Starwood Euro Real - Annual Financial Report year ended 31 Dec 2015 - Part 2

Starwood European Real Estate Finance

18/03/2016 15:25

- Part 2: For the preceding part double click  ID:nRSR6304Sa 

Denmark            £1,083,456           
 
 
On 26 January 2016 the Company declared a dividend of 1.75 pence per Ordinary Share payable to shareholders on the register
on 18 February 2016. 
 
Board of Directors 
 
Stephen Smith (non-executive Chairman - Chairman of the Board) 
 
Stephen is currently a Director of Gatehouse Bank Plc (appointed in June 2013), a Director of Tritax Big Box REIT Plc,
which floated on the London Stock Exchange in December 2013.  Previously, he was the Chief Investment Officer of British
Land Company PLC, the FTSE 100 real estate investment trust from January 2010 to March 2013 with responsibility for the
group's property and investment strategy, leaving at the end of June 2013.  He was formerly Global Head of Asset Management
and Transactions at AXA Real Estate Investment Managers, where he was responsible for the asset management of a portfolio
of more than E40 billion on behalf of life funds, listed property vehicles, unit linked and closed end funds.  Prior to
joining AXA in 1999 he was Managing Director at Sun Life Properties for five years.  Stephen is a UK resident. 
 
Jonathan Bridel (non-executive Director - Management Engagement Committee Chairman) 
 
Jonathan is currently a non-executive Chairman or Director of listed and unlisted companies comprised mainly of investment
funds and investment managers. These include Alcentra European Floating Rate Income Fund Limited, The Renewables
Infrastructure Group Limited, Sequoia Economic Infrastructure Income Fund Limited and Funding Circle SME Income Fund
Limited which are listed on the main market of the London Stock Exchange and DP Aircraft I Limited and Fair Oaks Income
Fund Limited. He was previously Managing Director of Royal Bank of Canada's investment business in the Channel Islands.
Prior to this, after working at Price Waterhouse Corporate Finance in London, Jonathan served in senior management
positions in the British Isles and Australia in banking, specialising in credit and in private businesses as Chief
Financial Officer. Graduating from the University of Durham with a degree of Master of Business Administration in 1988,
Jonathan also holds qualifications from the Institute of Chartered Accountants in England and Wales where he is a Fellow,
the Chartered Institute of Marketing and the Australian Institute of Company Directors. Jonathan is a Chartered Marketer
and a member of the Chartered Institute of Marketing, the Institute of Directors and a Chartered Fellow of the Chartered
Institute for Securities and Investment. Jonathan is a resident of Guernsey. 
 
John Whittle (non-executive Director - Audit Committee Chairman) 
 
John is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the Institute of Directors
Diploma in Company Direction.  He is a non-executive Director of International Public Partnerships Limited (FTSE 250),
India Capital Growth Fund Limited, Globalworth Real Estate Investments Limited and Advance Frontier Markets Fund Limited
(all listed on AIM), Toro Ltd (listed on SFM), and also acts as non-executive Director to several other Guernsey investment
funds.  He was previously Finance Director of Close Fund Services, a large independent fund administrator, where he
successfully initiated a restructuring of client financial reporting services and was a key member of the business
transition team.  Prior to moving to Guernsey he was at Price Waterhouse in London before embarking on a career in business
services, predominantly telecoms.  He co-led the business turnaround of Talkland International (now Vodafone Retail) and
was directly responsible for the strategic shift into retail distribution and its subsequent implementation; he
subsequently worked on the £20million private equity acquisition of Ora Telecom.  John is also a resident of Guernsey. 
 
Report of the Directors 
 
Principal Activities and Investment Objective 
 
The investment objective of the Company is to provide its shareholders with regular dividends and an attractive total
return while limiting downside risk, through the origination, execution, acquisition and servicing of a diversified
portfolio of real estate debt investments (including debt instruments) in the UK and wider European Union's internal
market, focusing on Northern and Southern Europe. Whilst investment opportunities in the secondary market are considered,
the Group's main focus is to originate direct primary real estate debt investments. 
 
The Group attempts to limit downside risk by focusing on secured debt with both quality collateral and contractual
protection.  The typical loan term is between three and seven years and at least 75 per cent of total loans by value are
for a term of seven years or less. 
 
The Group is and intends to remain appropriately diversified by geography, real estate sector, loan type and counterparty. 
The Group pursues investments across the commercial real estate debt asset class through senior loans, subordinated loans
and mezzanine loans, bridge loans, selected loan-on-loan financings and other debt instruments. 
 
Structure 
 
The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 9
November 2012 with registered number 55836, and has been authorised by the Guernsey Financial Services Commission ("GFSC")
as a registered closed-ended investment company.  The Company's Ordinary Shares were admitted to the premium segment of the
UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange as part of its IPO
which completed on 17 December 2012.   Further issues took place in March 2013, April 2013, July 2015 and September 2015. 
The issued capital during the year comprises the Company's Ordinary Shares denominated in Sterling. 
 
The Company makes its investments through Starfin Lux S.à.r.l ("Luxco"), an indirect wholly-controlled subsidiary not
subject to regulation in Luxembourg or elsewhere.  The Company's interest in Luxco is held through a Guernsey limited
partnership, Starfin Public LP ("the Partnership") of which Starfin Public GP Limited ("the GP") is the general partner. 
 
The GP is wholly owned and controlled by the Company.  Starfin Carry LP ("the Special Limited Partner") is the only other
limited partner of the Partnership and is majority owned by the Starwood Capital Group ("Starwood") and has no control over
the GP. 
 
References to the Group refer to the Company, the GP, the Partnership and Luxco. 
 
