from Starwood European Real Estate Finance Ltd (isin : GG00B79WC100)
SWEF: Full Year Results for the Year Ended 31 December 2022
Starwood European Real Estate Finance Ltd (SWEF) Starwood European Real Estate Finance Limited Full Year Results for the Year Ended 31 December 2022 Unlevered Annualised Portfolio Return Rises to 7.8%; 79% Floating Rate Exposure Orderly Realisation Strategy Approval Post Period End; Additional 2.0 Pence Per Share Additional Dividend Declared Starwood European Real Estate Finance Limited (the “Company”) and its subsidiaries (“SEREF” or the “Group”), a leading investor originating, executing and managing a diverse portfolio of high-quality real estate debt investments in the UK and Europe, announces strong Full Year Results for the year ended 31 December 2022. Following the approval of the Company’s new investment objective and policy as recommended to shareholders by the Board post period end at the Company’s EGM on 27 January 2023, the Company will pursue a strategy of orderly realisation and the return of capital over time to shareholders. Highlights since IPO, 17 December 2012
Highlights for the period, 12 months ended 31 December 2022
Portfolio Statistics As at 31 December 2022, the portfolio was invested in line with the Group’s investment policy. The key portfolio statistics are summarised below:
*Alternative performance measure
John Whittle, Chairman of the Company commented: “The twelve months ended 31 December 2022 represented another highly successful year for the Group in an extraordinary year that severely tested many investment strategies. Despite extremely challenging, volatile and uncertain economic conditions, once again the Group demonstrated resilient and consistent performance. Crucially, once again all loan interest and scheduled amortisation payments continue to be paid in full and on time. This is due to the rigorous underwriting and diligent portfolio management that have defined the Group’s existence since 2012. Meanwhile, underlying collateral valuations continue to provide reassuring headroom. It is equally notable that while resilience is an attractive feature, the portfolio has also been able to grow its earnings in current market conditions, delivering a 7.8 per cent annualised and unlevered portfolio return from the Group’s 78.9 per cent floating rate loans positions, covering the target dividend 1.24 times. Despite this performance and strong shareholder support, under the Group’s discount control mechanism in Q1 2023, the Group would have been required to offer shareholders an opportunity to redeem up to 75 per cent of their holding in the Group as a result of the Group’s discount to its NAV per share being greater than 5 per cent or more during the six-month period ending 31 December 2022. In October 2022 the Board determined that following discussions with larger shareholders, the likely take-up of this option would result in the Company no longer being of viable size to provide shareholders with significant liquidity and scale. Accordingly, a resolution was passed at the Group’s EGM on 27 January 2023 to amend the Group’s investment objective and policy to pursue a strategy of orderly realisation and the return of capital over time to shareholders. While the Group’s secure income investment style has fallen out of favour it cannot be doubted that the Group has clearly met its objectives at IPO and has established an enviable track record of delivering stable and consistent income and risk adjusted returns. This was especially marked in the Group’s navigation of the huge disruption of the Covid-19 epidemic without a single missed payment, a remarkable achievement of which the Investment Adviser, Investment Manager and the Board may be proud. To them all I acknowledge my thanks as we look ahead to continuing to manage the portfolio to preserve and maximise returns for shareholders as we implement the Group’s new orderly realisation strategy.”
For further information, please contact:
Apex Fund and Corporate Services (Guernsey) Limited as Company Secretary +44 203 5303 630 Duke Le Prevost
Starwood Capital +44 (0) 20 7016 3655 Duncan MacPherson
Jefferies International Limited +44 (0) 20 7029 8000 Gaudi Le Roux Stuart Klein Harry Randall
Buchanan +44 (0) 20 7466 5000 Helen Tarbet +44 (0) 07788 528143 Henry Wilson Hannah Ratcliff
Notes: Starwood European Real Estate Finance Limited is an investment company listed on the main market of the London Stock Exchange with an investment objective to conduct an orderly realisation of the assets of the Group. www.starwoodeuropeanfinance.com.
