Starwood European Real Estate

Finance Limited

 

 

Interim Financial Report and Unaudited Condensed Consolidated Financial Statements for the six month period from 1 January 2014 to 30 June 2014

 

 

Principal Activities and Investment Objective

The investment objective of Starwood European Real Estate Finance Limited ("the Company"), together with its subsidiaries Starfin Public GP Limited ("the GP"), Starfin Public LP ("the Partnership") and Starfin Lux S.à.r.l. ("Luxco") (together "the Group") is to provide its shareholders with regular dividends and an attractive total return while limiting downside risk, through the origination, execution, acquisition and servicing of a diversified portfolio of real estate debt investments (including debt instruments) in the UK and Continental European markets.   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 aims to be appropriately diversified by geography, real estate sector, loan type and counterparty. The Group pursues investments across the commercial real estate debt asset class through senior loans, subordinated loans and mezzanine loans, bridge loans, selected loan-on-loan financings and other debt instruments.

 

Structure

The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 9 November 2012 with registered number 55836, and has been authorised by the Guernsey Financial Services Commission ("GFSC") as an authorised 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 initial public offering which completed on 17 December 2012. The issued capital during the period 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 (see related party transactions).  References to the "Group" refer to the Company, the GP, the Partnership and Luxco.

 

The Investment Manager during the period was Starwood European Finance Partners Limited ("the Investment Manager"), a company incorporated in Guernsey with registered number 55819 and regulated by the GFSC.  The Investment Manager has appointed Starwood Capital Europe Advisers, LLP ("the Investment Adviser"), an English limited liability partnership authorised and regulated by the Financial Conduct Authority, to provide investment advice, pursuant to an Investment Advisory Agreement.

 

Chairman's Statement

 

Dear Shareholder,

 

I am delighted to present the Interim Financial Report and Unaudited Condensed Consolidated Financial Statements of Starwood European Real Estate Finance Limited for the six months from 1 January 2014 to 30 June 2014.

 

Deployment of net IPO proceeds

I am pleased to report that as anticipated the Group reached substantially full investment during the first half of 2014.  As at 30 June 2014, the Group had committed 96 per cent. of the net IPO proceeds and subsequent tap issues ("Net Proceeds") of £233.8 million.  Of this committed amount approximately 91 per cent. was actually invested as at 30 June 2014, lower than the committed amount due to some amortisation received since original commitments were made on two loans and some commitments still to be drawn on two of the loans.

Shortly after 30 June 2014 the Group committed a further €25 million to the W Hotel in Amsterdam meaning that all Net Proceeds have now been committed.  As at 26 August 2014, €9.7 million of this had been  drawn  bringing  the  Company  to  approximately  94  per  cent.  of  Net  Proceeds  invested  after accounting for amortisation which took place during July.  Once the W Hotel loan has been substantially drawn, the Group will be generating a net portfolio yield of 6.9 per cent.

In the factsheets published by the Company during the year, it was noted that some of the new opportunities in the pipeline would require subsequent syndication to achieve target return levels.  Of the loans originated to date the Group expects to syndicate approximately £42 million, releasing this for reinvestment in order to increase the net portfolio yield (once the W Hotel is substantially drawn) up from

6.9 per cent. to in excess of 7 per cent. We are in advanced discussions with credit approved acquirers in respect of these loans and expect to complete the syndications during the second half of the year.

Managing the timing and occurrence of these syndications with opportunities to re-invest the proceeds will be important to minimising cash drag and maintaining current returns.

A foundation stone of the formation of the Group was the emphasis on relative risk/return.  It is incumbent for the Group to continue to focus on this and not simply absolute return.  It follows that for any potential investment in Southern Europe, following the change to the Investment Policy, the Group will adhere rigorously to this principle.

 Investment Policy

On 2 May 2014 the Company held its first Annual General Meeting and an Extraordinary General Meeting to approve a change to the investment policy of the Group, to extend the geographic scope of the investment policy to allow investment in Spain and Italy, and to increase the maximum allocation that can be made to the residential for sale sector.  The Company confirmed at the time that it did not intend to use these extended investment powers until the Net Proceeds were substantially fully invested.   Now that the Company has fully deployed the Net Proceeds within the parameters of the original investment policy we will continue to focus on the relative risk / return of opportunities which fall within this extended investment policy.