Dividend Policy 
 
At launch, the Company had targeted a dividend of 7.0 pence per Ordinary Share upon full investment, based on quarterly
dividend payments.  In July 2015, the Company communicated that it considered it prudent to lower the dividend target by
0.5 pence per Ordinary Share to 6.5 pence per Ordinary Share for 2016 onwards. 
 
Dividends Paid 
 
The Company declared dividends of 1.75 pence for each of the calendar quarters of 2015. 
 
The Company has paid a total of £18,120,500 during the year (6.95 pence per Ordinary share) (2014: £12,381,200 : 5.2 pence
per Ordinary Share). 
 
Business Review 
 
The Group's performance during the year to 31 December 2015, its position at that date and the Group's future developments
are detailed in the Chairman's Statement, the Strategic Report and the Investment Manager's Report. 
 
Capital 
 
As part of the Company's IPO completed on 17 December 2012, 228,500,000 Ordinary Shares of the Company, with an issue price
of 100 pence per share, were admitted to the premium segment of the UK Listing Authority's Official List and to trading on
the Main Market of the London Stock Exchange. 
 
Shortly after the IPO and in order to meet market demand, principally following the Company's inclusion in the FTSE UK
Index Series and to manage the higher share price premium over the NAV per share at that time, the Company issued an
additional 9,600,000 Ordinary Shares within the limits imposed by the Prospectus Rules. 
 
During 2015 the Company issued an additional 66,080,000 Ordinary Shares to fund investment opportunities. 
 
Following these issues, the Company now has issued share capital consisting of 304,180,000 Ordinary Shares. 
 
Details of the Company's capital are provided in more detail in note 16 of the consolidated financial statements. 
 
Substantial Interests 
 
As of 31 December 2015, the Company is aware of the following material shareholdings: 
 
 Name                                     Ordinary Shares held  % holding of Ordinary Shares at 31 December 2015  
 Schroder Investment Management           36,790,219            12.09                                             
 Quilter Cheviot Investment Management    33,621,337            11.05                                             
 SG Private Banking                       21,361,772            7.02                                              
 Schroder & Co, London (PB)               18,090,422            5.95                                              
 Premier Asset Management                 15,805,000            5.20                                              
 Thames River Capital                     13,700,000            4.50                                              
 Smith & Williamson                       11,423,432            3.76                                              
 East Riding of Yorkshire                 10,000,000            3.29                                              
 Starwood Property Trust                  9,140,000             3.00                                              
 Architas Multi Manager                   9,048,198             2.97                                              
 
 
Directors' Interests in Shares 
 
The Directors' interests in shares are shown below: 
 
 Name                        Ordinary Shares at Company's Launch  Ordinary Shares purchased  Ordinary Shares at 31 December 2015  
 Stephen Smith               40,000                               38,929                     78,929                               
 John Whittle                -                                    11,866                     11,866                               
 Jonathan Bridel and Spouse  -                                    11,866                     11,866                               
 
 
The Directors have adopted a code of Directors' dealings in Ordinary Shares, which is based on the Model Code for
Directors' dealings contained in the Listing Rules (the ''Model Code''). The Board is responsible for taking all proper and
reasonable steps to ensure compliance with the Model Code by the Directors, and review the Model Code on a regular basis. 
 
Events After the Reporting Period 
 
Details of events are the reporting period are contained in note 24 to the consolidated financial statements. 
 
Independent Auditors 
 
The Board of Directors elected to appoint PricewaterhouseCoopers CI LLP as Auditors to the Company at the inaugural meeting
of the Company on 22 November 2012 and they have been re-appointed at each Annual General Meeting held since.
PricewaterhouseCoopers CI LLP has indicated their willingness to continue as Auditors.  The Directors will place a
resolution before the Annual General Meeting to re-appoint them as independent Auditors for the ensuing year, and to
authorise the Directors to determine their remuneration. 
 
Investment Manager and Service Providers 
 
The Investment Manager during the year was Starwood European Finance Partners Limited (the "Investment Manager"),
incorporated in Guernsey with registered number 55819 and regulated by the GFSC. The Investment Manager has appointed
Starwood Capital Europe Advisers, LLP ("the Investment Adviser"), an English limited liability partnership authorised and
regulated by the Financial Conduct Authority ("FCA"), to provide investment advice pursuant to an Investment Advisory
Agreement. 
 
The administration of both the Company and Investment Manager was delegated to Ipes (Guernsey) Limited (the
"Administrator") during the year. 
 
Discount Control 
 
The Company's discount management strategy has three elements, summarised as follows and explained in greater detail
below: 
 
·      a discount-triggered realisation mechanism that would apply if the Ordinary Shares trade at an average discount of
five per cent or more during the last six months of the financial year ending 31 December 2017 and would provide for the
realisation of up to 75 per cent of the outstanding  Ordinary  Share  capital  by  means  of  the  orderly  realisation 
over  time  of  the relevant proportion of the Company's assets and related phased distributions of capital to Shareholders
who make the relevant election. 
 
·      save where the discount-triggered realisation mechanism has been activated, a realisation vote by no later than 28
February 2018 to implement a realisation of up to 75 per cent of the outstanding capital on substantially the same basis as
described above; and 
 
·      share repurchase powers that allow the Company to repurchase Ordinary Shares in the market up to 14.99 per cent of
the share capital, subject to annual renewal of the Shareholder authority. 
 
Discount-triggered Realisation 
 
If the Ordinary Shares trade at an average discount to Net Asset Value per Share (calculated daily in accordance with the
methodology set out below) of five per cent or more during the six-month period ending 31 December 2017, the Directors at
their absolute discretion may put a realisation offer to Shareholders, subject to applicable law including the requirements
of the Companies Law 
 
(a Realisation Offer). 
 
