Starwood Euro Real - Annual Financial Report year ended 31 Dec 2015 - Part 3
18/03/2016 15:25
- Part 3: For the preceding part double click ID:nRSR6304Sb
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 Auditors on the outcomes of their half-year review and annual audit. The Audit Committee supports
PricewaterhouseCoopers CI LLP in displaying the necessary professional scepticism their role requires.
The Audit Committee met three times during the year under review; individual attendance of Directors is outlined within the
Corporate Governance statement. The main matters discussed at those meetings were:
· Review and approval of the annual audit plan of the external Auditors;
· Discussion and approval of the fee for the external audit;
· Approval of the Annual Report and Audited Consolidated Financial Statements Accounts and discussion of final audit
findings document;
· Review and approval of the interim review plan of the external Auditors;
· Detailed review of the Interim Condensed Consolidated Financial Statements and recommendation for approval by the
Board;
· Discussion of reports from the external Auditors following their interim review and annual audit;
· Assessment of the effectiveness of the Auditors as described below;
· Assessment of the independence of the external Auditors;
· Review of the Group's key risks and internal controls; and
· Consideration of the 2014 UK Corporate Governance Code, Guidance on Audit Committees and other regulatory
guidelines, and the subsequent impact upon the Company.
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. This is evidenced by the internal control reports provided by the providers, which give sufficient
assurance that a sound system of internal control is maintained.
Significant Issues in Relation to the Consolidated Financial Statements
During the year, the Audit Committee considered a number of significant issues 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
Recoverability and impairment to the carrying values of loan investments. 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 and the role of the Investment Adviser's investment committee and
the Investment Manager's Board. The Audit Committee also reviews the controls in place around the effective interest loan models and is notified regularly by the Investment Manager of any changes to underlying assumptions made in the loan models. The
Audit Committee receives regular updates on the performance of each loan and discusses whether there are any indicators of impairment with the Investment Manager and Investment Adviser. Formal, detailed impairment reviews 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 of impairment.
Risk of fraud or error in revenue recognition 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.
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 efficiency of the audit process. Similarly, feedback in relation to the efficacy 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 semi-annual and annual consolidated financial statements are considered, also enabling the
Auditors 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 Auditors' performance, considering a wide variety of factors
including:
· The quality of service, the Auditors' 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 Auditors, and when tabled, the final audit findings report;
· Meeting with the Auditors 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 Auditors' performance.
· The Audit Committee is satisfied with the Auditors' effectiveness, and therefore does not consider it necessary to
require the Auditors to tender for the audit work.
Auditors' Tenure and Objectivity
The Group has developed an audit tender policy which the Board will re-consider after five years from the appointment date
of the current Auditor. A review of policy will therefore occur in the second half of 2017, subject to regular reviews by
the Board and shareholder approval.
The Group's current Auditors, PricewaterhouseCoopers CI LLP, have acted in this capacity since the Company's inaugural
meeting on 22 November 2012. The Committee reviews the Auditors' performance on a regular basis to ensure the Group
receives an optimal service. 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. The Auditors are required to rotate the audit
partner every five years, and the current partner has been in place since the Company's launch.
PricewaterhouseCoopers CI LLP regularly updates the Audit Committee on the rotation of audit partners, staff, level of
fees, details of any relationships between the Auditors, the Group and its loan portfolio, and also provides overall
confirmation of its independence and objectivity. There are no contractual obligations that restrict the Group's choice of
Auditors.
During the year under review, the Auditors provided the Group with non-audit services in respect reporting accountant work
for the Placing Programme. A fee of £40,000 was approved for payment. Any non-audit work would be reviewed by the Audit
Committee and approved by the Audit Committee Chairman prior to the Auditors undertaking any work, if the fees are over
£12,500. This threshold is reviewed periodically to ensure it is set at an appropriate value.
As a result of its review, the Audit Committee is satisfied that PricewaterhouseCoopers CI LLP is independent of the Group,
the Investment Manager and other service providers and recommends the continuing appointment of the Auditors 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 UK Code and 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, Auditors 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 satisfactory control report produced by the Ipes Group that has been reviewed and
reported upon by the Administrator's external Auditors to verify the effectiveness of the internal controls of the
Administrator, such as the Audit and Assurance Faculty (AAF) 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 Auditors. It has reported to the Board that
the Annual Report for the year ended 31 December 2015, 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 is re-appointed.
