Annual Report and

Audited Consolidated

Financial Statements

for the year ended 31 December 2022

CONTENTS

Overview

Financial Highlights 2

Objective and Investment Policy 4

Chairman’s Statement 8

Strategic and Business Review

Strategic Report 12

Investment Manager’s Report 18

Governance

Board of Directors 28

Report of the Directors 29

Directors’ Remuneration Report 32

Corporate Governance Statement 33

Report of the Audit Committee 40

Statement of Directors’ Responsibilities 45

Financial Statements

Independent Auditor’s Report 47

Independent Auditor’s Report (US GAAS) 55

Consolidated Statement of Comprehensive Income 57

Consolidated Statement of Financial Position 58

Consolidated Statement of Changes in Equity 59

Consolidated Statement of Cash Flows 60

Notes to the Consolidated Financial Statements 61

Further Information

Alternative Performance Measures 98

Corporate Information 101

Overview

Financial Highlights

Key Highlights

Year ended

31 December 2022

Year ended

31 December 2021

NAV per Ordinary Share 105.20 p 103.09 p

Share Price 89.0 p 94.0 p

NAV total return

(1) (2)

7.7% 4.6%

Share Price total return

(1) (2)

0.45% 11.1%

Total Net Assets £416.1 m £421.6 m

Loans advanced at amortised cost

(including accrued income)

£432.5 m £414.6 m

Financial assets held at fair value

through profit or loss

£0.7 m £13.3 m

Cash and Cash Equivalents £3.6 m £3.0 m

Amount drawn under Revolving Credit

Facility (excluding accrued interest)

£19.0 m £8.5 m

Dividends per Ordinary Share

(2)

5.5 p 5.5 p

Invested Loan Portfolio unlevered

annualised total return

(1)

7.8% 6.9%

Invested Loan Portfolio levered

annualised total return

(1)

7.9% 7.0%

Ongoing charges percentage

(1)

1.1% 1.0%

Weighted average portfolio LTV to

Group first £

(1)

13.2% 16.4%

Weighted average portfolio LTV to

Group last £

(1)

58.6% 61.9%

(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.

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Cumulative Fair NAV Total Return Index Share price total return Index

Share Price and Cum-Fair NAV Total Return

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.

Source: Morningstar

Premium / discount (%)

Cumulative fair NAV total return index Share price total return index

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Cumulative Fair NAV Total Return Index Share price total return Index

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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.

Overview

Objective and Investment Policy

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:

• investments may be made to honour

commitments under existing contractual

arrangements or to preserve the value of

any underlying security; and

• 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 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.

Overview

Objective and Investment Policy

UK Listing Authority Investment

Restrictions

The Company currently complies with the

investment restrictions set out below and will

continue to do so for so long as they remain

requirements of the UK Listing Authority and

the Company remains listed:

• neither the Company nor any of its

subsidiaries will conduct any trading activity

which is significant in the context of its

group as a whole;

• the Company will avoid cross-financing

between businesses forming part of its

investment portfolio;

• the Company will avoid the operation of

common treasury functions as between

the Company and investee companies;

• not more than 10 per cent, in aggregate, of

the Company’s NAV will be invested in other

listed closed-ended investment funds; and

• the Company will, at all times, invest

and manage its assets in a way which is

consistent with its object of spreading

investment risk and in accordance with the

published investment policy. As required

by the Listing Rules, any material change

to the investment policy of the Company

will be made only with the approval of

shareholders.

Overview

Chairman’s Statement

JOHN WHITTLE | Chairman

23 March 2023

Dear Shareholder,

On behalf of the Board, it is my pleasure to present the Annual Report and

Audited Consolidated Financial Statements of Starwood European Real Estate

Finance Limited for the year ended 31 December 2022.

The feeling of optimism across UK and global economies felt in early 2022 - post

the worst restrictions of the Covid-19 pandemic - was soon replaced by concerns

over energy prices, the rising cost of living, higher interest rates and the Russian

invasion of Ukraine.

Domestically, the UK government and economy faced a number of other

setbacks in the second half of the year with three prime ministers in as many

months, government U-turns on economic policy and a number of wide spread

and widely impacting strikes across key infrastructure sectors - by railway

workers, nurses and UK Border control, among others, at the end of the year.

Despite these challenging, volatile and uncertain economic and political times,

once again, the Group demonstrated its unique portfolio resilience through the

strength and consistency of its results. It is significant, and very gratifying to note,

that, once again, all loan interest and scheduled amortisation payments have

continued to be paid in full and on time. This excellent result is due both to the

evident rigorous underwriting of borrowers and sponsors and the diligent ongoing

portfolio management by our Investment Adviser and Manager. Meanwhile,

underlying collateral valuations continue to provide reassuring headroom in the

event of any asset under performance.