Realisation Vote 
 
In the event that the discount-triggered realisation mechanism is not activated, the Directors shall exercise their
discretion under the Articles to put forward a realisation vote (as an ordinary resolution) to Shareholders by no later
than 28 February 2018. If Shareholders vote in favour of this resolution then the Company will procure that a Realisation
Offer on substantially the same terms as that described above is offered to Shareholders.  Under the Realisation Offer all
Shareholders will be able to elect to redeem up to 75 per cent. of their Ordinary Shares. Following the receipt of all
elections, if either: (i) more than 75 per cent. of the Ordinary Shares then in issue were elected for realisation; or (ii)
the NAV of the Company following the realisation would be less than £100 million, the Directors may exercise their
discretion not to proceed with the Realisation Offer and instead put forward alternative proposals which are no less
favourable to electing Shareholders and which may include the reorganisation or winding up of the Company.  Any realisation
of the Company's portfolio required as a result of the implementation of a Realisation Offer will be conducted in the
orderly manner described above in relation to the discount-triggered realisation mechanism. 
 
If Shareholders vote against the realisation vote then the Company will continue in existence as it is then constituted
without any liquidity event for Shareholders. 
 
Share Buybacks 
 
The Directors have the authority to purchase in the market up to 14.99 per cent of the Ordinary Shares in issue on 8 May
2015 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 AssetValue per Share for more than 3
months, subject to available cash not otherwise required for working capital purposes or the payment of dividends in
accordance with the Company's dividend policy. 
 
If not previously used, this authority shall expire at the conclusion of the Company's Annual General Meeting ("AGM") in
2016. The Directors intend to seek annual renewal of this buyback authority from Shareholders each year at the Company's
AGM. 
 
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.  No external remuneration consultants were appointed during the year under review. 
 
As per the Company's Articles of Association, all Directors are entitled to such remuneration as is stated in the Company's
Prospectus or as the Company may determine by ordinary resolution; to not exceed the aggregate overall limit of £200,000. 
Subject to this limit, it is the Company's policy to determine the level of Directors' fees, having regard for the level of
fees payable to non-executive Directors in the industry generally, the role that individual Directors fulfil in respect of
responsibilities related to the Board, Management Engagement Committee and Audit Committee and the time dedicated by each
Director to the Company's affairs.  Base fees are set out below. 
 
During the year, each of the Directors received an additional fee of £5,000 in respect of the additional work involved in
respect of the Placing Programme and undertook to invest the entirety of this fee to subscribe for New Ordinary Shares. 
 
 Director            (1) Revised base fee £  Base Fee Payable2015£  (2)Additional Fee Paid  2015£  Total Fee 2015 £  Base Fee 2014  £  
 Stephen Smith       47,500                  46,250                 5,000                          51,250            45,000            
 John Whittle        40,000                  37,500                 5,000                          42,500            35,000            
 Jonathan Bridel     35,000                  33,750                 5,000                          38,750            32,500            
 Aggregate Fees      122,500                 117,500                15,000                         132,500           112,500           
 Aggregate Expenses                                                                                6,341             2,783             
 Total                                                                                             138,841           115,283           
 
 
(1)                 This is the revised base fees following an increase of £2,500, effective 1 July 2015,  for Stephen
Smith, Jonathan Bridel and £5,000 for John Whittle. 
 
(2)                 £5,000 in respect of the additional work involved in respect of the Placing Programme which was
invested into 4,866 shares each 
 
As outlined in the Articles of Association, the Directors may also be paid for all reasonable travelling, accommodation and
other out-of-pocket expenses properly incurred in the attendance of Board or Committee meetings, general meetings, or
meetings with shareholders or debentures of the Company or otherwise in discharge of their duties; and all reasonable
expenses properly incurred by them seeking independent professional advice on any matter that concerns them in the
furtherance of their duties as Directors of the Company. 
 
No Director has any entitlement to pensions, paid bonuses or performance fees, has been granted share options or been
invited to participate in long-term incentive plans.  No loans have been originated by the Company for the benefit of any
Director. 
 
None of the Directors has a service contract with the Company. Each of the Directors has entered into a letter of
appointment with the Company dated 22 November 2012 subject to re-election every three years thereafter at the AGM.  Any
Director who has served on the Board for longer than nine years will be subject to annual re-election. The Directors do not
have any interests in contractual arrangements with the Company or its investments during the year under review, or
subsequently. Each appointment can be terminated in accordance with the Company's Articles and without compensation. As
outlined in the letters of appointment, each appointment can be terminated at the will of both parties with one month's
notice either by (i) written resignation; (ii) unauthorised absences from Board meetings for 12 months or more; (iii)
written request of the other Directors; or (iv) a resolution of the shareholders. 
 
Directors' and Officers' liability insurance cover is maintained by the Company but is not considered a benefit in kind nor
constitutes a part of the Directors' remuneration. The Company's Articles indemnify each Director, secretary, agent and
officer of the Company, former or present, out of assets of the Company in relation to charges, losses, liabilities,
damages and expenses incurred during the course of their duties, in so far as the law allows and provided that such
indemnity is not available in circumstances of fraud, wilful misconduct or negligence. 
 
Corporate Governance Statement 
 
As a regulated Guernsey incorporated company with a Premium Listing on the Official List and admission to trading on the
Main Market for Listed Securities of the London Stock Exchange, the Company is required to comply with the principles of
the UK Corporate Governance Code dated September 2014 ("UK Code"). 
 
