December 2024 31 December 2023
£ £
Barclays Bank plc (rated: A1) 341,241 20,654,384
ING Luxembourg, SA (rated: A1) 164,416 18,321
Lloyds Bank plc (rated: A1) 698 698
HSBC Bank plc (rated: A1) 40 374
Royal Bank of Scotland International - 196
(rated: A1)
BlackRock Inc - Money Market Fund (rated 22,589,159 31,109,262
AA-)
Deutsche Bank - Money Market Fund (rated 22,590,808 12,054,409
A1)
Total cash and cash equivalents 45,686,362 63,837,644
The carrying amount of cash and cash equivalents approximates their fair
value.
c) Liquidity risk
Liquidity risk is the risk that the Group will not have sufficient
resources available to meet its liabilities as they fall due. The Group’s
loans advanced are illiquid and may be difficult or impossible to realise
for cash at short notice.
The Group manages its liquidity risk through short term and long term cash
flow forecasts to ensure it is able to meet its obligations. The Group
holds cash reserves sufficient to cover all unfunded cash loan
commitments. Ongoing costs are covered by interest receipts. Dividends are
paid from available cash. In addition, the Company is permitted to borrow
up to 30 per cent of NAV. However, as at 31 December 2024 the Company had
no credit facilities as it had not pursed the extension of the facilities
it had held up to March 2024 (amounting to £25.0 million) as it held
sufficient cash reserves to cover unfunded cash loan commitments (2023:
£25.0 million of which none were drawn).
The table below shows the maturity of the Group’s non-derivative financial
assets and liabilities arising from the advancement of loans by remaining
contractual maturities at the end of the reporting date. The amounts
disclosed under assets are contractual, undiscounted cash flows and may
differ from the actual cash flows received in the future as a result of
early repayments and interest rate changes:
Between 3 and Over 12
Up to 3 months months Total
31 December 2024 12 months
£ £ £
£
Assets
Loans advanced 15,144,986 60,171,009 74,192,475 149,508,470
Cash and cash 45,686,362 - - 45,686,362
equivalents
Liabilities and
commitments
Loan commitments(1) (6,159,251) (10,902,785) (5,974,547) (23,036,583)
Trade and other (1,348,763) - - (1,348,763)
payables
53,323,334 49,268,224 68,217,928 170,809,486
(1) Loan commitments are estimated forecasted cash drawdowns at year end.
Up to 3 Between 3 and
months Over 12 months Total
31 December 2023 12 months
£ £ £
£
Assets
Loans advanced 11,189,028 80,136,618 172,770,638 264,096,284
Cash and cash 63,837,644 - - 63,837,644
equivalents
Liabilities and
commitments
Loan commitments(1) (1,809,314) (18,429,070) (16,013,871) (36,252,255)
Trade and other (1,627,985) - - (1,627,985)
payables
71,589,373 61,707,548 156,756,767 290,053,688
(1) Loan commitments are estimated forecasted cash drawdowns at year end.
The table below analyses the Group’s derivative financial instruments that
will be settled on a gross basis into relevant maturity groupings based on
the remaining period at the end of the reporting date. The amounts
disclosed are the contractual undiscounted cash flows:
31 December 2024
Up to 3 Between 3 and Over 12 Total as at
months months
Derivatives 12 months 31 December 2024
£ £
£ £
Lloyds Bank plc:
Foreign exchange
derivatives (223,989) (18,647,471) - (18,871,460)
Outflow(1)
Inflow 224,372 19,013,692 - 19,238,064
(1) Euro amounts translated at year end exchange rate.
31 December 2023
Between 3 and Total as at
Up to 3 months Over 12 months
Derivatives 12 months 31 December
£ £ 2023
£
£
Lloyds Bank plc:
Foreign exchange
derivatives (16,783,019) (66,362,828) (25,555,814) (108,701,661)
Outflow(1)
Inflow 16,747,137 66,588,688 26,198,164 109,533,989
(1) Euro amounts translated at year end exchange rate.
(iv) 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.
A number of the measures the Group takes to mitigate market deterioration
risk as outlined above, such as portfolio diversification and rigorous due
diligence on investments and monitoring of borrowers, will also help to
protect the Group from the risk of default under the revolving credit
facility as this is only likely to occur as a consequence of borrower
defaults or loan impairments.