The last three years have demonstrated the positive fundamentals of the Group’s

portfolio as an attractive risk-adjusted source of alternative income tested in

the harshest of market environments. Against significant market challenges,

the Group not only maintained a stable Net Asset Value (‘NAV’) but also met

its dividend targets, delivering it’s targetted annualised 5.5 pence per share to

shareholders as well as an additional dividend of 2p per share announced on

23 March 2023.

Nevertheless, despite the resilience of the loan portfolio, a share buyback

programme (which was active from July 2022 to October 2022) and a stable

NAV, the Company’s share price has been unable to meaningfully narrow its

discount to the prevailing NAV which initially occurred as a result of the wider

market re-rating following the onset of Covid-19 (in the first half of 2020).

Under the Company’s discount control mechanisms (contained within its Articles

of Association), in Q1 2023 the Company would have been required to offer

shareholders an opportunity to redeem up to 75 per cent of their holding in

the Company as a result of the Company’s discount to its NAV per share being

greater than five per cent or more during the six-month period ending

31 December 2022 (the “Tender Offer”).

However, in October 2022, the Board

determined that, following discussions

with our larger shareholders, the likely

take-up of a potential future Tender Offer

would be significant and as a result the

Company would no longer be of a viable

size to provide shareholders with sufficient

liquidity and scale. Accordingly, the Board

resolved to recommend that the Company

be placed into a managed wind-down with

the aim of enabling shareholders to realise

their entire holdings in the Company ‘over

time’ in line with the repayment of the

relevant loan positions.

In reaching this decision, the Board

considered a range of options and several

factors including the prevailing and

persistent discount to NAV of the shares,

feedback from shareholders, and the

market capitalisation and liquidity of

the shares.

In light of this, the Board recommended

to shareholders that the investment

objective and policy of the Company

were amended such that the Board could

pursue a strategy of orderly realisation

and the return of capital ‘over time’ to

shareholders.

The orderly realisation strategy will not

result in the liquidation of the Company

in the immediate future or require the

Company to dispose of assets within a

defined timeframe. The new strategy,

approved by 99% of Shareholders voting

at the Company’s Extraordinary General

Meeting (‘EGM’) on 27 January 2023, will

be implemented in a manner that will seek

to maximise value to shareholders. It is

intended that the Company’s listing and

target annualised dividend of 5.5 pence

per share will be maintained as long as

feasible during the orderly realisation.

The Board anticipates that the orderly

realisation of the assets will happen over a

four to five year period with periodic share

redemptions being made as loans are

repaid and commitments are satisfied.

Whilst market sentiment may have changed

and the secure income generation offered

has recently fallen out of favour I feel it is

worth reflecting that over its life the Group

has successfully met the original objectives

set out at IPO, delivering stable and consistent

income and risk adjusted returns. To have

endured the huge disruption of the last couple

of years without a single missed payment

is a remarkable achievement. My thanks to

all involved - the Investment Adviser, the

Investment Manager and the Board.

HIGHLIGHTS FOR 2022

• Strong cash generation - the portfolio as a

whole continues to support annual dividend

payments of 5.5 pence per Ordinary Share,

paid quarterly. A dividend of 5.5 per pence

per Ordinary Share represents a 6.2 per cent

dividend yield on the share price as at

31 December 2022.

• Additional dividend - an additional dividend of

2.0 pence per share has been declared post

period end in respect of the 2022 earnings

period, leading to a total declared distribution

of 7.5 pence per share for the year.

• Income stability - all loan interest and

scheduled amortisation payments paid in

full and on time.

• 79 per cent of the portfolio is contracted

at floating interest rates (with floors) which

benefits the Group in the current rising

interest rate environment.

• Portfolio remains robust - despite the

economic disruption and uncertainty

experienced in 2022, the portfolio continues

to perform fully in line with expectations.

• Borrowers remain adequately capitalised

and are expected to continue to pay loan

interest and capital repayments in line with

contractual obligations.

• Further strategic progress - in 2022,

the Group committed a total of £66 million

to two new loans, located in the United

Kingdom and Europe, in the office and

industrial sectors.

• 51 per cent – share price total return since

IPO in December 2012 (excludes additional

dividend for 2022 announced on

23 March 2023).

• Portfolio remains fully invested

INVESTMENT PERFORMANCE

Interest & Amortisation Payments

All loan interest and scheduled amortisation

payments to date have been paid in full and

on time. This includes loans in sectors that

have been most impacted by the lasting

impact of the Covid-19 pandemic, namely,

hospitality and retail assets, where borrowers

continue to remain adequately capitalised as

previously reported.

Strong cash generation

The portfolio performance continues to

support the targeted annual dividend

payments of 5.5 pence, paid quarterly.