Alongside these changes, the Board believed it was necessary to clarify the scope and intent of the restrictions on the Company's corporate borrowings to exclude foreign exchange hedging facilities from the scope of "corporate borrowings".

I am pleased to confirm that these changes to the investment policy were approved by the Company's shareholders.

 Dividends

At launch, the Company had targeted a dividend of 7.0 pence per Ordinary Share upon full investment.

On 23 April 2014 the Company declared a dividend for the period from 1 January 2014 to 31 March 2014 of 1.25 pence per Ordinary Share being an annualised 5.00 pence per Ordinary Share.

On 23 July 2014 the Company declared a dividend for the period from 1 April 2014 to 30 June 2014 of

1.35 pence per Ordinary Share, being an increase to 5.40 pence per Ordinary Share on an annualised basis, principally reflecting the reduced impact of historical cash drag.

As noted above, the Group will be delivering a net portfolio yield of 6.9 per cent once the W hotel loan is substantially drawn.  Based on the current syndication plans and deals in the pipeline to re-invest those proceeds, the Company remains comfortable that it will be able to pay an annualised 7.0 pence dividend upon completion of the syndication and re-investment, expected to be completed in the second half of 2014.

 

Going Concern

Under the UK Corporate Governance Code and applicable regulations, the directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.

 

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 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  the foreseeable  future.  Accordingly,  they  continue  to  adopt  a  going  concern  basis  in  preparing  these unaudited condensed consolidated financial statements.

 

Outlook

The directors place primary importance on maintaining a consistent dividend and ensuring, as much as possible, that cash drag does not materially impact this aim. Any future plans to raise additional equity will be considered against this objective.

It is the intention of the Company to seek to implement permitted liquidity facilities up to an amount of £50 million (and in any event limited to 20 per cent. of Net Asset Value) that may be utilised to assist in the rapid securing of additional investment opportunities, as a bridge to the raising of additional equity or repayment of existing loans and for other short term cash management purposes.

The board is satisfied with the progress made by the Investment Manager and Investment Adviser during the period in reaching substantially full investment.  Whilst market conditions have changed since the IPO, the Investment Adviser and Investment Manager, working in close collaboration with the Board, have maintained a disciplined and rigorous approach to investment and continue to operate within the risk parameters set out within the prospectus.

The Company will continue to update you on progress by way of the quarterly fact sheets and investment updates when deals are signed.

On behalf of the board, I would like to close by thanking shareholders for your commitment and I look forward to updating you on the Company's progress later this year.

 

 

Stephen Smith

Chairman

27 August 2014

 

Investment Manager's Report

 

Investment Deployment

As at 30 June 2014 the Group had committed 96 per cent. of Net Proceeds through the following investments and was approximately 91 percent. invested as a percentage of Net Asset Value:

 

	Original Commitment(1)	Principal Outstanding  as at 30 June 2014
Maybourne Hotel Group, London	£19.0 m	£19.0 m
West End Development, London	£10.0 m	£10.0 m
Lifecare Residences, London	£14.5 m	£13.0 m
Heron Tower, London	£18.0 m	£16.5 m
Centre Point, London	£40.0 m	£40.0 m
FC200, London	£27.0 m	£21.7 m
Sterling Loans	£128.5 m	£120.2 m
Retail Portfolio - Finland	€45.0 m	€42.1 m
Industrial Portfolio, Netherlands	€55.9 m	€55.9 m
Office, Netherlands	€14.3 m	€14.3 m
Euro Loans	€115.2 m	€112.3 m

(1)   Commitments include PIK facilities over the life of two loans for a total of approximately £5m.  A subsequent €25m loan commitment was made in early July on the W Hotel, Amsterdam.

 

Since 31 December 2013, the Group has made the following further commitments (included in the table above):

Office, Amsterdam:  The Group provided a €14.3 million financing facility for the acquisition of an office building in Amsterdam fully occupied by UPC Nederlands, BV. The Group expects to earn a solid single digit return in line with its investment criteria. The loan was fully drawn in the middle of April 2014.

FC200, London:  The Group provided a £27 million financing facility for an office building in Park Royal, West London. £21.7 million of the available facility was drawn in early June with a further £0.4 million drawn in July.   The three year financing is secured against a six-storey, 160,000 square foot building named FC200 located within the First Central mixed-use development site in Park Royal. The financing allowed the sponsors to refinance the all-cash acquisition of the property in late 2011 as well as providing funding for the remaining capex to complete its fit out. The Group expects to earn a solid single digit return in line with its investment criteria.