The Board regularly reviews the balances drawn under the credit facility
against commitments and reviews the performance under the agreed
covenants. The loan covenants are also stress tested to test how robust
they are to withstand default of the Group’s investments.
The Group had no available credit facilities as at 31 December 2024 as it
was decided not to pursue the extension of any credit facilities that had
been available to it in the past as the Group has sufficient resources to
meet its liabilities as they fall due, therefore, the Group is no longer
subject to this risk as at 31 December 2024.
Capital management policies and procedures
The Group’s capital management objectives are:
• To ensure that the Group will be able to continue as a going concern;
and
• To maximise the income and capital return to equity shareholders
through an appropriate balance of equity capital and cash reserves.
The capital of the Company is represented by the net assets attributable
to the holders of the Company’s shares.
In accordance with the Group’s current investment policy, the Group’s
principal use of cash is to fund unfunded loan cash commitments, ongoing
operational expenses and payment of dividends in accordance with the
Company’s dividend policy and the return of capital to shareholders.
The Board, with the assistance of the Investment Manager, monitors and
reviews the broad structure of the Company’s capital on an ongoing basis.
The Company has no imposed capital requirements.
The Company’s capital at the end of the reporting period comprises:
31 December 2024 31 December 2023
£ £
Equity
Equity share capital 193,676,118 313,280,868
Retained earnings and translation 1,205,578 14,050,837
reserve
Total capital 194,881,696 327,331,705
18. FAIR VALUE MEASUREMENT
IFRS 13 requires the Group to classify fair value measurements using a
fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following
levels:
a) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
b) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices including interest
rates, yield curves, volatilities, prepayment rates, credit risks and
default rates) or other market corroborated inputs (level 2).
c) Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3).
The following table analyses within the fair value hierarchy the Group’s
financial assets and liabilities (by class) measured at fair value:
31 December 2024
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Investments at fair value through - 1,996,273 - 1,996,273
profit or loss
Short term deposit1 45,179,967 - - 45,179,967
Total 45,179,967 1,996,273 - 47,176,240
Liabilities
Investments at fair value through - (983,468) - (983,468)
profit or loss
Total - (983,468) - (983,468)
(1) Presented under cash and cash equivalents in Statement of Financial
Position.
31 December 2023
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Investments at fair value - 3,826,628 - 3,826,628
through profit or loss
Short term deposit1 43,163,671 - - 43,163,671
Total 43,163,671 3,826,628 - 46,990,299
Liabilities
Investments at fair value - (2,833,424) - (2,833,424)
through profit or loss
Total - (2,833,424) - (2,833,424)
(1) Presented under cash and cash equivalents in Statement of Financial
Position.
There have been no transfers between levels for the year ended 31 December
2024 (2023: nil).
The Directors were responsible for considering the methodology and
assumptions used by the Investment Adviser and for approving the fair
values reported at the financial period end.
The following table summarises within the fair value hierarchy the Group’s
assets and liabilities (by class) not measured at fair value at
31 December 2024 but for which fair value is disclosed:
31 December 2024
Total fair Total carrying
Level 1 Level 2 Level 3 values amount
£ £ £ £ £
Assets
Loans advanced - - 155,403,126 155,403,126 149,508,470
Total - - 155,403,126 155,403,126 149,508,470
31 December 2023
Total fair Total carrying
Level 1 Level 2 Level 3 values amount
£ £ £ £ £
Assets
Loans advanced - - 275,556,353 275,556,353 264,096,284
Total - - 275,556,353 275,556,353 264,096,284
For cash and cash equivalents, other receivables, trade and other payables
and credit facilities the carrying amount is a reasonable approximation of
the fair value. The Group carries its loans advanced at amortised cost in
the consolidated financial statements. Refer to note 10 for further
information.
The fair value of loans advanced have been determined by discounting the
expected cash flows using a discounted cash flow model based on the
appropriate discount rates. For avoidance of doubt the Group carries its
loans advanced at amortised cost in the financial statements. Refer to
note 10 for further information.
