16 February 2015
Starwood European Real Estate Finance Limited: Proposed amendment of the Company's investment policy
Proposed authority to allot Shares and to dis-apply pre-emption rights to provide flexibility to enable a Share Issuance Programme in respect of up to 200 million New Shares and/or C Shares
The Board has today announced its proposal to amend the Company's investment policy in order to allow the Company the flexibility to make investments in any state that is a member of the European Union's internal market (being the countries of the European Union and the European Free Trade Association) and to remove the 75 per cent. limitation on investment in the United Kingdom (together the "Amended Investment Policy Proposal").
The Board has also announced that it is contemplating the further issue of equity pursuant to a Share Issuance Programme which, if implemented, would enable the Company to make further investments in accordance with its investment policy. Whilst, the timing and amount of further equity issues (if any) remain to be determined and will depend on consideration of cash drag, amongst other factors, the Board has resolved to seek Shareholder approval to provide flexibility for the authority to allot, and to dis-apply pre-emption rights in connection with the issue of, in aggregate, up to 200 million New Shares and/or C Shares pursuant to the Share Issuance Programme (the "Share Issuance Authority Proposal"). The resolution to approve the Share Issuance Authority Proposal will, if passed, supersede the more limited existing allotment and disapplication authorities of the Company in place which are due to expire at the next annual general meeting.
Background to and reasons for the Amended Investment Policy Proposal
The Board regularly reviews the development and strategic direction of the Company and believes that the investment policy remains broadly effective. However, as the net proceeds of the Company's initial public offering and subsequent tap issue have now been fully committed, the Board believes that it is now a suitable time to revise the geographic scope of the investment policy and to remove the maximum permitted exposure to the UK.
The Board believes that these changes are justified in light of improving market conditions, the fact that opportunities have arisen in which the Company has been unable to participate, notwithstanding that the transaction would have been acceptable on a risk/reward basis and the increased liquidity in the market which offers greater likelihood of a successful realisation.
Investment demand and opportunities have significantly increased in a wide range of the member states of the EU's internal market as both opportunistic and core investors have sought exposure. Whilst any investment in less strong economies of the region would be approached with caution, the Board believes that the Company should have the ability to identify and exploit balanced risk return opportunities in these countries if and when they arise.
Approximately 67 per cent. of the Company's Net Asset Value is currently invested in the UK and the Board continues to see further attractive opportunities for continued investments in the UK. The current investment limit may prohibit the Company from taking advantage of certain opportunities that may become available and hence a removal of the limit is being sought. It is not anticipated that the portfolio will move to be 100 per cent. invested in the UK, however. In practical terms, it will be some time before all the non-UK loans are repaid and the Company fully intends to continue its origination efforts in the wider region outside the UK.
The Company will continue to seek sector diversification consistent with balancing risk and return across the portfolio. In addition to the existing limit on loans relating to residential for sale, the Amended Investment Policy provides that no more than 50 per cent. of the Company's Net Asset Value will be allocated to any single real estate sector in the UK, except for the UK office sector which is limited to 75 per cent. of the Company's Net Asset Value.
The European Union's internal market comprises the member states of the European Union and the member states of the European Free Trade Association, the latter being Iceland, Norway, Lichtenstein and Switzerland.
The full texts of the Company's current investment policy and the proposed amended investment policy are set out in the circular, which can be accessed on the Company's website at http://www.starwoodeuropeanfinance.com/index.php/team-2/corporate and which has been submitted to the National Storage Mechanism and will be available in due course for inspection at http://morningstar.co.uk/uk/NSM.
Benefits of the Amended Investment Policy Proposal
Given that the Company has now committed the full amount of the capital raised to date, the Board believes that the changes provide an enhanced range of opportunities for investing the proceeds of potential additional capital raises, loan repayments or syndications. With these adjustments, the Board believes the Company would be better placed to raise and deploy capital in the future.
The Directors believe that the Amended Investment Policy, if adopted, would have the following benefits for Shareholders:
· it would allow the Company increased scope for diversification and attractive risk adjusted returns from investment in member states of the EU and EFTA, while the countries of main focus in the investment policy are unchanged;
· it would allow the Company considerable further scope to invest in the UK where deal flow is greatest for the Company, which in turn provides enhanced opportunity to quickly reinvest the proceeds of loan syndications, prepayments and repayments of loans; and
· investments in the UK benefit from being denominated in sterling and not requiring foreign exchange hedging.
Background to and reasons for the Share Issuance Authority Proposal
As stated above, the Company has committed the full amount of the capital raised by the Company to date and, to facilitate further investments, the Company stands to benefit from the enhanced flexibility to issue equity capital quickly and efficiently under a Share Issuance Programme. The Share Issuance Programme, if implemented, will allow the Company to take advantage of investment opportunities available in the market from time to time, allowing the Company to move quickly and strengthening its competitive position compared to other finance providers.
Accordingly, the Board has decided to seek Shareholder approval to provide the future flexibility to issue up to 200 million New Shares and/or C Shares pursuant to the Share Issuance Programme and to disapply pre-emption rights in connection with the issue of such shares. The proceeds of the Share Issuance Programme, which, if implemented, are expected to be raised in one or more tranches, would be applied to make further investments in accordance with the Company's investment policy.
Benefits of the Share Issuance Programme
The Directors believe that a Share Issuance Programme, if implemented, would have the following benefits for the Company and Shareholders:
· it would enable the Company to raise additional capital quickly, in order to take advantage of specific investment opportunities;
· having a greater number of Shares in issue (including where Shares are issued following the conversion of C Shares) is likely to provide Shareholders with increased secondary market liquidity;
· increasing the size of the Company will help to make the Company more attractive to a wider investor base; and
· the Company's fixed running costs would be spread across a larger equity capital base, thereby reducing the Company's on-going expenses per Share.
Extraordinary General Meeting
The Amended Investment Policy Proposal and the Share Issuance Authority Proposal require the approval of Shareholders.
The Extraordinary General Meeting is to be held at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL on 9 March 2015 at 10.30 a.m. Notice of the Extraordinary General Meeting is set out in the Circular.
Definitions
Capitalised terms used but not defined in this announcement bear the meanings ascribed to them in the Circular.
For further information, please contact:
Ipes (Guernsey) Limited
Gillian Newton
T: +44 1481 735869
Dexion Capital plc
Robert Peel
T: +44 20 7832 0983
Jefferies International Limited
Stuart Klein
T: +44 20 7029 8703
Notes:
Starwood European Real Estate Finance Limited is a Guernsey incorporated Registered Closed-ended investment scheme listed on the main market of the London Stock Exchange with an investment objective to provide Shareholders with regular dividends and an attractive total return while limiting downside risk, through the origination, execution, acquisition and servicing of a diversified portfolio of real estate debt investments in the UK and Continental European markets. www.starwoodeuropeanfinance.com