Industrial Portfolio, Netherlands: On 30 June 2014, the existing €35.3 million whole loan facility was increased by €36.1 million to a total facility of €71.4 million in cooperation with private debt funds associated with Starwood Capital Group. The Group's overall exposure increased to €55.9 million with the Starwood associated private debt funds taking the remaining €15.5m. The additional funds facilitated the acquisition of nine light-industrial and office properties in the Netherlands taking the overall portfolio to 28 assets. This marks the final increase in the facility as MBay, the joint venture between M7 Real Estate and Bayside Capital, completes its current light-industrial Dutch acquisitions strategy.

The following loan was committed after 30 June 2014:

W Hotel, Amsterdam:  The Group has committed to provide €25 million out of a total of €99 million for the refinancing and refurbishment of a new W branded hotel located in the centre of Amsterdam. The sponsor is Liran Wizman, a highly experienced hotel owner and key shareholder in Grand City Hotels, a highly rated pan-European hotel management company. Expected to be completed in the third quarter of

2015, the refurbished hotel is based on Spuistraat, a prime location within the city and providing easy access to transport links and attractions including the Royal Palace and Dam Square, which the hotel adjoins.  The first drawdown by the borrower under this facility of approximately €9.3 million was made on

17 July 2014 with a further drawdown of £0.4 million in August.

Since 30 June 2014 (to 26 August 2014) the Group also received a €1.3 million prepayment on the Retail

Portfolio, Finland and a scheduled amortisation receipt on the Heron loan of £0.8 million.

 

Company Performance as at 30 June 2014

 

As at 30 June 2014 the Net Asset Value ("NAV") was 98.91 pence per Ordinary Share and the share price was 103 pence.

 

Portfolio Statistics

As  at  30  June  2014,  the  portfolio  was  invested  in  line  with  the  Group's  investment  policy  and  is summarised below.

 

The board considers that the Group is engaged in a single segment of business, being the provision of a diversified portfolio of real estate backed loans.  The analysis presented in this report is presented to demonstrate the level of diversification achieved within that single segment.  The board does not believe that its investments constitute separate operating segments.

 

	30 June 2014
Number of borrowers	9
Number of investments	9
Percentage of currently invested portfolio in floating rate loans (1)	47.9%
Invested Loan Portfolio annualised total return (2)	8.6%
Weighted average portfolio LTV - to Group first £ (3)	9.8%
Weighted average portfolio LTV - to Group last £ (3)	60.1%
Average loan term	4.1 years
Percentage of Net Proceeds uncommitted (4)	4.0%
Percentage of Net Proceeds committed to senior and whole loans  (4)	75.8%
Percentage of Net Proceeds committed to second lien and mezzanine loans (4)	12.5%
Percentage of Net Proceeds committed to other debt instruments (4)	7.7%
Percentage currently invested in GBP (1)	56.2%
Percentage currently invested in Euro (1)	43.8%

(1) Calculated on the current value of loans and are shown after taking into account prepayments received to 30 June 2014 and exclude amounts committed but undrawn and cash currently un-invested (but which may be committed).

 

(2) Calculated on amounts currently outstanding and assuming all loans are outstanding for the full term.  Five of the loans are floating rate (some with floors) and returns are based on an assumed profile for future LIBOR or EURIBOR but the actual rate received may be higher or lower.  Calculated only on loans closed to date and excluding cash uninvested.

 

(3) LTV to Group last £ means the percentage which the total loan currently outstanding (when aggregated with any other indebtedness ranking alongside and/or senior to it) bears to the market value determined by the last valuation.  LTV to first Group £ means the starting point of the loan to value range of the loan currently outstanding (when aggregated with any other indebtedness ranking  senior to it). For ground up development (Lifecare) the calculation includes the total facility available and the market value on completion of the project. Where the loan relates to a redevelopment project with facilities currently undrawn (Centre Point) the calculation includes current debt drawn against the lower of current use market value and vacant possession value.  Upon commencement of development, the loan to value will be tested by reference to loans drawn plus available loans against a value assuming completion of the development. This calculation will therefore change as the other facilities are drawn. LTVs are calculated for each loan and weighted by the Group's investment in each loan.