As an AIC member, the Board has also considered the principles and recommendations of the AIC Code of Corporate Governance
dated February 2015 ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide").
The AIC Code addresses all the principles set out in the UK Code, as well as setting out additional principles and
recommendations on issues of specific relevance to the Company. The AIC Code was updated in February 2015 to include the
new provisions of the UK Code announced in September 2014, and has been endorsed by the Financial Reporting Council as
ensuring investment company boards fully meet their obligations to the UK Code and LR 9.8.6 of the Listing Rules. Having
adopted the AIC Code with effect from Admission (17 December 2012), the Board has therefore assessed itself, the Committees
and performance of the Directors against the parameters and principles outlined within the AIC Code on a regular basis
throughout 2015. 
 
Except as disclosed within the report, the Board is of the view that throughout the year ended 31 December 2015, the
Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code.  Key issues affecting
the Company's corporate governance responsibilities, how they are addressed by the Board and application of the AIC Code
are presented below. 
 
The Code includes provisions relating to: the role of the chief executive; executive Directors' remuneration; and the need
for an internal audit function which are not considered by the Board to be relevant to the Company, being an externally
managed investment company.   The Company has therefore not reported further in respect of these provisions. 
 
The Guernsey Financial Services Commission Finance Sector Code of Corporate Governance ("GFSC Code") came into force in
Guernsey on 1 January 2012.   The Company is deemed to satisfy the GFSC Code provided that it continues to conduct its
governance in accordance with the requirements of the UK Code. 
 
Chairman 
 
Appointed to the permanent position of Chairman of the Board on 22 November 2012, Stephen Smith is responsible for leading
the Board in all areas, including determination of strategy, organising the Board's business and ensuring the effectiveness
of the Board and individual Directors.  He also endeavours to produce an open culture of debate within the Board. 
 
Prior to the Chairman's appointment, a job specification was prepared which included an assessment of the time commitment
anticipated for the role.  Discussions were undertaken to ensure the Chairman was sufficiently aware of the time needed for
his role, and agreed to upon signature of his letter of appointment.  Other significant business commitments of the
Chairman were disclosed to the Company prior to appointment to the Board, and were publicly disclosed in the Company's
Prospectus dated 28 November 2012.  Any subsequent changes have been declared.  Certain of these commitments, and their
subsequent changes, can be identified in his biography. 
 
The effectiveness and independence of the Chairman is evaluated on an annual basis as part of the Board's performance
evaluation; the Audit Committee Chairman is tasked with collating feedback and discussing with the Chairman on behalf of
the rest of the Board. 
 
As per the Company's Articles, all Directors, including the Chairman, must disclose any interest in a transaction that the
Board and Committees will approve.  To ensure all Board decisions are independent, the said conflicted Director is not
entitled to vote in respect of any arrangement connected to the interested party. 
 
Board 
 
Independence and Disclosure 
 
The Board and Chairman confirm that they were selected prior to the Company's launch and were able to assume all
responsibilities at an early stage, independent of the Investment Manager and Investment Adviser.  The Board is composed
entirely of non-executive Directors, who meet as required without the presence of the Investment Manager or service
providers to scrutinise the achievement of agreed goals and objectives, and monitor performance.  Through the Audit
Committee and the Management Engagement Committee they are able to ascertain the integrity of financial information and
confirm that all financial controls and risk management systems are robust, and analyse the performance of the Investment
Manager and other service providers on a regular basis. 
 
Following the annual performance evaluation, it was deemed that the Directors had been proven to challenge the Investment
Manager throughout the year under review, as minuted and recorded, therefore for the purposes of assessing compliance with
the AIC Code, the Board as a whole considers that each Director is independent of the Investment Manager and free from any
business or other relationship that could materially interfere with the exercise of his independent judgment.  If required,
the Board is able to access independent professional advice.  The Investment Manager is also requested to declare any
potential conflicts surrounding votes, share dealing and soft commissions on an annual basis to the Board to help with the
assessment of investments. 
 
Open communication between the Investment Manager and the Board is facilitated by regular Board meetings, to which the
Investment Manager is invited to attend and update the Board on the current status of the Company's investments, along with
ad hoc meetings as required. 
 
Coming to mutual agreement on all decisions, it was agreed the Board had acted in the best interests of the Company to the
extent that, if deemed appropriate, a Director would abstain or have his objection noted, which would be reflected within
the minutes. 
 
Similar to the process outlined above for the appointment of the Chairman, a job specification was prepared for each
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 appointment to the Board, and were publicly disclosed in the Company's Prospectus dated 28 November 2012. 
Any subsequent changes have been declared.  Certain of these commitments can be identified in each Director's biography. 
Details of the skills and experience provided by each Director can also be found in their biographies, alongside
identification of the role each Director currently holds in the Company. 
 
The terms and conditions of appointment for non-executive Directors are outlined in their letters of appointment, and are
available for inspection by any person at the Company's registered office during normal business hours and at the AGM for
fifteen minutes prior to and during the meeting. 
 
There is no executive Director function in the Company; all day-to-day functions are outsourced to external service
providers. 
 
Development 
 
The Board believes that the Company's Directors should develop their skills and knowledge through participation at relevant
courses.  The Chairman is responsible for reviewing and discussing the training and development of each Director according
to identified needs.  Upon appointment, all Directors participate in discussions with the Chairman and other Directors to
understand the responsibilities of the Directors, in addition to the Company's business and procedures.  The Company also
provides regular opportunities for the Directors to obtain a thorough understanding of the Company's business by regularly
meeting members of the senior management team from the Investment Manager, Investment Adviser and other service providers,
both in person and by phone. 
 
Balance of the Board and Diversity Policy 
 
It is perceived that the Board is well-balanced, with a wide array of skills, experience and knowledge that ensures it
functions correctly and that no single Director may dominate the Board's decisions.  Having three Directors appointed
ensures that during any transition period, there are at least two Directors to provide stability. 
 
The Board's position on diversity can be seen in the Strategic Report. All Directors currently sit on all the Committees;
each Director also fills one chairmanship post only. 
 