Dividend support

79 per cent of the portfolio is contracted at

floating interest rates (with floors) which has

started to provide an increase in revenue

as higher inflation has resulted in higher

interest rates.

The Invested Loan Portfolio unlevered

annualised total return has been increasing

steadily as interest rates curves have moved

upwards. The year on year increase at

31 December 2022 was 90 basis points

(i.e. at 7.8 per cent, up from 6.9 per cent in

December 2021). As interest rates continue

to rise there is additional support for the

dividend cover.

INVESTMENT MOMENTUM

The Group closed two loans in 2022 – Office

and Industrial Portfolio in the UK and the

Netherlands (total commitment which was

fully funded on signing - £5.5 million and

€16.4 million respectively, of which

€16.4 million had been repaid by the year

end and of which £5.5 million was repaid in

February 2023) and Industrial Estate in the UK

(total commitment - £46.2 million of which

£27.2 million was fully funded on signing).

The Group also funded a further £14.7 million

in relation to loan commitments made in prior

years which were unfunded.

One loan, Office, Scotland (£5.0 million) was

repaid in full during the year but a further £51.9

million (including the €16.4 million referred to

above) was received in partial repayments on

loans which still have outstanding balances as

at 31 December 2022.

Overview

Chairman’s Statement

The contractual maturity of the Group’s portfolio is set out on page 19 and shows that as at

31 December 2022, 40.5 per cent of invested loan balances held were expected to mature in

the next twelve months.

NAV PERFORMANCE

The table below and to the left shows the

NAV per share movements over the 12

months to 31 December 2022 by quarter and

for the year.

As anticipated, and as in the past, we are

pleased to report that the Group’s NAV has

once again remained stable during the year

demonstrating the highly resilient credentials

of the asset class that contributes to its

success as a reliable source of alternative

income. We do not expect to see significant

movements in NAV as the Group’s loans are

held at amortised cost and Euro exposures

are hedged.

The NAV would be materially impacted if

an impairment in the value of a loan was

required but, despite the recent disruption

to markets in general no such impairment

has been needed and the Group’s valuations

remain stable and current (the average age

of valuations is 1.43 years). Please refer to

the Investment Manager’s report on page 18

for detailed sector performance reporting,

information on the accounting for our loans

and the current loan to value position for the

portfolio as a whole and for each sector.

SHARE BUYBACKS AND SHARE

PRICE PERFORMANCE

During the year, the Company’s share price

has been relatively volatile, primarily as a

result of dislocation across financial markets.

During the year the Company’s share price

has traded in a range between 87.0 pence

and 97.6 pence. The year end share price

was 89.0 pence reflecting a 15.4 per cent

discount to NAV.

The share price was supported in the

latter half of 2022 by the share buyback

programme which ran from July 2022

until October 2022. During this period the

Company bought back an aggregate amount

of 13.3 million shares at an average cost per

share of 92.8 pence per share. These shares

are held in Treasury.

As at 31 December 2019 to 2022 the Group had commitments as shown in the table below.

2019 2020 2021 2022

Funded loans £411.1m £440.9m £412.0m £425.9m

Unfunded Commitments £78.2m £49.2m £44.5m £49.0m

Total £489.3m £490.1m £456.5m £474.9m

Q1 Q2 Q3 Q4 2022

NAV at beginning of the period 103.09 103.13 103.42 103.58 103.09

Quarterly Movements

Operating Income available to

distribute

(1)

1.36 1.47 1.77 2.20 6.80

Realised FX gains/(losses) not

distributable

(2)

0.78 0.29 0.00 0.00 1.07

Unrealised FX gains/(losses)

(3)

-0.73 -0.09 -0.46 0.67

-0.61

Dividend declared -1.37 -1.38 -1.37 -1.38 -5.50

Impact on NAV of shares

bought back

0.00 0.00 0.22 0.13 0.35

NAV as end of period 103.13 103.42 103.58 105.20 105.20

(1)

Operating Income available to distribute comprises loan income recognised in the period less the cost of debt facilities utilised by the Group and

operating costs incurred. Included in loan income recognised in Q4 2022 is circa £1.3m (equivalent to 0.34p per share) of loan income related

to Office and Industrial Portfolio, Netherlands which was fully repaid in December 2022 and which benefited from early repayment income

protection. The Operating Income available to distribute also includes any realised foreign exchange gains or losses upon settlement of hedges,

except those described in note 2.

(2)

On occasion, the Group may realise a gain or loss on the roll forward of a hedge if it becomes necessary to extend a capital hedge beyond the

initial anticipated loan term. If this situation arises the Group will separate the realised FX gain or loss from other realised FX gains or losses and

not consider it available to distribute or as a reduction in distributable profits. The FX gain or loss will only be considered part of distributable

reserves or as a reduction in distributable profits when the rolled hedge matures or is settled and the final net gain or loss on the capital hedges

can be determined.