The Group is the largest London-listed vehicle to provide investors with pure play exposure to real estate lending.
The Group's assets are managed by Starwood European Finance Partners Limited, an indirect wholly owned subsidiary of the Starwood Capital Group.
Starwood European Real Estate Finance Annual Report and Audited Consolidated Financial Statements for the year ended 31 December 2022
Overview
Financial Highlights
(1) Further explanation and definitions of the calculation is contained in the section “Alternative Performance Measures” at the end of this financial report. (2) Excludes additional dividend for 2022 announced on 23 March 2023.
SHARE PRICE PERFORMANCE As at 31 December 2022, the NAV was 105.20 pence per Ordinary Share (2021: 103.09 pence) and the share price was 89.0 pence (2021: 94.0 pence).
The Company’s share price has been volatile since the market turbulence caused by Covid-19 in March 2020. The volatility has been driven by market conditions and trading flows rather than a change in the Company’s performance.
Objective and Investment Policy
INTRODUCTION Starwood European Real Estate Finance Limited (the “Company”) was established in November 2012 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 in the UK and the European Union’s internal market.
The Company, together with its subsidiaries Starfin Public Holdco 1 Limited, Starfin Public Holdco 2 Limited, Starfin Lux S.à.r.l, Starfin Lux 3 S.à.r.l, and Starfin Lux 4 S.à.r.l, (collectively the “Group”), has provided a regular dividend to shareholders whilst preserving capital by limiting downside risk.
On 31 October 2022, the Company announced, that following a review of the Company’s strategy and advice sought from its advisers, the Board intended to recommend to shareholders that the investment objective and policy of the Company were amended such that the Board can pursue a strategy of orderly realisation and the return of capital over time to shareholders (the “Proposed Orderly Realisation”). If approved by the shareholders, the Company would seek to return cash to shareholders in an orderly manner as soon as reasonably practicable following the repayment of loans, while retaining sufficient working capital for ongoing operations and the funding of committed but currently unfunded loan commitments.
On 28 December 2022, a Circular relating to the Proposed Orderly Realisation and containing a Notice of Extraordinary General Meeting (EGM) was published. The Circular set out details of, and sought shareholder approval for, certain proposals (the “Proposals”). The Proposals were:
(a) a change to the Company’s Investment Policy to reflect the fact that the Company will cease making any new investments and will pursue a realisation strategy of the remaining assets in the Company’s portfolio; and (b) adoption of new articles which provide for the periodic Compulsory Redemption of the Company’s Shares at the discretion of the Directors to allow cash to be returned to Shareholders following the full or partial realisation of assets.
On 27 January 2023, these Proposals were approved at the EGM.
The Investment Objective and Policy which applied prior to the approval of the Proposals, and for the whole of 2022, are set out in the prior year Annual Report which can be found on the company’s website https://starwoodeuropeanfinance.com. The Investment Objective applied for the whole of 2022 was 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 in the UK and the European Union’s internal market. The Investment Policy applied for the whole of 2022 was to invest in a diversified portfolio of real estate debt investments in the UK and the European Union’s internal market as the Group had done since its initial public offering (“IPO”) in December 2012.
Set out below is the current Investment Objective and Policy of the Company following the approval of the Proposals.
INVESTMENT OBJECTIVE Following the Company’s EGM on 27 January 2023, the Company’s investment objective is to conduct an orderly realisation of the assets of the Group.
INVESTMENT POLICY The assets of the Group will be realised in an orderly manner, returning cash to Shareholders at such times and in such manner as the Board may, in its absolute discretion, determine. The Board will endeavour to realise all of the Group’s investments in a manner that achieves a balance between maximising the net value received from those investments and making timely returns to Shareholders.