Annual Performance Evaluation 
 
The Board's balance is reviewed on a regular basis as part of a performance evaluation review.  Using a pre-determined
template based on the AIC Code's provisions as a basis for review, the Board undertook an evaluation of its performance, in
addition, an evaluation focusing on individual commitment, performance and contribution of each Director was conducted. 
The Chairman then met with each Director to fully understand their views of the Company's strengths and to identify
potential weaknesses.  If appropriate, new members are proposed to resolve the perceived issues, or a resignation is
sought.  Following discussions and review of the Chairman's evaluation by the other Directors, the Audit Committee Chairman
reviewed the Chairman's performance. Training and development needs are identified as part of this process, thereby
ensuring that all Directors are able to discharge their duties effectively. 
 
Given the Company's size and the structure of the Board, no external facilitator or independent third party was used in the
performance evaluation. 
 
Re-election and Board Tenure 
 
There is currently no Nominations Committee for the Company as it is deemed that the size, composition and structure of the
Company would mean the process would be inefficient and counter-productive.  The Board therefore undertakes a thorough
process of reviewing the skill set of the individual Directors, and proposes new, or renewal of current, appointments to
the Board. 
 
Each Director is required to be elected by shareholders at the AGM following his appointment by the Board, and to be
re-elected once every three years thereafter.  Jonathan Bridel is therefore submitting himself for re-election at the AGM
on 6 May 2016.  Any Director who has served on the Board for more than nine years is required to submit himself for
re-election annually. 
 
The Audit Committee Members and Chairman of the Board confirm that Jonathan Bridel has proven his ability to fulfil all
legal responsibilities and to provide effective independent judgment on issues of strategy, performance, resources and
conduct. The Board therefore has no hesitation in recommending to Shareholders that Jonathan Bridel be re-elected. 
 
Appointment Process 
 
As no new Director has been appointed since the Company's launch and the Board believes there is no gap that currently
needs to be filled, no appointment process has been formalised.  It is anticipated, however, that the process will involve
identifying gaps and needs in the Board's composition, then reviewing the skill set of potential candidates.  For renewal
of current appointments, all Directors except the individual in question are entitled to vote at the meeting.  Similarly,
no new nominations have been made for the role of Chairman of the Board since prior to launch. 
 
Board and Committees 
 
Board 
 
Matters reserved for the Board include review of the Company's overall strategy and business plans; approval of the
Company's half-yearly and annual report; review and approval of any alteration to the Group's accounting policies or
practices and valuation of investments; approval of any alteration to the Company's capital structure; approval of dividend
policy; appointments to the Board and constitution of Board Committees; observation of relevant legislation and regulatory
requirements; and performance review of key service providers.  The Board also retains ultimate responsibility for
Committee decisions; every Committee is required to refer to the Board, who will make the final decision. 
 
Terms of reference that contain a formal schedule of matters reserved for the Board of Directors and its duly authorised
Committee for decision has been approved and can be reviewed at the Company's registered office. 
 
The meeting attendance record is displayed within the Corporate Governance statement.  The Company Secretary acts as the
secretary to the Board. 
 
Audit Committee 
 
The Board has established an Audit Committee composed of all the independent members of the Board.  The Chairman of the
Board is included as a Committee member to enable a full understanding of the issues facing the Company, but cannot be
Audit Committee Chairman.  The Audit Committee, its membership and its terms of reference are kept under regular review by
the Board, and it is perceived all members have sufficient financial skills and experience.  John Whittle is Audit
Committee Chairman. 
 
The Audit Committee met three times during 2015 (2014: three times); the meeting attendance record is displayed within the
Corporate Governance statement.  The Company Secretary acts as the secretary to the Audit Committee. 
 
Owing to the size and structure of the Company, there is no internal audit function.  The Audit Committee has reviewed the
need for an internal audit function, and perceived that the internal financial and operating control systems in place
within the Company and its service providers, as evidenced by the internal control reports provided by the Administrator,
give sufficient assurance that a sound system of internal control is maintained that safeguards shareholders' investment
and Company assets. 
 
The Audit Committee is intended to assist the Board in discharging its responsibilities for the integrity of the Company's
consolidated financial statements, as well as aiding the assessment of the Company's internal control effectiveness and
objectivity of the external Auditors.  Further information on the Audit Committee's responsibilities is given in the Report
of the Audit Committee. 
 
Formal terms of reference for the Audit Committee are available at the registered office and on the Company's website, and
are reviewed on a regular basis. 
 
Management Engagement Committee 
 
The Company has established a Management Engagement Committee which comprises all the Directors, with Jonathan Bridel as
the Chairman of the Committee. The Management Engagement Committee's main function is to review and make recommendations on
any proposed amendment to the Investment Management Agreement and keep under review the performance of the Investment
Manager; and undertake an assessment of the Investment Manager's scope and responsibilities as outlined in the service
agreement and prospectus on a formal basis every year.  Discussions on the Investment Manager's performance are also
conducted regularly throughout the year by the Board.  Reviews of engagements with other service providers, such as the
Administrator, to ensure all parties are operating satisfactorily are also undertaken by the Management Engagement
Committee so as to ensure the safe and accurate management and administration of the Company's affairs and business and
that they are competitive and reasonable for shareholders. 
 
The Management Engagement Committee met once during 2015 (2014: once) and undertook a review of the key service providers
to the Group and the Company, utilising a service provider questionnaire.   No material weaknesses were identified and the
recommendation to the Board was that the current arrangements were appropriate and provided good quality services and
advice to the Company and the Group. 
 
During November 2015, the Management Engagement Committee, together with members of the Investment Manager, visited the
offices of the Investment Adviser to receive an overview of its policies and processes and were satisfied with the policies
and processes in place. 
 
