Starwood Euro Real - Half Yearly Report - Part 2
27/08/2015 08:57
- Part 2: For the preceding part double click ID:nRSa2182Xa
Revolving credit facility cost paid - - (315,064)
Revolving credit facility utilised 8,000,000 - -
Dividends paid (8,214,450) (5,595,350) (12,381,200)
Net cash outflow from financing activities (214,450) (5,595,350) (12,696,264)
Net decrease in cash and cash equivalents (10,277,102) (57,389,153) (66,538,623)
Cash and cash equivalents at the start of the period / year 13,172,978 79,706,084 79,706,084
Net foreign exchange (loss) / gain on cash and cash equivalents (291,550) (16,760) 5,517
Cash and cash equivalents at the end of the period / year 2,604,326 22,300,171 13,172,978
1 Net of arrangement fees of £ 654,984 (30 June 2014: £ 1,152,830; 31 December 2014: £ 2,184,680) withheld.
Unaudited Condensed Notes to the Consolidated Financial Statements for the
period ended 30 June 2015
1. General Information
The Company is a close-ended investment company incorporated in Guernsey. The
Unaudited Condensed Consolidated Financial Statements comprise the financial
statements of the Company, the GP, the Partnership and the Luxco (together
''the Group'') as at 30 June 2015.
2. Basis of Preparation and Principal Accounting Policies
The Company has prepared these Unaudited Condensed Consolidated Financial
Statements on a going concern basis in accordance with the Disclosure
and Transparency Rules of the United Kingdom Financial Conduct Authority
and IAS 34 Interim Financial Reporting as adopted by the European Union. This
interim financial report does not comprise statutory financial statements
within the meaning of the Companies (Guernsey) Law, 2008, and should be read
in conjunction with the Consolidated Financial Statements of the Group as at
and for the year ended 31 December 2014, which have been prepared in
accordance with International Financial Reporting Standards as adopted
by the European Union. The statutory financial statements for the year ended
31 December 2014 were approved by the Board of Directors on 27 March 2015. The
opinion of the auditors on those financial statements was unqualified. The
accounting policy in this Interim Financial Report is unchanged since 31
December 2014 except for a new policy as described in note 2.1 below. This
Interim Financial Report for the period ended 30 June 2015 has been reviewed
by the auditors but not audited.
Standards and Interpretations in issue and not yet effective:
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 2017
The Directors are assessing the impact of these future changes.
2.1. Financial Liabilities
Financial liabilities, including bank loans are recognised initially at fair
value and subsequently measured at amortised cost using the effective interest
rate method. Financial liabilities are derecognised when the contractual
obligation is discharged, cancelled or expires.
3. Earnings Per Share and Net Asset Value Per Share
The calculation of basic earnings per Ordinary Share is based on the operating
profit of £7,892,662 (31December 2014: £ 14,643,157) and on the weighted
average number of Ordinary Shares in issue during the period of 238,100,000
(31 December 2014: 238,100,000) Ordinary Shares.
The calculation of NAV per Ordinary Share is based on a NAV of £237,962,628
(31 December 2014: £238,284,416) and the actual number of Ordinary Shares in
issue at 30 June 2015 of 238,100,000 (31December 2014: 238,100,000).
4. Cash and Cash Equivalents
Cashandcashequivalentscomprisethefollowing: 30June2015 30June2014 31December2014
£ £ £
Fixeddeposits - 16,200,000 8,194,296
Cashatbank 2,604,326 6,100,171 4,978,682
2,604,326 22,300,171 13,172,978
Cash and cash equivalents comprises cash and short term deposits held with
various banking institutions with original maturities of three months or less.
The carrying amount of these assets approximates their fair value.
5. Revolving Credit Facility Capitalised Costs
The revolving credit facility capitalised costs are directly attributable
costs incurred in relation to the establishment of the £50 million loan
facility.