Cash and cash equivalents include cash at hand and fixed deposits held
with banks. Other receivables include the contractual amounts and
obligations due to the Group and consideration for advance payments made
by the Group. Credit facilities and trade and other payables represent the
contractual amounts and obligations due by the Group for contractual
payments.
19. CONTROLLING PARTY
In the opinion of the Directors, on the basis of shareholdings advised to
them, the Company has no immediate or ultimate controlling party.
20. TAXATION
The Company is exempt from Guernsey taxation under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 for which it pays an annual fee of
£1,600.
The Luxembourg indirect subsidiaries of the Company are subject to the
applicable tax regulations in Luxembourg. The table below analyses the tax
charges incurred at Luxembourg level:
31 December 2024 31 December 2023
£ £
Operating profit before tax (Luxco, 270,338 643,358
Luxco 3 and Luxco 4 only)
Corporate Income Tax and Municipal 65,010 158,403
Business Tax
Net Wealth Tax 40,050 40,282
Withholding Tax - 130,814
(Over)/Underprovisions related to prior (8,075) 277,693
years
Taxation per Consolidated Statement of 96,985 607,193
Comprehensive Income
The Luxco had no operating gains on ordinary activities before taxation
and were therefore for the year ended 31 December 2024 subject to the
Luxembourg minimum corporate income taxation at €4,815 (2023: €4,815). The
Luxco 3 and Luxco 4 are subject to Corporate Income Tax and Municipal
Business Tax based on a margin calculated on an arm’s-length principle.
The effective tax rate for Corporate Income Tax and Municipal Business Tax
in Luxembourg during the reporting period was 24.94 per cent (2023: 24.94
per cent). Withholding Tax has been provided for in relation to equity at
risk at subsidiary level. When the equity at risk is canceled (as loans
repay) withholding tax is payable on those amounts by the parent company.
21. RECONCILIATION OF IFRS TO US GAAP
To meet the requirements of Rule 206(4)-2 under the Investment Advisors
Act 1940 (the “Custody Rule”) the consolidated financial statements of the
Group have also been audited in accordance with Generally Accepted
Auditing Standards applicable in the United States (“US GAAS”). As such
two independent Auditor’s reports are included, one under International
Standards on Auditing as required by the Crown Dependencies Audit Rules
and the other under US GAAS. Compliance with the Custody Rule also
requires a reconciliation of the operating profit and net assets under
IFRS to US GAAP.
The principal differences between IFRS and US GAAP relate to accounting
for financial assets that are carried at amortised cost. Under US GAAP the
calculation of the effective interest rate is based on contractual cash
flows over the asset’s contractual life, however, under the IFRS basis,
the effective interest rate calculation is based on the estimated cash
flows over the expected life of the asset. Under IFRS, the accrual of
interest is not suspended when the collection of interest is less than
probable or the collection of any portion of the loan's principal is
doubtful, however, under the US GAAP basis, although not specially
prescribed, the accrual of interest income is generally suspended.
The Directors have assessed the operating profit and NAV of the Company
and Group under both IFRS and US GAAP and have concluded that no material
differences were identified and therefore no reconciliation has been
presented in these consolidated financial statements.
22. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to
control the other party or exercise significant influence over the other
party in making financial or operational decisions. Details on the
agreements with the Investment Manager and other parties are included in
note 3 to these consolidated financial statements.