 

(4) Calculated based on the original loan amount including amounts which may have since been repaid as amortisation and including amounts which are committed but currently undrawn. This is expressed as a percentage of net IPO proceeds plus net amounts raised in the subsequent tap issues (£233.8m).

 

Future Strategy and Investment Outlook

In the March factsheet published by the Company in order to keep shareholders updated, the Company noted that some of the new opportunities in the pipeline would require subsequent syndication to achieve

target return levels.  Of the loans originated to date, the Group expects to syndicate approximately £42

million, releasing this for reinvestment in order to increase the net portfolio yield up from 6.9 per cent. to in excess of 7 per cent.  We are in advanced discussions with credit approved acquirers in respect of these loans and expect to complete the syndications during the second half of the year.

As noted in the Chairman's Statement, managing the timing and occurrence of these syndications with opportunities to re-invest the proceeds will be important to minimising cash drag and maintaining current returns.

The Group is focused on relative risk/return rather than absolute return and will continue to focus on this rigorously as it continues to invest in line with its expanded investment policy.

Any pipeline for the Group has to flex and adapt to the changing market dynamics.  In the market commentary section below it is clear that certain markets have now fully recovered, indeed some may be showing very early signs of overheating.  Central London, for example, is one such market.  It is not that the Group would not invest further in such markets, merely that it is now applying a higher degree of caution.  Starwood Property Trust recently announced the provision of a £101.8 million loan for the development of London residential property.  Whilst the specifics of the loan itself were attractive, the Investment  Adviser,  Investment  Manager  and  directors  felt  the  Group  now  had  sufficient  London residential exposure to warrant declining any participation.

However, the scale of the UK market means that attractive risk/return is still sourceable especially in regional markets.  As is evident in recent transactions, Holland remains a key focus for new business. Whilst an Irish investment has not yet been effected the Group remains positive on this market for deployment of capital.  Central Europe has become more interesting as the asset quality review appears to be unlocking a number of potential situations.  Following approval to adjust the investment policy guidelines, Italy and Spain are being considered on a cautious risk adjusted basis.

Overall a pipeline of opportunities continues to exist reflecting the geographical comments above.  At this stage it is felt the UK will still account for over 50 per cent. of capital in the medium term.  The Group continues to seek strong sector diversity.  Whilst the proportion of whole loans is high at 79 per cent. of the current loan book it is expected to fall.  The Group's key access to deal flow is through the provision of whole loans but it is now more active in the subsequent syndication of senior positions to enhance returns through the retention of mezzanine, especially in the UK.

The Company will concentrate on generating attractive risk adjusted returns through underwriting whole loans and in selective cases selling senior strips to generate mezzanine positions.  This will rebalance the overall book back towards the loan mix set out at IPO whilst maintaining attractive single digit gross returns.

 

Market Summary

Previous  commentary,  including  that  included  within  our  quarterly  factsheets  has  highlighted  the continued dichotomy of the European Capital Markets.  On one side macroeconomic policy, including the

European Central Bank's announcements, continue to ensure the market has strong liquidity and a

penchant for hunting yield.  On the other side the on-going need for deleveraging as well as addressing problem situations by banks has been turbo charged by the asset quality review.  Events in Portugal are perhaps an example of other situations likely to occur over the coming months which encourage macro risk whilst also creating deal level opportunities.

This dichotomy is therefore still an overriding theme of the real estate capital markets.  Certain markets have arguably fully recovered - Central London office and residential as cases in point.  Other markets such as Spain seem to see patches of perhaps optimistic exuberance.  Hand in hand lenders, notably US investment banks, have re-found an interest in the provision of loan capital. Any investment deal of low to reasonable leverage in core sectors and with good sponsors now attracts excess liquidity which has resulted in substantial pricing decline.   However the other side of the dichotomy is throwing off ever greater opportunities including the continued need for the structured finance solutions that the Group specialises in.

In summary, the market recovery inevitably requires us to strike a balance between the continuing opportunity and taking an increasingly prudent approach to new business and portfolio management.

Principal Risks for the Remaining Six Months of the year to 31 December 2014

 

The principal risks assessed by the board relating to the Group were disclosed in the Annual Report and Audited Consolidated Financial Statements for the period from 9 November 2012 to 31 December 2013. The board and Investment Manager do not consider these risks to have changed.  However, the following are the principal risks assessed by the board and the Investment Manager as relating to the Group for the remaining six months of the year to 31 December 2014.