6. Loans Advanced
30 June 2015 30 June 2014 31 December 2014
£ £ £
UK
Maybourne Hotel Group, London 11,238,404 19,449,353 19,430,056
West End Development, London 10,157,547 10,141,129 10,137,575
Lifecare Residences, London 13,686,114 12,934,260 13,311,980
Salesforce Tower, London 13,577,468 16,796,796 15,186,783
Centre Point, London 45,412,853 40,360,893 40,305,815
FC200, London - 21,581,647 9,252,934
Aldgate, London 39,704,307 - 37,575,749
5 Star Hotel, London 6,901,727 - 6,871,376
Netherlands
Office 10,034,985 11,416,703 11,104,334
Industrial 14,382,543 44,625,393 15,873,838
W Hotel 12,073,845 - 9,198,302
Finland
Retail Portfolio 27,293,162 34,492,055 32,705,658
Denmark
Industrial Portfolio 27,680,846 - -
232,143,801 211,798,229 220,954,400
No element of loans advanced are past due or impaired. For further information
and the associated risks see the Investment Manager's Report.
The table below reconciles the movement of the carrying value of loans
advanced in the period / year
30 June 2015 30 June 2014 31 December 2014
£ £ £
Loans advanced at the start of the period / year 220,954,400 156,381,277 156,381,277
Loans advanced 38,212,693 62,504,094 117,255,254
Loans repaid (21,939,143) (3,956,189) (49,981,644)
Arrangement fees earned (654,984) (1,152,830) (2,184,680)
Commitment fees earned (51,081) (17,495) (57,413)
Exit fees earned (126,532) (49,277) (75,522)
Origination fees paid 251,204 497,605 1,072,949
Syndication expenses paid / accrued - - 313,888
Effective interest income earned 9,793,289 7,011,394 16,050,220
Interest payments received / accrued (7,656,348) (6,512,173) (14,130,402)
Foreign exchange losses (6,639,697) (2,908,177) (3,689,527)
Loans advanced at the end of the period / year 232,143,801 211,798,229 220,954,400
Loans advanced at fair value 241,188,965 216,606,020 231,280,183
For further information on the fair value of loans advanced, refer to note 11.
7. Financial Assets at Fair Value through Profit and Loss
Financial assets at fair value through profit and loss comprise currency
forward contracts which represent contractual obligations to purchase
domestic currency and sell foreign currency on a future date at a
specified price. The underlying instruments become favourable (assets) or
unfavourable (liabilities) as a result of fluctuations of foreign
exchange rates relative to their terms. The aggregate contractual or
notional amount of derivative financial instruments, the extent to which
instruments are favourable or unfavourable, and thus the aggregate fair values
of derivative financial assets and liabilities, can fluctuate significantly
from time to time. The fair value of derivative instruments held are set out
below:
Goldman Sachs:
Notional contract Fair values
amount 1
Assets Liabilities Total
30 June 2015 £ £ £ £
Foreign exchange derivatives
Currency forwards £22,354,581 2,792,273 - 2,792,273
Total 22,354,581 2,792,273 - 2,792,273
Lloyds Bank plc:
Notional contract Fair values
amount 1
Assets Liabilities Total
30 June 2015 £ £ £ £
Foreign exchange derivatives
Currency forwards £78,729,378 8,603,196 - 8,603,196
Total 78,729,378 8,603,196 - 8,603,196
Total:
Notional contract Fair values
amount 1
Assets Liabilities Total
30 June 2015 £ £ £ £
Foreign exchange derivatives
Currency forwards 101,083,959 11,395,469 - 11,395,469
Total 101,083,959 11,395,469 - 11,395,469
Goldman Sachs:
Notional contract Fair values
amount 1
Assets Liabilities Total
31 December 2014 £ £ £ £
Foreign exchange derivatives
Currency forwards 20,952,906 983,938 - 983,938
Total 20,952,906 983,938 - 983,938
Lloyds Bank plc:
Notional contract Fair values
amount (1)
Assets Liabilities Total
31 December 2014 £ £ £ £
Foreign exchange derivatives
Currency forwards 52,791,971 4,039,646 - 4,039,646
Total 52,791,971 4,039,646 - 4,039,646
Total:
Notional contract Fair values
amount 1
Assets Liabilities Total
31 December 2014 £ £ £ £
Foreign exchange derivatives
Currency forwards 73,744,877 5,023,584 - 5,023,584
Total 73,744,877 5,023,584 - 5,023,584
1 Euro amounts are translated at the period / year end exchange rate
8. Revolving Credit Facility
Under the Company's investment policy, the Company is limited to borrowing an
amount equivalent to a maximum of 20 per cent of its NAV at the time of
drawdown. In calculating the Company's borrowings for this purpose, any
liabilities incurred under the Company's foreign exchange hedging arrangements
shall be disregarded. The interest rate payable will depend on how long the