The following tables summarise the transactions that occurred with related
parties during the reporting period and outstanding at 31 December 2024
and 31 December 2023:
2024
Outstanding at For the year ended
31 December 2024 31 December 2024
Fees, expenses and other payments £ £
Directors’ fees and expenses
John Whittle - 60,000
Shelagh Mason - 45,000
Charlotte Denton - 50,000
Gary Yardley - 42,000
Expenses - 2,279
Investment Manager
Investment management fees 364,757 1,840,831
Expenses - 71,490
2023
Outstanding at For the year ended
31 December 2023 31 December 2023
Fees, expenses and other payments £ £
Directors’ fees and expenses
John Whittle - 60,000
Shelagh Mason 11,250 45,000
Charlotte Denton - 50,000
Gary Yardley - 42,000
Expenses 1,500 7,739
Investment Manager
Investment management fees 672,075 2,910,524
Expenses - 90,813
The following tables summarise the dividends paid to related parties
during the reporting period and number of Company’s shares held by related
parties at 31 December 2024 and 31 December 2023:
2024
Dividends paid during
As at
the year ended
Shareholdings and dividends paid 31 December 2024
31 December 2024
Number of shares
£
Starwood Property Trust Inc. 344,944 4,480,649
SCG Starfin Investor LP 86,236 1,120,164
John Whittle 1,278 16,602
Charlotte Denton 1,677 21,788
Shelagh Mason 4,258 55,305
Duncan MacPherson* 9,435 122,559
Lorcain Egan* 3,158 41,022
* Employees at the Investment Adviser
2023
Dividends paid during
As at
the year ended
Shareholdings and dividends paid 31 December 2023
31 December 2023
Number of shares
£
Starwood Property Trust Inc. 670,125 7,247,687
SCG Starfin Investor LP 167,531 1,811,923
John Whittle 2,483 26,857
Charlotte Denton 3,259 35,244
Shelagh Mason 8,272 89,461
Duncan MacPherson* 18,329 198,239
Lorcain Egan* 6,135 66,353
* Employees at the Investment Adviser
Other
The Group continues to participate in a number of loans in which Starwood
Property Trust, Inc. (“STWD”) acted as a co‐lender. The Group also acted
as co-lender with Starwood European Real Estate Debt Finance I LP (“SEREDF
I”) an affiliate entity. The details of these loans are shown in the table
below.
Loan Related party co-lenders
Hotels, United Kingdom SEREDFI
Office Portfolio, Spain STWD
Office Portfolio, Ireland STWD
23. EVENTS AFTER THE REPORTING PERIOD
Subsequent to 31 December 2024, the following loan amortisation
(unscheduled) has been received up to 2 April 2025
Local currency
Life Science, UK £1,430,000
Subsequent to 31 December 2024, the following loans have been repaid in
full up to 2 April 2025
Local currency
Hotels, United Kingdom £47,334,280
On 20 February 2025, the Company announced a compulsory redemption of
45,889,830 Ordinary shares at a price of £1.0024 per share.
On 24 January 2025, the Directors declared a dividend in respect of the
fourth quarter of 2024 of 1.375 pence per Ordinary share payable on 28
February 2025 to shareholders on the register at 7 February 2025.
In February 2025, the £4,036,499 unfunded commitment on Life Sciences, UK
was cancelled.
Further Information
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures
(“APMs”) the Board has considered what APMs are included in the Annual
Financial Report and Audited Consolidated Financial Statements which
require further clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or cash
flows, other than a financial measure defined or specified in
the applicable financial reporting framework. As stated by FRC, where an
APM cannot be reconciled directly to the financial statements
(e.g. financial ratios), they expect companies to provide calculations
(unless not practical). The APMs included in the financial statements, are
unaudited and outside the scope of IFRS and it is not practical to provide
calculations. We have set out the calculation mechanism as below:
NAV PER ORDINARY SHARE
The NAV per Ordinary Share represents the net assets attributable to
equity shareholders divided by the number of Ordinary Shares in issue,
excluding any shares held in treasury. The NAV per Ordinary Share is
published monthly. This APM relates to past performance and is used as a
comparison to the share price per Ordinary Share to assess performance.
There are no reconciling items between this calculation and the Net Asset
Value shown on the balance sheet (other than to calculate by Ordinary
Share).
NAV TOTAL RETURN
The NAV total return measures the combined effect of any dividends paid,
together with the rise or fall in the NAV per Ordinary Share. This APM
relates to past performance and takes into account both capital returns
and dividends paid to shareholders. Any dividends received by a
shareholder are assumed to have been reinvested in the assets of the
Company at its NAV per Ordinary Share.
SHARE PRICE TOTAL RETURN
The share price total return measures the combined effects of any
dividends paid, together with the rise or fall in the share price. This
APM relates to past performance and assesses the impact of movements in
the share price on total returns to investors. Any dividends received by a
shareholder are assumed to have been reinvested in additional shares of
the Company at the time the shares were quoted ex-dividend.