•           The Group plans to syndicate a number of loans in the second half of 2014 in order to reach return levels in excess of 7 per cent.   Any delay in re-deployment of the funds following syndications could lead to a reduction in the dividends as a result of cash drag;

•           The Company's targeted returns are based on estimates and assumptions that are inherently subject to significant business and economic uncertainties and contingencies, and the actual rate of return may be materially lower than the targeted returns;

•           The level of dividends and other distributions to be paid by the Company may fluctuate and there is no guarantee that any such distributions will be paid;

•           The Company hedges currency exposures in a prudent manner.  However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/ or amount of payments received on the related investments.  Additionally we may be required under certain circumstances to collateralise our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity;

•           The shares may trade at a discount to NAV per share and shareholders may be unable to realise their investments through the secondary market at NAV per share; and

•           Principal may be repaid earlier than anticipated, causing the return on certain investments to be less than expected.

 

Related Party Transactions

Related party disclosures are given in note 13 to the financial statements.

 

 

Starwood European Finance Partners Limited

Investment Manager

 

27 August 2014

 

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) and 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 €40 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, including Alcentra European Floating Rate Income Fund Limited, Aurora Russia Limited, DP Aircraft I Limited, The Renewables Infrastructure Group 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 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 chartered accountant 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) 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.

 

Statement of Directors' Responsibilities

 

 

To the best of their knowledge, the directors of Starwood European Real Estate Finance Limited confirm that:

(a) The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union; and

(b) The Interim Financial Report, comprising of the Chairman's Statement and the Investment Manager's Report, meets the requirements of an interim management report and includes a fair review of information required by:

(i)  DTR 4.2.7R of the UK Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months and their impact on the Unaudited Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii)  DTR 4.2.8R of the UK Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months and that have materially affected the financial position or performance of the Company during that period, and any material changes in the related party transactions disclosed in the last Annual Report.

By order of the Board

 

For Starwood European Real Estate Finance Limited

 

Stephen Smith                                                             John Whittle

Chairman                                                                     Director

  27 August 2014                                                             27 August 2014

 

Independent Review Report to Starwood European Real Estate

Finance Limited

 

Introduction

We have been engaged by Starwood European Real Estate Finance Limited (''the Company'') to review the

Unaudited Condensed Consolidated Financial Statements in the interim financial report for the half year ended

30  June  2014,  which  comprises  the  Unaudited Condensed Consolidated Statement  of  Comprehensive Income, the Unaudited Condensed Consolidated Statement of Financial Position, the Unaudited Condensed Consolidated Statement of Changes in Equity, the Unaudited Condensed Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Unaudited Condensed Consolidated Financial Statements.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Unaudited Condensed Consolidated Financial Statements included in this interim financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Unaudited Condensed Consolidated Financial Statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in producing this report, 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.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of  Interim  Financial  Information  Performed  by  the  Independent  Auditor  of  the  Entity'  issued  by   the International Auditing and Assurance Standards Board. A  review of  interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Unaudited Condensed Consolidated Financial Statements in the interim financial report for the half year ended 30 June 2014 are not prepared, in all material respects, in accordance with International Accounting Standard 34, ''Interim Financial Reporting'' as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

PricewaterhouseCoopers CI LLP Chartered Accountants

 

Guernsey, Channel Islands

 

   27 August 2014

 

 

Publication of Interim Financial Report

The maintenance and integrity of the Starwood European Real Estate Finance Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report and unaudited condensed consolidated financial statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Unaudited Condensed Consolidated Statement of Comprehensive Income

for the period ended 30 June 2014

 

 

		1 January 2014 to	1 January 2013 to	1 January 2013 to
		30 June 2014	30 June 2013	31 December 2013
	Notes	£	£	£
		(unaudited)	(unaudited)	(audited)
Income
Income from loans advanced	7	7,011,394	1,183,053	5,336,230
Income from cash and cash equivalents		102,377	382,128	635,797
Total income from investments		7,113,771	1,565,181	5,972,027
Expenses
Investment management fees		636,764	77,051	417,951
Directors' fees and travel expenses		57,929	74,042	132,267
Administration fees		112,554	93,685	225,071
Auditors' fees		103,123	54,089	88,150
Broker's fees		49,786	53,699	104,110
Legal and professional fees		66,806	72,901	130,341
Insurance		27,583	33,165	61,205
Net foreign exchange losses		938,645	8,189	639,461
Other expenses		46,457	60,937	86,656
Total operating expenses		2,039,647	527,758	1,885,212
Operating profit for the period before tax		5,074,124	1,037,423	4,086,815
Taxation	12	3,967	1,990	2,718
Operating profit for the period and total comprehensive income after tax		5,070,157	1,035,433	4,084,097
Weighted average number of shares in issue		238,100,000	233,348,205	235,655,145
Basic and diluted earnings per ordinary share (pence)		2.13	0.44	1.73