loan is outstanding: LIBOR plus 2.50 per cent per annum at initial draw
down and increasing for loans outstanding for more than six months. The
facility is secured by a pledge over the bank accounts of the Company, its
interests in Starfin Public LP and the intercompany funding provided by the
Company to Starfin Public LP. Starfin Public LP also acts as guarantor of the
facility and has pledged its bank accounts as collateral. The undertakings and
events of default are customary for a transaction of this nature. As at 30
June 2015 an amount of £8,000,000 (31 December 2014: £ nil) was drawn and
interest of £ 3,298 (31 December 2014: £ nil) was accrued.
9. Dividends
Dividends will be declared by the Directors and paid in compliance with the
solvency test prescribed by Guernsey law. Under Guernsey law, companies can
pay dividends in excess of accounting profit provided they satisfy the
solvency test prescribed by the Companies (Guernsey) Law, 2008. The
solvency test considers whether a company is able to pay its debts when they
fall due, and whether the value of a company's assets is greater than its
liabilities. The Company passed the solvency test for each dividend paid.
Subject to market conditions, the financial position of the Company and the
investment outlook, it is the Directors' intention to pay quarterly dividends
to shareholders (for more information see Chairman's Statement).
The Company paid the following dividends in respect of the period to 30 June
2015:
Dividend rate per Share (pence) Net dividend Payment date
paid (£)
Period to:
31 March 2015 1.75 4,166,750 30 April 2015
After the end of the period, the Directors declared a dividend in respect of
the financial period ended 30 June 2015 of 1.75 pence per share paid on 24
August 2015 to shareholders on the register on 7 August 2015.
The Company paid the following dividends in respect of the year to 31 December
2014:
Dividend rate per Share (pence) Net dividend Payment date
paid (£)
Period to:
31 March 2014 1.25 2,976,250 30 April 2014
30 June 2014 1.35 3,214,350 30 July 2014
30 September 2014 1.50 3,571,500 27 October 2014
31 December 2014 1.70 4,047,700 31 January 2015
10. Risk Management Policies and Procedures
The Group through its investment in whole loans, subordinated loans,
mezzanine loans, bridge loans, loan-on-loan financings and other debt
instruments is exposed to a variety of financial risks, including market
risk (including currency risk and interest rate risk), credit risk and
liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
The Directors monitor and measure the overall risk bearing capacity in
relation to the aggregate risk exposure across all risk types and
activities. Even though the risks detailed in the Annual Report and
Financial Statements for the year ended 31 December 2014 still remain
appropriate, further information regarding these risk policies are outlined
below:
i) Market risk
Market risk includes market price risk, currency risk and interest rate risk.
If a borrower defaults on a loan and the real estate market enters a downturn
it could materially and adversely affect the value of the collateral over
which loans are secured. However, this risk is considered by the Board to
constitute credit risk as it relates to the borrower defaulting on the loan
and not directly to any movements in the real estate market. As such the
Directors do not consider that the Group is subject to market price risk. The
Investment Manager moderates market risk through a careful selection of
loans within specified limits. The Group's overall market position is
monitored by the Investment Manager and is reviewed by the Board of
Directors on an on-going basis.
a) Currency risk
The Group, via the subsidiaries, operates across Europe and invests in loans
that are denominated in currencies other than the functional currency of the
Company. Consequently the Group is exposed to risks arising from foreign
exchange rate fluctuations in respect of these loans and other
assets and liabilities which relate to currency flows from revenues and
expenses. Exposure to foreign currency risk is hedged and monitored by the
Investment Manager on an on-going basis and is reported to the Board
accordingly.
b) Interest rate risk
Interest rate risk is the risk that the value of financial instruments and
related income from loans advanced and cash and cash equivalents will
fluctuate due to changes in market interest rates.