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 and
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
Auditors does not involve consideration of the maintenance and integrity of the website and, accordingly, the Auditors
accept 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. 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 Auditors are 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 Auditors are 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
· The Chairman's Statement, Strategic Report, Investment Manager's Report, Report of the Directors and Corporate
Governance Statement 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.
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 fulfill 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 within 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 2015, as outlined in the 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 2015, 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.
Independent Auditors' Report to the Members of Starwood European Real Estate Finance Limited
Report on the Financial Statements
We have audited the accompanying consolidated financial statements (the "financial statements") of Starwood European Real
Estate Finance Limited which comprise the Consolidated Statement of Financial Position as of 31 December 2015 and the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Consolidated
Statement of Cash Flows for the year then ended and a summary of significant accounting policies and other explanatory
information.
Directors' Responsibility for the Financial Statements
The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with
International Financial Reporting Standards as adopted by the European Union and with the requirements of Guernsey law.
The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the financial statements
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 entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Group as of 31 December
2015, and of the financial performance and cash flows of the Group 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.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the financial statements. The other information
comprises the other items listed in the Index to the Annual Report.
In our opinion:
· the information given in the Report of the Directors is consistent with the financial statements.
· the information given in the Corporate Governance Statement with respect to internal control and risk management
systems is consistent with the financial statements.
This report, including the opinion, has been prepared for and only for the Company's 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 this 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.
Matters on which we are required to Report by Exception
We have nothing to report in respect of the following matters which we are required to review under the Listing Rules:
· the Directors' statement in relation to going concern. As noted in the Directors' statement, the Directors have
concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern
basis presumes that the Company has adequate resources to remain in operation, and that the Directors intend it to do so,
for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the
Directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the Company's ability to continue as a going concern;
· the Directors' statement that they have carried out a robust assessment of the principal risks facing the Company
and the Directors' statement in relation to the longer-term viability of the Company. Our review 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 UK Corporate Governance Code;
and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our
audit;
· the part of the Corporate Governance Statement relating to the Company's compliance with the ten further provisions
of the UK Corporate Governance Code specified for our review; and
· certain elements of the report to shareholders by the Board on Directors' remuneration.
Other Matter
As explained in note 22 to the financial statements, in addition to our responsibility to audit and express an opinion on
the financial statements in accordance with International Standards on Auditing and Guernsey law, we have been requested by
the Directors to express an opinion on the financial statements in accordance with auditing standards generally accepted in
the United States of America as issued by the AICPA, in order to meet the requirements of Rule 206(4)-2 under the
Investment Advisors Act (the "Custody Rule"). We have reported separately in this respect.
Independent Auditors' Report to the Members of Starwood European Real Estate Finance Limited
We have audited the accompanying consolidated financial statements of Starwood European Real Estate Finance Limited and its
subsidiaries (the "Group"), which comprise the Consolidated Statement of Financial Position as of 31 December 2015 and the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Consolidated
Statement of Cash Flows for the year then ended.
Management's Responsibility for the Consolidated Financial Statements
Management is 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; this includes 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.
Auditors' Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial
statements 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 Company's internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Starwood European Real Estate Finance Limited and its subsidiaries at 31 December 2015, and the
results of their operations, changes in their net assets, and their cash flows for the year then ended, in accordance with
International Financial Reporting Standards as adopted by the European Union.
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole.
The other items listed in the Index to the Annual Report are presented for purposes of additional analysis and are not a
required part of the consolidated financial statements. The information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records used to prepare the financial statements.