 

 

Unaudited Condensed Consolidated Statement of Financial Position

as at 30 June 2014

 

 

		As at	As at	As at
		30 June 2014	30 June 2013	31 December 2013
	Notes	£	£	£
		(unaudited)	(unaudited)	(audited)
Assets
Cash and cash equivalents	6	22,300,171	215,545,841	79,706,084
Other receivables and prepayments		244,445	81,650	287,470
Loans advanced	7	211,798,229	19,491,134	156,381,277
Financial assets at fair value through profit and loss	8	2,026,618	-	87,180
Total assets		236,369,463	235,118,625	236,462,011
Liabilities
Trade and other payables		872,197	240,030	439,552
Total liabilities		872,197	240,030	439,552
Net assets		235,497,266	234,878,595	236,022,459
Capital and reserves
Share capital		233,843,162	233,843,162	233,843,162
Retained earnings		1,654,104	1,035,433	2,179,297
Total equity		235,497,266	234,878,595	236,022,459
Number of ordinary shares in issue		238,100,000	238,100,000	238,100,000
Net asset value per ordinary share (pence)		98.91	98.65	99.13

 

Unaudited Condensed Consolidated Statement of Changes in Equity

for the period ended 30 June 2014

 

 

Six months ended 30 June 2014			Share capital	Retained earnings	Total equity
			£	£	£
Balance at 1 January 2014			233,843,162	2,179,297	236,022,459
Issue of share capital			-	-	-
Cost of issues			-	-	-
Dividends paid			-	(5,595,350)	(5,595,350)
Operating profit and total comprehensive income			-	5,070,157	5,070,157
Balance at 30 June 2014			233,843,162	1,654,104	235,497,266
Period ended 30 June 2013			Share capital	Retained earnings	Total equity
			£	£	£
Balance at 9 November 2012			-	-	-
Issue of share capital			238,509,000	-	238,509,000
Cost of issues			(4,665,838)	-	(4,665,838)
Dividends paid			-	-	-
Operating profit and total comprehensive income			-	1,035,433	1,035,433
Balance at 30 June 2013			233,843,162	1,035,433	234,878,595
Period ended 31 December 2013			Share capital	Retained earnings	Total equity
			£	£	£
Balance at 9 November 2012			-	-	-
Issue of share capital			238,509,000	-	238,509,000
Cost of issues			(4,665,838)	-	(4,665,838)
Dividends paid			-	(1,904,800)	(1,904,800)
Operating profit and total comprehensive income			-	4,084,097	4,084,097
					-
Balance at 31 December 2013			233,843,162	2,179,297	236,022,459

 

Unaudited Condensed Consolidated Statement of Cash Flows

for the period ended 30 June 2014

 

Operating activities:
Operating profit for the period and total comprehensive income		5,070,157	1,035,433	4,084,097
Adjustments for non-cash items
Net interest income		(7,113,771)	(1,565,181)	(5,972,027)
(Increase) / decrease in prepayments and receivables		43,025	(60,163)	(287,470)
Increase in other payables and accrued expenses		432,645	240,030	439,552
Net gain on financial instruments held at fair value through profit and loss		(1,939,438)	-	(87,180)
Net foreign exchange losses		2,878,083	8,189	726,641
Other non-cash items		3,338	-	205,237
		(625,961)	(341,692)	(891,150)
Loans advanced 1		(61,351,264)	(18,857,500)	(152,864,924)
Loans repaid		3,956,189	-	-
Origination fees paid		(497,605)	(142,500)	(1,171,890)
Origination expenses		(5,454)	(60,999)	(75,413)
Interest, commitment and exit fees income from loans advanced		6,583,632	752,918	2,140,736
Other cash items		36,480	-	-
Net cash outflow from operating activities		(51,903,983)	(18,649,773)	(152,862,641)
Cash flows from investing activities
Interest income from cash and cash equivalents		110,180	360,641	627,065
Net cash outflow from investing activities		110,180	360,641	627,065
Cash flows from financing activities
Net share issue proceeds received 2		-	234,878,549	234,878,549
Cost of share issues		-	(1,035,387)	(1,035,387)
Dividends paid		(5,595,350)	-	(1,904,800)
Net cash outflow from financing activities		(5,595,350)	233,843,162	231,938,362
Net increase in cash and cash equivalents		(57,389,153)	215,554,030	79,702,786
Cash and cash equivalents at the start of the period		79,706,084	-	-
Net foreign exchange gain on cash and cash equivalents		(16,760)	(8,189)	3,298
Cash and cash equivalents at the end of the period		22,300,171	215,545,841	79,706,084

