from Starwood European Real Estate Finance Ltd (isin : GG00B79WC100)
SWEF: Half Yearly Report 30 June 2023
Starwood European Real Estate Finance Ltd (SWEF) Starwood European Real Estate Finance Limited Half Year Results for the Period Ended 30 June 2023 Orderly Realisation Progressing Well First Capital Distribution Executed with a Second Distribution Announced Post Period End 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 Half Year Results for the six months ended 30 June 2023. Following the approval of the Company’s new investment objective and policy as recommended to shareholders by the Board at the Company’s EGM on 27 January 2023, the Company is pursuing a strategy of orderly realisation and the return of capital to shareholders over time and in an orderly fashion. Highlights for the period, six months ended 30 June 2023
Portfolio Statistics As at 30 June 2023, 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: “We are pleased to report a robust performance and we note once again that all interest due has been paid in full. Following approval of the Company’s new investment objective and policy at the outset of the period, SEREF is pursuing a strategy of orderly realisation. During the period, 10.2% of the Group’s total loan portfolio was repaid which included the full repayment of three investments. These cash resources were allocated to provide the first distribution of £10.0 million to shareholders in June, an additional dividend of £7.9 million to shareholders in April and the repayment of £19 million of outstanding debt. Post period end, following further repayment activity, the Board has created a reserve to fund unfunded loan commitments, reduced the revolving credit facilities to £25 million and announced a further capital distribution of £30.0 million. The focus of the Group going forward remains the continued robust asset management of the existing loan portfolio, the orderly realisation of the portfolio and the timely return of capital to shareholders. We look forward to providing further updates towards meeting these objectives and would like to thank shareholders for their continued commitment and support.” 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
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's assets are managed by Starwood European Finance Partners Limited, an indirect wholly owned subsidiary of the Starwood Capital Group.
Interim Financial Report and Unaudited Condensed Consolidated Financial Statements for the six-month period from 1 January 2023 to 30 June 2023 Overview Corporate SummaryPRINCIPAL ACTIVITIES AND INVESTMENT OBJECTIVE 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 made its investments through Starfin Lux S.à.r.l (indirectly wholly-owned via a 100% shareholding in Starfin Public Holdco 1 Limited), Starfin Lux 3 S.à.r.l and Starfin Lux 4 S.à.r.l (both indirectly wholly-owned via a 100% shareholding in Starfin Public Holdco 2 Limited) (collectively the “Group”). Following the Company’s Extraordinary General Meeting (“EGM”) on 27 January 2023, the Company’s objective changed and is now to conduct an orderly realisation of the assets of the Group and the return of capital to Shareholders. In line with this objective 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. It is anticipated that it will take four to five years to complete this objective. The Group will not make any new investments going forward save that investments may be made to honour commitments under existing contractual arrangements or to preserve the value of any underlying security. Cash held by the Group pending distribution will be held in either cash or cash equivalents for the purposes of cash management. 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. It is anticipated that where this is undertaken it would generate a positive net interest rate spread and enhance returns for the Company. Full details of the investment objectives and policy post the EGM on 27 January 2023 are set out in the 2022 Annual Report which can be found on the company’s website https://starwoodeuropeanfinance.com. The Investment Objective and Policy which applied prior to the EGM on 27 January 2023 and for the whole of 2022, are set out in the 2021 Annual Report which can also be found on the company’s website https://starwoodeuropeanfinance.com. The Investment Objective applied for the whole of 2022 and prior to the EGM on 27 January 2023 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 and prior to the EGM on 27 January 2023 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. 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 registered with the Guernsey Financial Services Commission (“GFSC”) as a closed-ended collective investment scheme. The Company’s ordinary shares were first admitted to the premium segment of the UK’s Financial Conduct 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. Further issues took place in March 2013, April 2013, July 2015, September 2015, August 2016 and May 2019. The issued capital during the period comprises the Company’s Ordinary Shares denominated in Sterling. The Company received authority at the 2020 Annual General Meeting (“AGM”), to purchase up to 14.99 percent of the Ordinary Shares in issue. This authority was renewed at the 2021, 2022 and 2023 AGMs. Between 2020 and 2022 the Company bought back 17,626,702 Ordinary Shares. Shares bought back (which had been held in treasury) were cancelled in June 2023. In June 2023 the Company compulsorily redeemed 9,652,350 Ordinary Shares from Shareholders at 103.63 pence per share. In August 2023 the Company compulsorily redeemed a further 29,092,218 Ordinary Shares from Shareholders at 103.12 pence per share. The Investment Manager is 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, On behalf of the Board I present the Interim Financial Report and Unaudited Condensed Consolidated