(3)

Unrealised foreign exchange gain/losses relate to the net impact of changes in the valuation of foreign exchange hedges and the sterling

equivalent value of Euro loan investments (using the applicable month end rate). Mis-matches between the hedge valuations and the loan

investments may occur depending on the shape of the forward FX curve and this causes some movement in the NAV. These unrealised FX

gains / losses are not considered part of distributable reserves.

1111

FUTURE SHARE ISSUANCE

At the last Annual General Meeting (“AGM”),

the Company sought and received authority to

disapply Pre-Emption Rights on the allotment

of equity securities for up to 10 per cent of

the Ordinary Shares in issue. As at the date

of this report, this authority has not been

utilised and given the recent change in policy

it is not intended that this authority will be

utilised or renewed.

DIVIDENDS

Total dividends of 5.5 pence per Ordinary

Share have been paid to date in relation to the

year ended 31 December 2022. In addition,

on 23 March 2023, the Company declared

a special dividend of 2 pence per Ordinary

Share in respect of the year ending 31

December 2022 to be paid on 21 April 2023

to shareholders on the register as at 31 March

2023.

The 2022 dividends paid to date (5.5 pence

per Ordinary Share) were covered 1.24 times

by earnings (excluding unrealised FX gains

and FX gains realised on the roll forward of

hedges). The Company maintains a dividend

reserve which is utilised, when needed, to

ensure dividends are not paid out of capital.

The Company intends to continue to target

to pay a 5.5 pence per Ordinary Share per

annum (payable quarterly) going forward

for as long as feasible during the orderly

realisation, and as noted above due to

increases in interest rates the dividend

coverage and headroom has improved. This

will provide a level of dividend which should be

fully covered by earnings whilst ensuring the

Company maintains strong credit discipline.

On the share price at 31 December 2022,

a dividend of 5.5 pence represents a

6.2 per cent dividend yield.

BOARD COMPOSITION AND

DIVERSITY

The Board believes strongly in the value and

importance of diversity in the boardroom and

we continue to consider the recommendations

of the Davies, Hampton Alexander and Parker

Reports and these recommendations will be

taken into account should the appointment of

a new director be required.

Based on the recent change to the FCA’s

Listing Rules regarding the disclosure

of diversity on listed company boards

and executive committees, effective for

accounting periods starting from April 2022,

the Board are considering the impact, if any,

on disclosure requirements.

I am very pleased with the current

composition of the Board (which is 50 per

cent female) both in terms of experience,

skills and diversity which places us well for

the upcoming challenges.

It had been anticipated that I would retire

from the Board at the end of 2023. However,

the Board have suggested that I remain

in post to guide the Company through

the orderly realisation of assets and I am

happy to accept their suggestion subject

to the usual shareholder agreement to my

continuation in office.

Further details are provided on the

succession planning in the Corporate

Governance Statement on page 35.

GOING CONCERN

Under the AIC Code and applicable regulations,

the Directors are required to satisfy

themselves that it is reasonable to assume

that the Group is a going concern.

The Directors have undertaken a

comprehensive review of the Group’s ability to

continue as a going concern including a review

of the ongoing cash flows and the level of

cash balances as of the reporting date as well

as forecasts of future cash flows.

Furthermore, the Directors have also

considered, as disclosed in these financial

statements, the strategy of orderly realization

and return of capital to shareholders.

After making enquiries of the Investment

Manager, Investment Adviser and the

Administrator and having reassessed the

principal risks, the Directors considered it

appropriate to adopt the going concern basis

of accounting in preparing these Consolidated

Financial Statements.

OUTLOOK

The focus of the Group for 2023 is the

commencement of the orderly realisation

strategy and the return of capital to

shareholders over time.

The Board believes it is important to

communicate clearly with you, our

shareholders, and we will continue to

inform you of the Group’s progress by

way of the quarterly fact sheets and stock

market announcements. We welcome any

comments you have on the way in which we

communicate and provide information to you.

My thanks to all of our services providers for

their perseverance in these challenging times.

On behalf of the Board, I would like to close by

thanking shareholders for your commitment

and support. I look forward to briefing you

again on the Group’s progress later this year.

John Whittle | Chairman

23 March 2023

Strategic and Business Review

Strategic Report

The Strategic Report describes the business

of the Group and details the uncertainties,

principal and emerging risks associated with

its activities.

CORPORATE PURPOSE

Following the EGM held on 27 January

2023, the general corporate purpose of

the Company and the Group is to pursue a

strategy of orderly realisation and the return of

capital over time to shareholders.

OBJECTIVE, INVESTMENT POLICY

AND BUSINESS MODEL

The Objective and Investment Policy describes

the Group’s strategy and business model and

is set out in the Overview section of these

Annual Accounts.