The majority of the Group's financial assets are loans advanced,
receivables and cash and cash equivalents. The Group's investments
have some exposure to interest rate risk but this is limited to
interest earned on cash deposits and floating interbank rate exposure
for investments designated as loans advanced. Loans advanced have been
structured to include a combination of fixed and floating interest rates to
reduce the overall impact of interest rate movements. Further protection is
provided by including interbank rate floors, preventing interest rates from
falling below certain levels.
ii) Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts in
full when due. The Group's main credit risk exposure is in the loan portfolio,
shown as loans advanced, where the Group invests in whole loans and also
subordinated and mezzanine debt which rank behind senior debt for repayment
in the event that a borrower defaults. There is a spread concentration of
risk as at 30 June 2015 due to several loans being advanced since inception.
There is also credit risk in respect of other financial assets as a portion of
the Group's assets are cash and cash equivalents or accrued interest. The
banks used to hold cash and cash equivalents have been diversified to spread
the credit risk to which the Group is exposed. The Group also has credit risk
exposure in its financial assets through profit and loss which is diversified
between hedge providers in order to spread credit risk to which the Group is
exposed. The total exposure to credit risk arises from default of the
counterparty and the carrying amounts of financial assets best represent
the maximum credit risk exposure at the year end date. As at 30 June 2015,
the maximum credit risk exposure was £246,702,886 (31 December 2014:
£239,625,934).
The Investment Manager has adopted procedures to reduce credit risk
exposure by conducting credit analysis of the counterparties, their
business and reputation which is monitored on an on-going basis. After
the advancing of a loan a dedicated debt asset manager employed by
the Investment Adviser monitors on-going credit risk and reports to the
Investment Manager, with quarterly updates also provided to the Board. The
debt asset manager routinely stresses and analyses the profile of
the Group's underlying risk in terms of exposure to significant tenants,
performance of asset management teams and property managers against specific
milestones that are typically agreed at the time of the original loan
underwriting, forecasting headroom against covenants, reviewing market
data and forecast economic trends to benchmark borrower performance and
to assist in identifying potential future stress points. Periodic
physical inspections of assets that form part of the Group's
security are also completed in addition to monitoring the identified
capital expenditure requirements against actual borrower investment.
iii) Liquidity risk
Liquidity risk is the risk that the Group will not have sufficient resources
available to meet its liabilities as they fall due. The Group's loans advanced
are illiquid and may be difficult or impossible to realise for cash at short
notice.
The Group manages its liquidity risk through short term and long term cash
flow forecasts to ensure it is able to meet its obligations. In addition, the
Company is permitted to borrow up to 20 per cent of NAV and has entered into a
revolving credit facility of £50million of which £8million was drawn on 25
June 2015.
As at 30 June 2015, the Group had £2,604,326 (31 December 2014: £13,172,978)
available in cash and £736,960 (31 December 2014: £1,341,518) trade payables.
The Directors considered this to be sufficient cash available, together with
the undrawn facilities on the revolving credit facility, to meets the Group's
liabilities.
11. Fair Value Measurement
IFRS 13 requires the Company to classify fair value measurements using
a fair value hierarchy that reflects the significance of the inputs used
in making the measurements. The fair value hierarchy has the following levels
· Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
· Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (level 2).
· Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (level 3).