NAV TO MARKET PRICE DISCOUNT / PREMIUM
The discount / premium is the amount by which the share price of the
Company is lower (discount) or higher (premium) than the NAV per Ordinary
Share at the date of reporting and relates to past performance. The
discount or premium is normally expressed as a percentage of the NAV per
Ordinary Share.
INVESTED LOAN PORTFOLIO UNLEVERED ANNUALISED TOTAL RETURN
The unlevered annualised return is a calculation at the quarterly
reporting date of the estimated annual return on the portfolio at that
point in time. It is calculated individually for each loan by summing the
one-off fees earned (such as up-front arrangement or exit fees charged on
repayment) and dividing these over the full contractual term of the loan,
and adding this to the annual returns. Where a loan is floating rate
(partially or in whole or with floors), the returns are based on an
assumed profile for future interbank rates, but the actual rate received
may be higher or lower. The return is calculated only on amounts funded at
the quarterly reporting date and excludes committed but undrawn loans and
excludes cash uninvested. The calculation also excludes origination fees
paid to the Investment Manager, which are accounted for within the
interest line in the financial statements.
An average, weighted by loan amount, is then calculated for the portfolio.
This APM gives an indication of the future performance of the portfolio
(as constituted at the reporting date). The calculation, if the portfolio
remained unchanged, could be used to estimate “income from loans advanced”
in the Consolidated Statement of Comprehensive Income if adjusted for the
origination fee of 0.75 basis points amortised over the average life of
the loan. As discussed earlier in this report the figure actually realised
may be different due to the following reasons:
• In the quoted return, we amortise all one-off fees (such as
arrangement and exit fees) over the contractual life of the loan.
However, it has been our general experience that loans tend to repay
sooner and as such, these fees are actually amortised over a shorter
period.
• Many loans benefit from prepayment provisions, which means that if
they are repaid before the end of the protected period, additional
interest or fees become due. As we quote the return based on the
contractual life of the loan these returns cannot be forecast in the
return.
• The quoted return excludes the benefit of any foreign exchange gains
on Euro loans. We do not forecast this as the loans are often repaid
early and the gain may be lower than this once hedge positions are
settled.
Generally speaking, the actual annualised total return is likely to be
higher than the reported return for these reasons, but this is not
incorporated in the reported figure, as the benefit of these items cannot
be assumed.
PORTFOLIO LEVERED ANNUALISED TOTAL RETURN
The levered annualised total return is calculated on the same basis as the
unlevered annual return but takes into account the amount of leverage in
the Group and the cost of that leverage at current SONIA rates.
ONGOING CHARGES PERCENTAGE
Ongoing charges represents the management fee and all other operating
expenses excluding finance costs and transactions costs, expressed as a
percentage of the average monthly net asset values during the year and
allows users to assess the running costs of the Group. This is calculated
in accordance with AIC guidance and relates to past performance. The
charges include the following lines items within the Consolidated
Statement of Comprehensive Income:
• Investment management fees
• Administration fees
• Audit and non-audit fees
• Other expenses
• Legal and professional fees
• Directors’ fees and expenses
• Broker’s fees and expenses
• Agency fees
The calculation adds back any expenses unlikely to occur absent any loan
originations or repayments and as such, the costs associated with hedging
Euro loans back to Sterling have been added back. The calculation does not
include origination fees paid to the Investment Manager; these are
recognised through “Income from loans advanced”.
WEIGHTED AVERAGE PORTFOLIO LTV TO GROUP FIRST AND LAST £
These are calculations made as at the quarterly reporting date of the loan
to value (“LTV”) on each loan at the lowest and highest point in the
capital stack in which the Group participates. LTV to “Group last £” means
the percentage which the total loan commitment less any amortisation
received to date (when aggregated with any other indebtedness ranking
alongside and/or senior to it) bears to the market value determined by the
last formal lender valuation received by the quarterly reporting date. LTV
to “first Group £” means the starting point of the loan to value range of
the loan commitments (when aggregated with any other indebtedness ranking
senior to it). For development projects, the calculation includes the
total facility available and is calculated against the assumed market
value on completion of the project.