Financial Statements of Starwood European Real Estate Finance Limited (the “Group”) for the period from 1 January 2023 to 30 June 2023. Six months ago, when I presented the Annual Report and Audited Consolidated Financial Statements of the Group for the year ended 31 December 2022 to you, I spoke about the growing concerns over energy prices, the rising cost of living, higher interest rates and the Russian invasion of Ukraine. Since then the global economic and political themes have remained the same albeit energy prices and inflation have started to fall while interest rates have continued to rise. The Group’s performance has also remained consistent demonstrating its unique portfolio resilience through the strength and consistency of its results. Once again all loan interest and scheduled amortisation payments have been received and underlying collateral valuations continue to provide reassuring headroom. Notwithstanding this continued robust performance, the Group decided to move one of the Spanish retail assets from Stage 2 to Stage 3 and recognise a modest impairment provision against it. This minor impairment represents 0.5% of the funded portfolio and is the result of the Group prudently applying sensitivities to net proceeds from an agreed asset sale which is subject to contract and is currently progressing through exclusivity. We have also moved four assets from Stage 1 to Stage 2 indicating a change in their credit risk since origination but with no impairments anticipated. The Group will continue to exercise an abundance of caution in these challenging times. Despite this the Group’s NAV has remained stable. This stability demonstrates the positive fundamentals of the Group’s portfolio as an exceptionally attractive risk-adjusted source of alternative income tested, once again, in the harshest of market environments. Against market volatility, the Group has maintained a relatively stable market valuation, met its dividend targets (delivering an annualised 5.5 pence per share to shareholders) and started the orderly realisation of the Group’s assets and the return of capital to Shareholders. As you are aware and as already detailed in the Annual Report for the period to 31 December 2022, on 31 October 2022, the Board announced the Company’s Proposed Orderly Realisation and Return of Capital to Shareholders. A Circular relating to the Proposed Orderly Realisation, containing a Notice of Extraordinary General Meeting (EGM) was published on 28 December 2022. The proposals were approved by Shareholders at the EGM in January 2023 and the Company is now seeking 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. In June 2023, the Company announced its first capital distribution, returning circa £10 million to shareholders through the compulsory redemption of 9,652,350 shares at a price of £1.0363 per share. The second capital distribution was announced in August 2023 which returned circa £30 million to shareholders through the compulsory redemption of 29,092,218 shares at a price of £1.0312 per share. JOHN WHITTLE Chairman 6 September 2023 HIGHLIGHTS OVER THE SIX MONTHS TO 30 JUNE 2023 Positive realisation progress - during the half year: A total of £43.6 million, 10.2 per cent of the Group’s 31 December 2022 total funded loan portfolio, has been repaid across 9 investments This included the full repayment of three loans (totalling £31.2 million or 7.3 per cent of the Group’s 31 December 2022 total funded loan portfolio) Proceeds were used to fund the repayment of the £19 million of debt outstanding as at 31 December 2022, the additional dividend of £7.9 million paid in April 2023 (which equated to 2.0 pence per share) and the first return of capital to shareholders of £10.0 million paid in June 2023 All assets are carefully monitored for changes in their risk profile – during the half year, the following changes to risk classification were made: Four assets moved from Stage 1 to Stage 2 indicating a change in their credit risk since origination but no impairments anticipated; and One asset moved from Stage 2 to Stage 3 and a small credit loss of £1.7 million was recognised – this minor impairment represents 0.5% of the funded portfolio and is the result of the Group prudently applying sensitivities to net proceeds from an agreed asset sale which is subject to contract and is currently progressing through exclusivity The average remaining loan term of the portfolio is 1.4 years Strong cash generation - the portfolio continues to support annual dividend payments of 5.5 pence per Ordinary Share, paid quarterly, and generates an annual dividend yield of 6.2 per cent on the share price as at 30 June 2023 Regular and consistent dividend - since inception the Company has paid a regular and consistent dividend Inflation protection – 76.1 per cent of the portfolio is contracted at floating interest rates (with floors) Robust portfolio - the loan book is performing broadly in line with expectations with its defensive qualities reflected in the Group’s continued NAV stability Significant equity cushion - the weighted average Loan to Value for the portfolio as at 30 June 2023 is 56.0 per cent INVESTMENT MOMENTUM In line with the new strategic direction of the Group (i.e. the orderly realisation and return of capital to shareholders) there has been no new commitments made in the six months to 30 June 2023. Repayments received in the six months to 30 June 2023 are summarised in the highlights section above. As at 30 June 2019 to 2023 the Group had commitments as shown in the table below.
Since 30 June 2023 £69.7 million has been repaid, including the full repayment of two loans - Hotels & Residential, UK - £49.9 million and Mixed Use, Dublin - £10.9 / €12.7 million. NAV PERFORMANCE The table below shows the NAV per share movements over the 6 months to 30 June 2023.
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