Formal terms of reference for the Management Engagement Committee are available at the registered office and the Company's
website, and are reviewed on a regular basis. 
 
The Company Secretary acts as the secretary to the Management Engagement Committee. 
 
Board and Committee Meeting Attendance 
 
Individual attendance at Board and Committee meetings is set out below: 
 
                          Scheduled Board  Ad hoc Board1  Audit Committee  Management EngagementCommittee  
 Stephen Smith1           4                4              3                1                               
 John Whittle             4                12             3                1                               
 Jonathan Bridel          4                11             3                1                               
 Total Meetings for year  4                13             3                1                               
 
 
  
 
1The ad hoc Board meetings are convened at short notice to deal with administrative matters.  It is not therefore always
logistically feasible, or a necessity, for the Chairman of the Board to attend such meetings. 
 
In addition to the scheduled quarterly and additional offshore ad hoc meetings, the Directors and the Investment Manager
have been provided with a number of telephone and face to face investment briefings by the Investment Adviser in order to
keep the Directors and the Investment Manager fully apprised and up to date with the current investment status and
progress. 
 
Board Remuneration 
 
As outlined in the Prospectus, Directors are paid in accordance with agreed principles aimed at focusing on long-term
performance of the Company.  Further information can be found in the Directors' Remuneration Report. 
 
Company Secretary 
 
Reports and papers, containing relevant, concise and clear information, are provided to the Board and Committees in a
timely manner to enable review and consideration prior to both scheduled and ad-hoc specific meetings.  This ensures that
Directors are capable of contributing to, and validating, the development of Company strategy and management.  The regular
reports also provide information that enables scrutiny of the Company's Investment Manager and other service providers'
performance.  When required, the Board has sought further clarification of matters with the Investment Manager and other
service providers, both by means of further reports and in-depth discussions, in order to make more informed decisions for
the Company. 
 
Under the direction of the Chairman, the Company Secretary facilitates the flow of information between the Board,
Committees, Investment Manager and other service providers through the development of comprehensive, detailed meeting
packs, agendas and other media. These are circulated to the Board and other attendees in sufficient time to review the
data. 
 
Full access to the advice and services of the Company Secretary is available to the Board; in turn, the Company Secretary
is responsible for advising on all governance matters through the Chairman.  The Articles and schedule of matters reserved
for the Board indicate the appointment and resignation of the Company Secretary is an item reserved for the full Board.  A
review of the performance of the Company Secretary is undertaken by the Board on a regular basis. 
 
Financial and Business Information 
 
An explanation of the Directors' roles and responsibilities in preparing the Annual Report and Audited Consolidated
Financial Statements for the year ended 31 December 2015 is provided in the Statement of Directors' Responsibilities. 
 
For the purposes solely of the audit of the consolidated financial statements, the Auditors have reviewed the Company's
compliance with certain of the AIC Code's provisions, the UK Listing Authority's Listing Rules and other applicable rules
of the Financial Conduct Authority as reported within the Independent Auditors' Report to the Members of Starwood European
Real Estate Finance Limited. 
 
Further information enabling shareholders to assess the Company's performance, business model and strategy can be sourced
in the Chairman's Statement, the Strategic Report and the Report of the Directors. 
 
Assessment of prospects 
 
The Group's strategy is central to an understanding of its prospects, and details can be found in the Strategic Report. 
 
The Group's focus is particularly on managing expected repayments in order to minimise any potential for cash drag and
continuing to grow the Group by sourcing investments with good risk adjusted returns. The Group does not assume in its
planning that the revolving credit facility remains available to it beyond the current term and assumes that the
realisation vote in 2018 will not result in a significant requirement to realise assets. 
 
The Group's prospects are assessed primarily through its strategic review process which the Board participates fully in. 
The Directors' have assessed the prospect of the Group over a period of three years which has been selected because the
strategic review covers a three-year period and this is also the approximate average remaining loan term. 
 
The Group updates its plan and financial forecasts on a monthly basis and detailed financial forecasts are maintained and
reviewed by the Board regularly. 
 
Assessment of Viability 
 
Although the strategic plan reflects the Directors' best estimate of the future prospects of the business, they have also
tested the potential impact on the Group of a number of scenarios over and above those included in the plan, by quantifying
their financial impact.  These scenarios are based on aspects of the following principal risks, as described below: 
 
·      Market deterioration risk; and 
 
·      Risk of default under the revolving credit facility. 
 
These scenarios represent 'severe but plausible' circumstances that the Group could experience.  The scenarios tested
included: 
 
·      A very high level of loan default meaning that the Group stopped receiving interest on a substantial part of the
portfolio; and 
 
·      An analysis of the robustness of the covenants under the revolving credit facility to withstand default of the
underlying investments. 
 
The results of this stress testing showed that the Group would be able to withstand a very high level of underlying loan
default or impairment resulting from either of the risks identified over the period of the financial forecasts. 
 
Viability Statement 
 
Based on their assessment of prospects and viability above, and subject to passing the continuation vote, the Directors
confirm they have a reasonable expectation that the Group will continue in operation and meet its liabilities as they fall
due over the three-year period ending 31 December 2018. 
 
In connection with the viability statement the Board confirm that they have carried out a robust assessment of the
principal risks facing the company, including those which would threaten its business model, future performance, solvency
or liquidity for the year ended 31 December 2015. 
 
Going Concern 
 
The Directors also considered it appropriate to prepare the financial statements on the going concern basis, as explained
in the Basis of preparation paragraph in Note 2 to the financial statements. 
 