The Investment Manager is Starwood

European Finance Partners Limited, a

Company incorporated in Guernsey with

registered number 55819 and regulated by

the Commission. 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.

CURRENT AND FUTURE

DEVELOPMENT

A review of the year and outlook is contained in

the Investment Highlights and Portfolio Review

sections of the Investment Manager’s Report

and within the Chairman’s Statement.

PERFORMANCE

A review of performance is contained in the

Investment Highlights and Portfolio Review

sections of the Investment Manager’s Report.

A number of performance measures are

considered by the Board, the Investment

Manager and Investment Adviser in assessing

the Company’s success in achieving its

objectives. The Key Performance Indicators

(“KPIs”) used are established industry

measures to show the progress and

performance of the Group and are as follows:

• The movement in NAV per Ordinary Share;

• The movement in share price and the

discount / premium to NAV;

• The payment of targeted dividends;

• The portfolio yield, both levered and

unlevered;

• Ongoing charges as a percentage of

undiluted NAV; and

• Weighted average loan to value for

the portfolio.

Details of the KPIs achieved are shown in

the Financial Highlights section.

During 2023 the Board will consider what

new and/or additional performance measures

(if any) should be used to measure its new

strategy of orderly realisation and return of

capital to shareholders.

RISK MANAGEMENT

It is the role of the Board to review and

manage all risks associated with the Group,

both those impacting the performance

and the prospects of the Group and those

which threaten the ongoing viability. It is the

role of the Board to mitigate these either

directly or through the delegation of certain

responsibilities to the Audit Committee and

Investment Manager.

The Board performs a review of a risk matrix

at each Board meeting.

The Board considers the following principal

risks could impact the performance and

prospects of the Group but do not threaten

the ability of the Company or the Group to

continue in operation and meet its liabilities.

In deciding which risks are principal risks

the Board considers the potential impact

and probability of the related events or

circumstances, and the timescale over which

they may occur. Consequently, it has put

in place mitigation plans to manage those

identified risks. Details of the principal and

emerging risks considered as part of the

review of the risk matrix are highlighted on

the next page.

Principal Risks

Financial Market Volatility (risk that

dividends do not meet the targeted levels

and that the share price discount persists

and widens)

Subsequent to the EGM held on 27 January

2023 the Group’s strategy is for an orderly

realisation of its assets and the return

of capital to shareholders. During the

realisation period the Company intends to

target a similar per share level of dividends

as previously for as long as this is feasible

and to return capital to shareholders subject

to maintaining sufficient cash to fund as

yet unfunded commitments on loans and

ongoing operating costs.

The Group’s targeted returns are based

on estimates and assumptions that

are inherently subject to significant

business and economic uncertainties and

contingencies and, consequently, the actual

rate of return may be materially lower than

the targeted returns.

As a result, the level of dividends to be paid

by the Company may fluctuate and there is

no guarantee that any such dividends will

be paid. Since March 2020 the shares have

traded at a discount to NAV per share and

shareholders may be unable to realise their

investments through the secondary market

at NAV per share.

The Board, along with the Investment

Manager and the Investment Adviser,

monitor, review and consider the estimates

and assumptions that underpin the targeted

returns of the business and, where necessary,

communicate any changes in those estimates

and assumptions to the market.

The Board monitors the level of premium

or discount of the share price to NAV

per share and deployed a share buyback

programme during 2020, 2021 and 2022 in

order to support the share price. The new

strategy of returning capital to shareholders

over time should mean that, subject to no

unforeseen negative impacts on the value

of investments, shareholders will receive a

return of capital invested over time.

Long-Term Strategic Risk (risk that the

business model is no longer attractive)

Subsequent to the EGM held on 27

January 2023 the Group’s strategy is for

an orderly realisation and return of capital

to shareholders. It is anticipated that the

return of capital to shareholders will be

completed in the next four to five years.

The Group’s targeted returns are based

on estimates and assumptions that

are inherently subject to significant

business and economic uncertainties and

contingencies and, consequently, the actual

rate of return may be materially lower than

the targeted returns.

The Directors regularly receive information on

the performance of the existing loans, including

the performance of underlying assets versus

underwritten business plan and the likelihood

of any early repayments, or the need for any

loan amendments.

The Board continues to monitor the revised

investment strategy and performance on an

ongoing basis.

Market Deterioration Risk (risk of the

economies in which the Group operates

either stagnating or going into recession)

The Group’s investments are comprised

principally of debt investments in the UK

and the European Union’s internal market

and it is therefore exposed to economic

movements and changes in these markets.

Any deterioration in the global, UK or

European economy could have a significant

adverse effect on the activities of the

Group and may result in loan defaults or

impairments.

The Covid-19 pandemic has had a material

long term impact on global economies and

on the operations of the Group’s borrowers

since 2020.