The following table analyses within the fair value hierarchy the Group's
financial assets and liabilities (by class) measured at fair value:
30 June 2015 Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Derivative assets - 11,395,469 - 11,395,469
Total - 11,395,469 - 11,395,469
31 December 2014 Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Derivative assets - 5,023,584 - 5,023,584
Total - 5,023,584 - 5,023,584
There have been no transfers between levels for the period ended 30 June 2015
(31 December 2014: nil).
The following table summarises within the fair value hierarchy the Group's
assets and liabilities (by class) not measured at fair value at 30 June 2015
but for which fair value is disclosed.
Level 1 Level 2 Level 3 Total fair values Total carrying amount
£ £ £ £ £
Assets
Cash and cash equivalents - 2,604,326 - 2,604,326 2,604,326
Other receivables and prepayments - 231,685 - 231,685 231,685
Loans advanced - - 241,188,965 241,188,965 232,143,801
Total - 2,836,011 241,188,965 244,024,976 234,979,812
Level 1 Level 2 Level 3 Total fair values Total carrying amount
£ £ £ £ £
Liabilities
Trade and other payables - 736,960 - 736,960 736,960
Total - 736,960 - 736,960 736,960
Level 1 Level 2 Level 3 Total fair values Total carrying amount
£ £ £ £ £
Assets
Cash and cash equivalents - 13,172,978 - 13,172,978 13,172,978
Other receivables and prepayments - 31,962 - 31,962 31,962
Loans advanced - - 231,280,183 231,280,183 220,954,400
Total - 13,204,940 231,280,183 244,485,123 234,159,340
Level 1 Level 2 Level 3 Total fair values Total carrying amount
£ £ £ £ £
Liabilities
Trade and other payables - 1,341,518 - 1,341,518 1,341,518
Total - 1,341,518 - 1,341,518 1,341,518
The carrying values of the assets and liabilities included in the above table
are considered to approximate their fair values, except for loans advanced.
The fair value of loans advanced has been determined by discounting the
expected cash flows using a discounted cash flow model. For the avoidance of
doubt, the Group carries its loans advanced at amortised cost in the
financial statements. In Directors' opinion, amortised cost better reflects
the carrying value of loans advanced than fair value as disclosed in this
note.
Cash and cash equivalents include cash at hand and fixed deposits held with
banks. Other receivables and prepayments include the contractual amounts and
obligations due to the Group and consideration for advance payments made by
the Group. Trade and other payables represent the contractual amounts and
obligations due by the Group for contractual payments.
12. Taxation
The Company is exempt from Guernsey taxation under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 for which it pays an annual fee of £1200.
The Luxembourg indirect subsidiary of the Company is subject to the
applicable tax regulations in Luxembourg, as it is incorporated under the
securitization Law of 22 March 2004.
13. Related Party Transactions
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in
making financial or operational decisions.
Fees, expenses and other payments
Outstanding at For the period ended
30 June 2015 30 June 2015
£ £
Directors' fees and expenses paid
Stephen Smith 11,250 22,500
John Whittle 8,750 17,500
Jonathan Bridel - 16,250
Expenses paid - 2,011
Investment Manager
Investment management fees earned 442,219 881,192
Origination fees earned - 251,204
Outstanding at For the year ended
31 December 2014 31 December 2014
£ £
Directors' fees and expenses paid
Stephen Smith - 45,000
John Whittle - 35,000
Jonathan Bridel - 32,500
Expenses paid - 2,783
Investment Manager
Investment management fees earned 446,949 1,528,333
Origination fees earned 426,375 1,072,949
Expenses 5,216 16,010
StarConsult S.à.r.l 1
Administrative services - 8,369
1 StarConsult S.à.r.l is a Company managed by Thierry Drinka, who is also a Director of Luxco.
Shareholdings and dividends paid
Dividends paid for the period ended As at
30 June 2015 30 June 2015
£ Number of shares
Starwood Property Trust Inc 315,330 9,140,000
SCG Starfin Investor LP 78,833 2,285,000
Stephen Smith 1,380 40,000
John Whittle 242 7,000
Jonathan Bridel 242 7,000
- More to follow, for following part double click ID:nRSa2182Xc
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