The Group may not make any new investments save that:
Subject to the above restrictions, the Company retains the ability to seek to enhance the returns of selected loan investments through the economic transfer of the most senior portion of such loan investments which would be by way of syndication, sale, assignment, sub-participation or other financing (including but not limited to true sale securitisation, repurchase transactions and loan-on-loan financing) to the same maturity as the original loan (i.e. “matched funding”) while retaining a significant proportion as a subordinate investment. It is anticipated that where this is undertaken it would generate a positive net interest rate spread and enhance returns for the Company.
Transactions with Starwood Capital Group or Other Accounts Subject to the above restrictions, the Company retains the ability to transact with companies within the Starwood Capital Group or any fund, company, limited partnership or other account managed or advised by any member of the Starwood Capital Group (Other Accounts) in furtherance of the Company’s investment objective to conduct an orderly realisation of the Group’s assets (for example, sales of the Group’s assets to companies within the Starwood Capital Group or certain Other Accounts or amendments to pre-existing arrangements). In order to manage the potential conflicts of interest that may arise as a result of any such transactions, any such proposed transaction may only be entered into if the independent Directors of the Company have reviewed and approved the terms of the transaction, complied with the conflict of interest provisions in the Registered Collective Investment Scheme Rules and Guidance, 2021 issued by the Guernsey Financial Services Commission (“Commission”) under The Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended, and, where required by the Listing Rules, Shareholder approval would be obtained in accordance with the listing rules issued by the Financial Conduct Authority.
Typically, such transactions will only be approved if: (i) an independent valuation has been obtained in relation to the asset in question: and (ii) the terms are at least as favourable to the Company as would be any comparable arrangement effected on normal commercial terms negotiated at arms’ length between the relevant person and an independent party, taking into account, amongst other things, the timing of the transaction. While Starwood Capital Group and certain Other Accounts are party to certain pre-existing co-investment commitments, no new co-investment arrangements are expected to be entered into by, or in relation to, the Company in the future during the orderly realisation of the Company’s assets.
The change in investment objective does not impact the below classifications.
Borrowings The Company may utilise borrowings from time to time for working capital and general corporate purposes provided such borrowings will not exceed an amount equal to 30 per cent of the Net Asset Value immediately following the drawdown of the borrowings.
In calculating the Company’s borrowings for this purpose, any liabilities incurred under its foreign exchange hedging arrangements (described below) shall be disregarded.
Hedging The Company will not enter into derivative transactions for purely speculative purposes. However, the Company’s investments have been typically made in the currency of the country where the underlying real estate assets are located. The Company may continue to implement measures designed to protect the investments against material movements in the exchange rate between Sterling, being the Company’s reporting currency, and the currency in which certain investments have been made. The analysis as to whether such measures should be implemented will take into account periodic interest, principal distributions or dividends, as well as the expected date of realisation of the investment. The Company may bear a level of currency risk that could otherwise be hedged where it considers that bearing such risk is advisable. The Company will only enter into hedging contracts, such as currency swap agreements, futures contracts, options and forward currency exchange and other derivative contracts when they are available in a timely manner and on terms acceptable to it. The Company reserves the right to terminate any hedging arrangement in its absolute discretion.
The Company may, but shall not be obliged to, engage in a variety of interest rate management techniques, particularly to the extent the underlying investments are floating rate loans which are not fully hedged at the borrower level (by way of floating to fixed rate swap, cap or other instrument). Any instruments chosen may seek on the one hand to mitigate the economic effect of interest rate changes on the values of, and returns on, some of the Company’s assets, and on the other hand help the Company achieve its risk management objectives. The Company may seek to hedge its entitlement under any loan investment to receive floating rate interest.
FCA Listing Rule restrictions The Company will continue to comply with the restrictions imposed by the Listing Rules in force and as amended from time to time.
Any material change to the Company’s published investment policy will be made only with the prior approval of the Financial Conduct Authority and of Shareholders by ordinary resolution at a general meeting of the Company.
UK Listing Authority Investment Restrictions The Company currently complies with the investment restrictions set out below and will c |