The situation in Ukraine, following the

February 2022 incursion into Ukraine by

Russia, also presents a significant risk to

European and Global economies. While

the Group has no direct or known indirect

involvement with Ukraine, Russia or Belarus it

may be impacted by the consequences of the

instability caused by the ongoing Ukrainian/

Russian conflict.

The impact of the United Kingdom’s

departure from the European Union in 2020

still represents a potential threat to the UK

economy as well as wider Europe. On a

cyclical view, the national economies across

Europe appear to be heading towards lower

growth, and alongside the economic impact

of Covid-19 and the destabilising impact of

the conflict in Ukraine, towards recession.

In addition there is the impact of the ongoing

high inflationary environment to consider

(driven by increasing interest rates, energy

costs and costs of living). This environment

could make it harder for Borrowers to meet

their interest obligations to the Group and to

ultimately repay the loans advanced to them.

The Board have considered the impact

of market deterioration on the current

and future operations of the Group and

its portfolio of loans advanced. Because

of the cash and loan facilities available to

the Group and the underlying quality of

the portfolio of loans advanced, both the

Investment Manager and the Board still

believe the fundamentals of the portfolio

remain optimistic and that the Group can

adequately support the portfolio of loans

advanced despite current market conditions.

In the event of a loan default in the portfolio,

the Group is generally entitled to accelerate

the loan and enforce security, but the

process may be expensive and lengthy,

and the outcome is dependent on sufficient

recoveries being made to repay the

borrower’s obligations and associated costs.

Some of the investments held would rank

behind senior debt tranches for repayment

in the event that a borrower defaults, with

the consequence of greater risk of partial

or total loss. In addition, repayment of

loans by the borrower at maturity could

be subject to the availability of refinancing

options, including the availability of senior

and subordinated debt and is also subject

to the underlying value of the real estate

collateral at the date of maturity. The Group

is mitigated against this with an average

weighted loan to value of the portfolio of

Interest payments are normally hedged for

the period for which prepayment protection

is in place. However, the risk remains that

loans are repaid earlier than anticipated and

forward contracts need to be broken early.

In these circumstances, the forward curve

may have moved since the forward contracts

were placed which can impact the rate

received. In addition, if the loan repays after

the prepayment protection, interest after

the prepayment-protected period may be

received at a lower rate than anticipated

leading to lower returns for that period.

Conversely, the rate could have improved,

and returns may increase.

As a consequence of the hedging strategy

employed as outlined above, the Group is

subject to the risk that it will need to post

cash collateral against the mark to market on

foreign exchange hedges which could lead to

liquidity issues or leave the Group unable to

hedge new non-Sterling investments.

The Company had approximately £163.5

million (€184.1 million) of hedged notional

exposure with Lloyds Bank plc at 31

December 2022 (converted at 31 December

2022 FX rates).

As at 31 December 2022, the hedges were

in the money. If the hedges move out of

the money and at any time this mark to

market exceeds £15 million, the Company

is required to post collateral, subject to a

minimum transfer amount of £1 million. This

situation is monitored closely, however, and

as at 31 December 2022, the Company had

sufficient liquidity and credit available on

the revolving credit facility to meet any cash

collateral requirements.

Two loans within the portfolio are currently

classified as Stage 2 (increased risk of default).

These loans account for 10.8 per cent of

the loans advanced by the Group as at 31

December 2022. No expected credit losses

have been recognised against any of the loans,

because of the strong LTVs across the loan

portfolio and strong contractual agreements

with Borrowers, including against these

Stage 2 loans. The reasons, estimates and

judgements supporting this assessment are

described in the Investment Manager’s report.

Interest Rate Risk

The Group is subject to the risk that the loan

income and income from the cash and cash

equivalents will fluctuate due to movements

in interbank rates.

The loans in place at 31 December 2022

have been structured so that 79 per cent are

floating rate and 100 per cent of these floating

rate loans are subject to interbank rate floors

such that the interest cannot drop below a

certain level, which offers some protection

against downward interest rate risk.

The remaining 21 per cent by value of

the loans are fixed rate, which provides

protection from downward interest rate

movements to the overall portfolio (but also

prevents the Group from benefiting from any

interbank rate rises on these positions).

Foreign Exchange Risk

The majority of the Group’s investments

are Sterling denominated (63.1 per cent as

at 31 December 2022) with the remainder

being Euro denominated. The Group is

subject to the risk that the exchange

rates move unfavourably and that a)

foreign exchange losses on the Euro loan

principals are incurred and b) that Euro

interest payments received are lower than

anticipated when converted back to Sterling

and therefore returns are lower than the

underwritten returns.

The Group manages this risk by entering into

forward contracts to hedge the currency risk.