Risk Control 
 
In addition to the earlier assessment of principal risks and uncertainties contained within the Strategic Report, the Board
is required annually to review the effectiveness of the Group's key internal controls such as financial, operational and
compliance controls and risk management. The controls are designed to ensure that the risk of failure to achieve business
objectives is minimised, and are intended to provide reasonable assurance against material misstatement or loss.  This is
not absolute assurance that all risks are eliminated. 
 
Through regular meetings of the Audit Committee, the Board seeks to maintain full and effective control over all strategic,
financial, regulatory and operational issues. The Board maintains an organisational and committee structure with clearly
defined lines of responsibility and delegation of authorities. 
 
Risk Management 
 
As part of the compilation of the risk register for the Company, appropriate consideration has been given to the relevant
control processes and that risk is considered, assessed and managed as an integral part of the business.  The Company's
system of internal control includes inter alia the overall control exercise, procedures for the identification and
evaluation of business risk, the control procedures themselves and the review of these internal controls by the Audit
Committee on behalf of the Board. Each of these elements that make up the Company's system of internal financial and
operating control is explained in further detail as below. 
 
(i) Control Environment 
 
The Company is ultimately dependent upon the quality and integrity of the staff and management of the Investment Manager,
the Investment Adviser and its Fund Administration & Company Secretarial service provider. In each case, qualified and able
individuals have been selected at all levels. The staff of both the Investment Manager and Administrator are aware of the
internal controls relevant to their activities and are also collectively accountable for the operation of those controls.
Appropriate segregation and delegation of duties is in place. 
 
The Audit Committee undertakes a review of the Company's internal financial and operating controls on a regular basis. The
Auditors of the Company, consider internal controls relevant to the Company's preparation and fair presentation of the
consolidated financial statements in order to design their audit procedures, but not for the purpose of expressing an audit
opinion on the effectiveness of the Company's internal controls. 
 
In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a
part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Ipes Group, and
this is subject to review by the Audit Committee and the Board. 
 
(ii) Identification and Evaluation of Business Risks 
 
Another key business risk is the performance of the Company's investments.  This is managed by the Investment Manager,
which undertakes regular analysis and reporting of business risks in relation to the loan portfolio, and then proposes
appropriate courses of action to the Board for their review. 
 
(iii) Key Procedures 
 
In addition to the above, the Audit Committee's key procedures include a comprehensive system for reporting financial
results to the Board regularly, as well as quarterly impairment reviews of loans (including reports on the underlying
investment performance). 
 
Although no system of internal control can provide absolute assurance against material misstatement or loss, the Company's
system is designed to assist the Directors in obtaining reasonable assurance that problems are identified on a timely basis
and dealt with appropriately. The Company, given its size, does not have an internal audit function.  It is the view of the
Board that the controls in relation to the Company's operating, accounting, compliance and IT risks performed robustly
throughout the year. In addition, all have been in full compliance with the Company's policies and external regulations,
including: 
 
·      Investment policy, as outlined in the IPO documentation, and subsequently amended by EGM's held on 2 May 2014 and 9
March 2015; 
 
·      Personal Account Dealing, as outlined in the Model Code; 
 
·      Whistleblowing Policy; 
 
·      Anti-Bribery Policy; 
 
·      Applicable Financial Conduct Authority Regulations; 
 
·      Listing Rules, and Disclosure 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 2015. 
 
In summary, the Board considers that the Company's existing internal financial and operating controls, coupled with the
analysis of risks inherent in the business models of the Company and its subsidiaries, continue to provide appropriate
tools for the Company to monitor, evaluate and mitigate its risks. 
 
Alternative Investment Fund Management Directive ("AIFMD") 
 
The AIFMD, which was implemented across the EU on 22 July 2013 with the transition period ending 22 July 2014, aims to
harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and imposes obligations on managers who manage
or distribute Alternative Investment Funds ("AIFs") in the EU or who market shares in such funds to EU investors. 
 
After seeking professional regulatory and legal advice, the Company was established in Guernsey such that, upon
implementation of AIFMD it would be a Non-EU AIF, with Starwood European Finance Partners Limited appointed to act as the
Non-EU AIFM. No changes of significance are envisaged in the management arrangements for the Company as a result of AIFMD. 
 
In accordance with AIFMD disclosure obligations, note 6 provides a summary of realised gains and losses. 
 
The Investment Manager does not receive an additional fee, to that stated in note 23, as a result of acting as the AIFM.  
The Board of the Investment Manager received an aggregate fee of £33,750 for the year ended 31 December 2015. 
 
The marketing of shares in AIFs that are established outside the EU (such as the Company) to investors in an EU member
state is prohibited unless certain conditions are met. Certain of these conditions are outside the Company's control as
they are dependent on the regulators of the relevant third country (in this case Guernsey) and the relevant EU member state
entering into regulatory co-operation agreements with one another. 
 
The AIFM has given written notification to the United Kingdom Financial Conduct Authority ("FCA"), pursuant to Regulation
59 of the Alternative Investment Fund Managers Regulations 2013 (SI 1773/2013) (the "AIFM Regulations") of its intention to
market the shares to investors in the United Kingdom in accordance with the AIFM Regulations and the rules and guidance of
the FCA. 
 
The AIFM has given written notification to the Netherlands Authority for the Financial Markets ("AFM") pursuant to Article
1:13b section 1 and 2 of the Act on the Financial Supervision (Wet op het financieel toezicht) (the "AFS") of its intention
to market the shares to investors in the Netherlands in accordance with the AFS, any rules and regulations promulgated
pursuant thereto and the rules and guidance of the AFM. 
 
On 12 February 2016, the AIFM obtained a marketing licence in Sweden in accordance with Chapter 5, Section 10 of the
Swedish Alternative Investment Fund Managers Act (Sw. lag (2013:561) om förvaltare av alternativa investeringsfonder). This
enables shares in the Company to be marketed to professional investors in Sweden. 
 