The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying accounting and other
records used to prepare the financial statements or to the financial statements themselves and other additional procedures,
in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information
is fairly stated, in all material respects, in relation to the consolidated financial statements taken as a whole.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
1 January 2015 to 1 January 2014 to
31 December 2015 31 December 2014
Notes £ £
Income
Income from loans advanced 11 22,716,523 16,050,220
Income from cash and cash equivalents 34,262 130,311
Other income 9,307 -
Total income 22,760,092 16,180,531
Expenses
Investment management fees 23 1,976,640 1,528,333
Directors' fees and travel expenses 4, 23 138,841 115,283
Administration fees 3(c) 249,599 220,999
Auditors' fees 5 135,882 157,619
Broker's fees 3(e) 47,802 97,736
Legal and professional fees 151,158 112,691
Net foreign exchange losses / (gains) 6 443,435 (881,125)
Revolving credit facility commitment fees 275,741 25,278
Revolving credit facility expenses amortisation 230,662 16,990
Revolving credit facility interest 226,964 -
Other expenses 125,844 140,908
Total operating expenses 4,002,568 1,534,712
Operating profit for the year before tax 18,757,524 14,645,819
Taxation 21 2,439 2,662
Operating profit for the year and total comprehensive income 18,755,085 14,643,157
Weighted average number of shares in issue 7 259,548,110 238,100,000
Basic and diluted earnings per Ordinary Share (pence) 7 7.23 6.15
Consolidated Statement of Financial Position
as at 31 December 2015
As at As at
31 December 2015 31 December 2014
Notes £ £
Assets
Cash and cash equivalents 8 520,558 13,172,978
Other receivables and prepayments 9 95,684 31,962
Revolving credit facility capitalised costs 10 212,348 443,010
Loans advanced 11 307,694,827 220,954,400
Financial assets at fair value through profit or loss 12 5,918,115 5,023,584
Total assets 314,441,532 239,625,934
Liabilities
Revolving credit facility 13 8,162,405 -
Trade and other payables 14 806,083 1,341,518
Total liabilities 8,968,488 1,341,518
Net assets 305,473,044 238,284,416
Capital and reserves
Share capital 300,397,205 233,843,162
Retained earnings 5,075,839 4,441,254
Total equity 305,473,044 238,284,416
Number of Ordinary Shares in issue 304,180,000 238,100,000
Net asset value per Ordinary Share (pence) 100.43 100.08
These consolidated financial statements were approved and authorised for issue by the Board of Directors on 17 March 2016
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
Year ended 31 December 2015 Share capital Retained earnings Total Equity
£ £ £
Balance at 1 January 2015 233,843,162 4,441,254 238,284,416
Issue of share capital 67,971,650 - 67,971,650
Cost of issues (1,417,607) - (1,417,607)
Dividends paid - (18,120,500) (18,120,500)
Operating profit and total comprehensive income - 18,755,085 18,755,085
Balance at 31 December 2015 300,397,205 5,075,839 305,473,044
Year ended 31 December 2014 Share capital Retained earnings Total Equity
£ £ £
Balance at 1 January 2014 233,843,162 2,179,297 236,022,459
Dividends paid - (12,381,200) (12,381,200)
Operating profit and total comprehensive income - 14,643,157 14,643,157
-
Balance at 31 December 2014 233,843,162 4,441,254 238,284,416
Consolidated Statement of Cash Flows
for the year ended 31 December 2015
1 January 2015 to 1 January 2014 to
31 December 2015 31 December 2014
£ £
Operating activities:
Operating profit for the year and total comprehensive income 18,755,085 14,643,157
Adjustments
Net interest income (22,716,523) (16,050,220)
Interest income on cash and cash equivalents (34,262) (130,311)
(Increase) / decrease in prepayments and receivables (63,722) 246,776
Increase in trade and other payables 28,869 197,394
Net gain on financial instruments held at fair value through profit or loss (894,531) (4,936,404)
Net foreign exchange losses 3,239,456 3,689,527
Revolving credit facility interest 226,964 -
Revolving credit facility expenses amortisation 230,662 16,990
Revolving credit facility commitment fees 275,741 -
Other non-cash items - (205,237)
(952,261) (2,528,328)
Loans advanced 1 (145,454,076) (115,070,574)
Loans repaid 63,499,033 49,981,644
Origination fees paid (1,372,444) (646,574)
Origination expenses paid (97,194) (5,454)
Interest, commitment and exit fee income from loans advanced 16,022,619 14,468,574
Syndication expenses paid (133,200) (180,690)
Net cash outflow from operating activities (68,487,523) (53,981,402)
Cash flows from investing activities
Interest income from cash and cash equivalents 34,262 139,043
Net cash inflow from investing activities 34,262 139,043
Cash flows from financing activities
Net share issue proceeds received 2 66,554,043 -
Revolving credit facility expenses paid - (315,064)
Revolving credit facility utilised 8,155,816 -
Revolving credit facility interest paid (220,375) -
Revolving credit facility commitment fees (280,470) -
Dividends paid (18,120,500) (12,381,200)
Net cash inflow from financing activities 56,088,514 (12,696,264)
Net decrease in cash and cash equivalents (12,364,747) (66,538,623)
Cash and cash equivalents at the start of the year 13,172,978 79,706,084
Net foreign exchange (loss) / gain on cash and cash equivalents (287,673) 5,517
Cash and cash equivalents at the end of the year 520,558 13,172,978
1 Net of arrangement fees of £1,479,139 (2014: £2,184,680) withheld.
2 Net of share issue costs of £1,057,802 (2014: £nil) withheld.
Notes to the Consolidated Financial Statements
for the year ended 31 December 2015
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
GFSC as an authorised closed-ended investment company. 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.