An average, weighted by the loan amount, is then calculated for the
portfolio.
This APM provides an assessment of future credit risk within the portfolio
and does not directly relate to any financial statement line items.
PERCENTAGE OF INVESTED PORTFOLIO IN FLOATING RATE LOANS
This is a calculation made as at the quarterly reporting date, which
calculates the value of loans, which has an element of floating rate in
part, in whole and including loans with floors, as a percentage of the
total value of loans. This APM provides an assessment of potential future
volatility of the income on loans, as a large percentage of floating rate
loans would mean that income would move up or down with changes in SONIA.
AVERAGE LOAN TERM AND AVERAGE REMAINING LOAN TERM
The average loan term is calculated at the quarterly reporting date by
calculating the average length of each loan from initial advance to the
contractual termination date. An average, weighted by the loan amount, is
then calculated for the portfolio.
The average remaining loan term is calculated at the quarterly reporting
date by calculating the average length of each loan from the quarterly
reporting date to the contractual termination date. An average, weighted
by the loan amount, is then calculated for the portfolio.
This APM provides an assessment of the likely level of repayments
occurring in future years (absent any early repayments or loan
extensions).
UNUSED LIQUID FACILITIES
Unused liquid facilities is the result of the Group’s total cash and cash
equivalents plus the available balance to withdraw under existing credit
facilities at the reporting date.
PORTFOLIO DIVERSIFICATION
The portfolio diversification statistics are calculated by allocating each
loan to the relevant sectors and countries based on the value of the
underlying assets. This is then summed for the entire portfolio and a
percentage calculated for each sector / country.
This APM provides an assessment of future risk within the portfolio due to
exposure to specific sectors or countries and does not directly relate to
any financial statement line items.
Corporate Information
Directors
John Whittle, Chairman
Shelagh Mason
Charlotte Denton
Gary Yardley
(all Non-Executive, Independent and care of the registered office)
Investment Manager
Starwood European Finance
Partners Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Solicitors to the Company (as to English law and U.S. securities law)
Norton Rose Fullbright LLP
3 More London Riverside
London
SE1 2AQ
United Kingdom
Registrar
Computershare Investor Services (Guernsey) Limited
2nd Floor
Lefebvre Place
Lefebvre Street
St Peter Port
GY1 2JP
Guernsey
Sole Broker
Jefferies Group LLC
100 Bishopsgate
London, EC2N 4JL
United Kingdom
Administrator, Designated Manager and Company Secretary
Apex Fund and Corporate Services
(Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Registered Office
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser
Starwood Capital Europe Advisers, LLP
1 Berkeley Street
London
W1J 8DJ
United Kingdom
Advocates to the Company (as to Guernsey law)
Carey Olsen
PO Box 98
Carey House, Les Banques
St Peter Port
Guernsey
GY1 4BZ
Independent Auditor
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Private Clients International Limited
PO Box 41
St Julian’s Court
St Julian’s Avenue
St Peter Port
Guernsey
GY1 1WA
Website:
www.starwoodeuropeanfinance.com
══════════════════════════════════════════════════════════════════════════
Dissemination of a Regulatory Announcement that contains inside
information in accordance with the Market Abuse Regulation (MAR),
transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════
ISIN: GG00BTZJM644
Category Code: ACS
TIDM: SWEF
LEI Code: 5493004YMVUQ9Z7JGZ50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 380996
EQS News ID: 2110804
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
References
Visible links
1. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=53b2c812e332e1954908091db53a3a8b&application_id=2110804&site_id=reuters~~~787b94c3-8286-43cc-98b3-26b1dc52d810&application_name=news
============Recent news on Starwood European Real Estate Finance
See all newsREG-Starwood European Real Estate Finance Ltd SWEF: Portfolio Update
AnnouncementREG-Starwood European Real Estate Finance Ltd SWEF: March 2025 NAV
AnnouncementREG-Starwood European Real Estate Finance Ltd SWEF: Dividend Declaration
AnnouncementREG-Starwood European Real Estate Finance Ltd SWEF: Full Year Results for the Year Ended 31 December 2024
AnnouncementREG-Starwood European Real Estate Finance Ltd SWEF: February 2025 NAV
Announcement