All non-Sterling loan principal is hedged back

to Sterling to the maturity date of the loan.

Strategic and Business Review

Strategic Report

58.6 per cent. Therefore, the portfolio

should be able to withstand a significant

level of deterioration before credit losses

are incurred.

The Investment Adviser has also mitigated

the risk of credit losses by undertaking

detailed due diligence prior to the signing

of each loan. Whilst the precise scope

of due diligence will have depended on

the proposed investment, such diligence

will typically have included independent

valuations, building, measurement and

environmental surveys, legal reviews of

property title, assessment of the strength of

the borrower’s management team and key

leases and, where necessary, mechanical

and engineering surveys, accounting and tax

reviews and know your customer checks.

The Investment Adviser, Investment

Manager and Board have also managed

these risks in the past by ensuring a

diversification of investments in terms of

geography, market and type of loan. Such

diversification will be harder to achieve as

the company pursues a strategy of orderly

realization and does not enter into any new

investments. The Investment Manager and

Investment Adviser operate in accordance

with the guidelines, investment limits and

restrictions as determined by the Board. The

Directors review the portfolio against these

guidelines on a regular basis.

The Investment Adviser obtains regular

performance reporting from all borrowers

and meets with all borrowers on a regular

basis to monitor developments in respect

of each loan and reports to the Investment

Manager and the Board periodically and on an

ad hoc basis where considered necessary.

The Group’s loans are held at amortised

cost. The performance of each loan is

reviewed quarterly by the Investment

Adviser for any indicators of significant

increase in credit risk, impaired or defaulted

loans. The Investment Adviser also provides

their assessment of any expected credit

loss for each loan advanced. The results of

the performance review and allowance for

expected credit losses are discussed with

the Investment Manager and the Board.

Risk of Default under the Revolving Credit

Facilities

The Group is subject to the risk that a

borrower could be unable or unwilling to

meet a commitment that it has entered

into with the Group as outlined above under

market deterioration risk. As a consequence

of this, the Group could breach the

covenants of its revolving credit facilities

and fall into default itself.

A number of the measures the Group

takes to mitigate market deterioration

risk as outlined above, such as portfolio

diversification and rigorous due diligence on

investments and monitoring of borrowers,

will also help to protect the Group from the

risk of default under the revolving credit

facility as this is only likely to occur as a

consequence of borrower defaults or loan

impairments.

The Board regularly reviews the balances

drawn under the credit facility against

commitments and reviews the performance

under the agreed covenants. The loan

covenants are also stress tested to test how

robust they are to withstand default of the

Group’s investments.

Cybercrime

The Group is subject to the risk of

unauthorised access into systems,

identification of passwords or deleting data,

which could result in loss of sensitive data,

breach of data physical and electronic,

amongst other potential consequences. This

risk is managed and mitigated by regular

reviews of the Group’s operational and

financial control environment. The matter

is also contained within service providers

surveys which are completed by the

Group’s service providers and are regularly

reviewed by the Board. No adverse findings

in connection with the service provider

surveys have been found. The Company

and its service providers have policies and

procedures in place to mitigate this risk,

the cybercrime risk continues to be closely

monitored.

Regulatory risk

The Group is also subject to regulatory risk

as a result of any changes in regulations

or legislation. Constant monitoring by the

Investment Adviser, Investment Manager

and the Board is in place to ensure the

Group keeps up to date with any regulatory

changes and compliance with them.

Operational risk

The Group has no employees and is reliant

on the performance of third-party service

providers. Failure by the Investment Manager,

Investment Adviser, Administrator or any

other third-party service provider to perform in

accordance with the terms of its appointment

could have a material detrimental impact on

the operation of the Group.

The Board maintains close contact with

all service providers to ensure that the

operational risks are minimised.

Emerging Risks

Emerging risks to the Group are considered

by the Board to be trends, innovations and

potential rule changes relevant to the real

estate mortgage and financial sector. The

challenge to the Group is that emerging

risks are known to some extent but are not

likely to materialise or have an impact in the

near term. The Board regularly reviews and

discusses the risk matrix and has identified

climate change as an emerging risk.

Climate change

The consequences that climate change

could have are potentially severe but highly

uncertain. The potential high impact of

possible losses has done a lot to raise

the awareness of this risk in investment

circles. The Board, in conjunction with

the Investment Manager and Investment

Adviser, considers the possible physical

and transitional impact of climate change

on properties secured on loans provided by

the Group and includes the consideration

of such factors in valuation instructions of

the collateral properties and in considering

any potential expected credit losses on

loans. The Investment Adviser considers

the possible physical and transitional

impact of climate change as part of

the origination process. In addition, the

Board, in conjunction with the Investment

Adviser, is monitoring closely the regulation

and any developments in this area (see

‘Environmental, Social and Corporate’

section for further information).