Currently, the National Private Placement Regime ("NPPR") provides a mechanism to market Non-EU AIFs that are not allowed
to be marketed under the AIFMD domestic marketing regimes. The Board is utilising NPPR in order to market the Company,
specifically in the UK, Sweden and the Netherlands.   The Board works with the Company's advisers to ensure the necessary
conditions are met, and all required notices and disclosures are made under NPPR.  Eligible AIFMs will be able to continue
to use NPPR until at least 22 July 2018, and at present NPPR remains the sole regime available to market in the EEA.   A
non-EEA marketing passport may be introduced, but this depends on a number of conditions being satisfied (as set out in the
AIFMD and its Regulations). 
 
Any regulatory changes arising from implementation of the AIFMD (or otherwise) that limit the Company's ability to market
future issues of its shares may materially adversely affect the Company's ability to carry out its investment policy
successfully and to achieve its investment objective, which in turn may adversely affect the Company's business, financial
condition, results of operations, NAV and/or the market price of the Ordinary Shares. 
 
The Board, in conjunction with the Company's advisers, will continue to monitor the development of the AIFMD and its impact
on the Company.  The Company will continue to use NPPR pending further consultation from the European Securities and
Marketing Authority ("ESMA"). 
 
The Board has considered the disclosure obligations under Articles 22 and 23 and can confirm that the Company complies with
the various organisational, operational and transparency obligations. 
 
Foreign Account Tax Compliance Act ("FATCA") and The OECD Common Reporting Standards ("CRS") 
 
FATCA became effective on 1 January 2013 and is being gradually implemented internationally. The legislation is aimed at
determining the ownership of US assets in foreign accounts and improving US Tax compliance with respect to those assets. 
 
More than 90 jurisdictions, including all 34 member countries of the Organisation for Economic Co-operation and Development
("OECD") and the G20 members, have committed to implement the Common Reporting Standard for automatic exchange of tax
information ("CRS"). Building on the model created by FATCA, the CRS creates a global standard for the annual automatic
exchange of financial account information between the relevant tax authorities. 
 
The Board in conjunction with the Company's service providers and advisers have ensured that the Company will comply with
FATCA and CRS's requirements to the extent relevant to the Company. 
 
Dialogue with Shareholders 
 
The Directors place a great deal of importance on communication with shareholders.  The Company's Chairman, Investment
Manager and the Brokers, aim to meet with large shareholders at least annually, together with the Investment Adviser, and
calls are undertaken on a regular basis with shareholders.  The Board also receives regular reports from the Brokers on
shareholder issues.  Publications such as the Annual Report and Consolidated Financial Statements and quarterly factsheets
are reviewed and approved by the Board prior to circulation, and are widely distributed to other parties who have an
interest in the Company's performance, and are available on the Company's website. 
 
All Directors are available for discussions with the shareholders, in particular the Chairman and the Audit Committee
Chairman, as and when required. 
 
Constructive use of AGM 
 
The Notice of AGM is sent out at least 20 working days in advance of the meeting.  All shareholders have the opportunity to
put questions to the Board or Investment Manager, either formally at the Company's AGM, informally following the meeting,
or in writing at any time during the year via the Company Secretary.  The Company Secretary is also available to answer
general shareholder queries at any time throughout the year. 
 
Report of the Audit Committee 
 
The Board is supported by the Audit Committee, which comprised all the Directors during the year under review (including
the Chairman of the Board, to enable his greater understanding of the issues facing the Group).  The Board has considered
the composition of the Audit Committee and is satisfied it has sufficient recent and relevant skills and experience, in
particular, one member having a background as a chartered accountant. 
 
Role and Responsibilities 
 
The primary role and responsibilities of the Audit Committee are outlined in the Audit Committee's terms of reference,
available at the registered office, including: 
 
·      Monitoring the integrity of the consolidated financial statements of the Group and any formal announcements relating
to the Group's financial performance, and reviewing significant financial reporting judgements contained within said
statements and announcements; 
 
·      Reviewing the Group's internal financial controls, and the Group's internal control and risk management systems; 
 
·      Monitoring the need for an internal audit function annually; 
 
·      Monitoring and reviewing the scope, independence, objectivity and effectiveness of the external Auditors, taking
into consideration relevant regulatory and professional requirements; 
 
·      Making recommendations to the Board in relation to the appointment, re-appointment and removal of the external
Auditors and approving their remuneration and terms of engagement, which in turn can be placed before the shareholders for
their approval at the AGM; 
 
·      Development and implementation of the Group's policy on the provision of non-audit services by the external
Auditors, as appropriate; 
 
·      Reviewing the arrangements in place to enable Directors and staff of service providers to, in confidence, raise
concerns about possible improprieties in matters of financial reporting or other matters insofar as they may affect the
Group; 
 
·      Providing advice to the Board on whether the consolidated financial statements, taken as a whole, are fair, balanced
and understandable and provide the information necessary for shareholders to assess the Group's performance, business model
and strategy; and 
 
·      Reporting to the Board on how the Committee discharged all relevant responsibilities at each Board meeting. 
 
Financial Reporting 
 
The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator,
Investment Manager and the Auditors the appropriateness of the Annual Report and Audited Consolidated Financial Statements
and Interim Condensed Consolidated Financial Statements, concentrating on, amongst other matters: 
 
·      The quality and acceptability of accounting policies and practices; 
 
·      The clarity of the disclosures and compliance with financial reporting standards and relevant financial and
governance reporting requirements; 
 
·      Material areas in which significant judgements have been applied or there has been discussion with the Auditors; 
 
·      Whether the Annual Report and Audited Consolidated 

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