 

 

1 Net of arrangement fees of £ 1,152,830 (2013:£ 1,674,212) withheld.

2 Gross shareproceeds net of fees and expenses of £ nil (2013: £ 3,630,451) withheldby brokers.

 

Unaudited Condensed Notes to the Consolidated Financial

Statements

for the period ended 30 June 2014

 

1. General Information

Starwood European Real Estate Finance Limited ("the Company") is a closed‐ended investment company incorporated in Guernsey. The unaudited condensed 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 30 June 2014.

2. Going Concern

Under the UK Corporate Governance Code and applicable regulations, the directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.

Note 10 includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of financial instruments and exposure to credit risk and liquidity risk. The directors 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 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 the foreseeable  future.  Accordingly, they  continue  to  adopt  a  going  concern  basis  in  preparing  these unaudited condensed consolidated financial statements.

3. 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 information 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 period ended 31 December 2013, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The statutory financial statements for the period ended 31 December 2013 were approved by the board of directors on 20 March 2014. The opinion of the auditors on those financial statements was unqualified. This interim financial information for the period ended 30 June 2014 has been reviewed by the auditors but not audited.

4. Accounting policies

The accounting policies are consistent with those of the consolidated financial statements for the period ended 31 December 2013. Standards and Interpretations in issue and not yet effective:

 

New Standards							Effective date
IFRS 9		Financial Instruments - Classifications and Measurement					1 January 2018
Revised and amended standards
IFRS 8		Aggregation of Segments and Reconciliation of Segment Assets					1 July 2014
IFRS 13		Scope of Portfolio Exception (amended)					1 July 2014
IAS 24		Management Entities (amended)					1 July 2014
IFRS 7/9		Mandatory Effective Date and Transition Disclosure (amended)					1 July 2014

 

Unless statedotherwise the directors do not considerthe changes to have a material impact.

 

5. Earnings Per Share and Net Asset Value Per Share

 

The calculation of basic earnings per ordinary share is based on the operating profit of £5,070,157 and on the weighted average number of ordinary shares in issue during the period of 238,100,000 ordinary shares.

The   calculation  of   net   asset   value  per   ordinary  share   is   based   on   a   net   asset   value  of

£235,497,266 and the actual number of ordinary shares in issue at 30 June 2014 of 238,100,000.

 

6. Cash and Cash Equivalents

 

Cash and cash equivalents comprise the following:	30 June 2014	30 June 2013	31 December 2013
	£	£	£
Fixed deposits of one month	16,200,000	107,600,000	50,853,621
Cash at bank	6,100,171	107,945,841	28,852,463
	22,300,171	215,545,841	79,706,084

Cash and cash equivalents comprises cash held by the Group and short term depositsheld with various banking institutions with original maturities of three months or less. The carrying amount of these assets approximates their fair value.

 

7. Loans Advanced

 

					30 June 2014	30 June 2013	31 December 2013
					£	£	£
UK
Maybourne Hotel Group, London					19,449,353	19,491,134	19,594,651
West End Development, London					10,141,129	-	10,140,091
Lifecare Residences, London					12,934,260	-	11,215,462
Heron Tower, London					16,796,796	-	18,420,006
Centre Point, London					40,360,893	-	40,211,361
FC200, London					21,581,647	-	-
Netherlands
Office					11,416,703	-	-
Industrial					44,625,393	-	18,245,998
Finland
Retail Portfolio					34,492,055	-	38,553,708
					211,798,229	19,491,134	156,381,277

No element of loans advancedare past due or impaired.For further information and the associated risks see the Investment Manager's Report.