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 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. A further £9.9
million of net proceeds was raised via tap issues throughout the period ended 31 December 2013. On 3 July 2015 the
Company issued 23,780,000 Ordinary Shares and on 24 September 2015 42,300,000 Ordinary Shares and received net proceeds of
£24.2 million and £42.4 million respectively.
The consolidated financial statements comprise the financial statements of the Company, Starfin Public GP Limited (the
"GP"), Starfin Public LP (the "Partnership") and Starfin Lux S.à.r.l ("Luxco") (together "the Group") as at 31 December
2015.
The Company's investment objective 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. To pursue its investment objective, the Company, through the Partnership, invests in the Luxco through both equity
and profit participation instruments or other funding instruments. The Luxco then grants or acquire loans (or other debt
instruments) to borrowers in accordance with the Group's investment policy. Some investments may be made via special
purpose vehicles wholly owned by the Luxco or the Company. The Group expects all of its investments to be debt obligations
of corporate entities domiciled or with significant operations in the United Kingdom and wider European Union's internal
market.
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
Financial Conduct Authority, to provide investment advice pursuant to an Investment Advisory Agreement. The administration
of the Company is delegated to Ipes (Guernsey) Limited ("the Administrator").
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 year presented, unless otherwise stated.
a) Going Concern
Note 18 includes the Group's objectives, policies and processes for manging its capital, its financial risk management
objectives, details of financial instruments and exposure to credit risk and liquidity risk.The directors have undertaken a
rigorous review of the Group's ability to continue as a going concern including reviewing the on-going cash flows and the
level of cash balances and available liquidity facilities as of the reporting date as well as taking forecasts of future
cash flows into consideration.
After making enquiries of the Investment Manager and the Administrator, 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.
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 as adopted by the European Union ("IFRS"), 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. 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 financial statements
for the year.
Standards, Amendments and Interpretations in issue and effective on or after 1 January 2016:
New standards Effective date
IFRS 9 Financial Instruments - Classifications and Measurement 1 January 2018
IFRS 15 Financial Instruments - Revenue from Contracts from Customers 1 January 2018
Revised and amended standards
IAS 1 Presentation of Financial Statements (amendments resulting from 1 January 2016
disclosure initiative)
IFRS 7 Financial Instruments - Disclosures (amendments resulting from 1 January 2016
September 2014 Annual improvements to IFRSs)
Unless stated otherwise the Directors do not consider the changes will have a material impact.
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 management 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:
· the impairment of financial assets held as loans advanced, the key area of judgement being, as to whether there is
any indication that a loan may be impaired (see note 2(h));
· the functional currency of subsidiary undertakings of the Company, which is considered by the
o Directors to be Sterling (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, which is based on the loans advanced as at the reporting date (see note 2(f));
and
· the receipt of and estimated timing of scheduled and unscheduled pre-payments of loans advanced and the impact on
liquidity risk and the interest income (see note 18); and
· the syndication of loans, and the assessment of how the syndicated facility should be treated under the relevant
accounting standards. The key area of judgement being whether substantially all of the risks and rewards of ownership have
transferred to the transferee and whether the syndicated loan is derecognised or not (see note 2(g)).
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 Consolidated Statement of Financial Position date. 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.
Dateof Ownership Countryof Principalplaceof
Subsidiaryundertakings Control % Establishment business
StarfinPublicGPLimited 20/11/12 100 Guernsey Guernsey
StarfinPublicLP 22/11/12 100 Guernsey Guernsey
StarfinLuxS.à.r.l 30/11/12 100 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 unless directly attributable to the acquisition. 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;
· the dividends are paid in Sterling;
· the majority of loans advanced are denominated in Sterling; and
· Euro non-investment transactions represent only a small proportion of transactions in the
Luxembourg entity.
The functional and presentation currency of each Group entity is Sterling. The Directors have also adopted Sterling as
the Group's presentation currency and therefore the consolidated financial statements for the Company 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
Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and
receivables, and available for sale. 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 at fair value through profit or loss
Financial assets at fair value through profit or loss comprise derivatives not designated as hedges.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. The Group's loans and receivables comprise secured loans advanced, trade and other receivables and cash and
cash equivalents.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives
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