Strategic and Business Review

Strategic Report

ASSESSMENT OF PROSPECTS

The Group’s strategy of an orderly realisation

and return of capital to shareholders

(approved by the shareholders in January

2023) is central to an understanding of its

prospects. The Group’s focus is twofold:

i) to proactively manage the investments

already made to ensure that the loans

continue to perform and provide positive

returns to the Group, and

ii) return capital to shareholders on a timely

basis subject to ensuring the Group can

continue to fund as yet unfunded loan

commitments (£49.0 million as at

31 December 2022) and meet its

operating costs.

The Group updates its plan and financial

forecasts on a quarterly basis and detailed

financial forecasts are maintained and

reviewed by the Board regularly.

ASSESSMENT OF VIABILITY

The Directors have tested the potential

impact on the Group of a number of

scenarios by quantifying their financial

impact. These scenarios are based on

aspects of the following selected principal

risks, which are detailed in this Strategic

Report, and as described below:

• Foreign exchange risk;

• Market deterioration risk; specifically the

risk that all the Stage 2 loans held default,

resulting in a loss of interest income and

delay in the repayment of capital; and

• Risk of default under the revolving

credit facilities.

These scenarios represent ‘severe but

plausible’ circumstances that the Group could

experience. The scenarios tested included:

• A high level of loan default meaning that

the Group stopped receiving interest on the

Stage 2 loans in the portfolio and that the

outstanding capital on these loans was not

received until 6 or 12 months after the loan

maturity date plus Sonia and Euribor rates

falling to 0% from 2024 onwards;

• An analysis of the robustness of the

covenants under the revolving credit facility

to withstand default of the underlying

investments; and

• A deterioration in the valuation of the foreign

exchange hedges such that the Company is

required to post collateral up to £5m.

The results of this stress testing showed that

the Group would be able to withstand a high

level of underlying loan default or impairment

resulting from any of the risks identified over

the period of the financial forecasts albeit the

dividend may need to be reduced

to reflect the reduced cash available.

VIABILITY STATEMENT

In addition to the assessment of prospects

and viability above, the Directors also have

a reasonable expectation, based on the

scenario testing, that the Group will continue

to meet its liabilities as they fall due over

the three-year period ending 31 December

2025, and therefore the Group is expected

to remain viable from both a business model

and financial perspective.

Furthermore, the Directors have also

considered, as disclosed in these financial

statements, the strategy of orderly realization

and return of capital to shareholders.

In connection with the viability statement,

the Board confirm that they have carried out

a robust assessment of the principal and

emerging risks facing the company, including

those that would threaten its business model,

future performance, solvency or liquidity.

ENVIRONMENTAL, SOCIAL AND

CORPORATE GOVERNANCE

(“ESG”)

As an investment company, the Board and the

Investment Manager and Investment Adviser

consider the Group’s direct activities to have

a minimal direct impact on the environment.

Nevertheless, the Board regularly monitors

and discusses ESG matters both at the Board

meetings and with the Investment Manager

and Investment Adviser.

The Investment Manager and Investment

Adviser are part of the Starwood Capital

Group (SCG), which is a signatory to the

UN Principles for Responsible Investments

(UNPRI). In assessing new loans SCG

evaluates environmental risks associated with

any investments as part of the underwriting

process. A formal scope of work is followed

by the Investment Adviser, which requires

an environmental site assessment to be

performed which identifies environmental

conditions that may have a material adverse

impact on the property being assessed

or its immediate surrounding area and an

assessment of a property’s sustainability

and marketability through the review of

its environmentally friendly and unfriendly

characteristics.

The Board recognises that it has no direct

control over a borrower’s company policy

towards environment and social responsibility

and whilst it is an important part of the due

diligence process in understanding the impact

of such issues, decisions are not weighted

towards those investments with stronger

environmental and social characteristics. It

should be noted that a number of the loans

made by the Group involve refurbishment

projects and these will often improve the

environmental impact of the real estate

concerned. Additionally, whilst it is not an

investment criteria, the Group’s loan portfolio

is significantly funded in sectors with positive

social impact such as hospitality, healthcare

and residential.

In carrying out its activities and in its

relationship with the community, the Group

aims to conduct itself responsibly, ethically

and fairly; including in relation to social and

human rights issues. This approach is built

into the Investment Adviser’s origination and

underwriting process. Our risk management

framework is intended to facilitate an

enterprise wide view of risk that supports a

strong and collaborative risk management

culture within the Board and with its

relationship with SCG.

The Board (through its relationships with SCG,

its brokers and other advisers) is focused

on maintaining a productive dialogue with

shareholders and gathering feedback to inform

the decision making at Board level.

SCG, with in excess of 4,500 employees

worldwide, takes its social responsibilities

to its employees very seriously offering

a challenging, fast-paced and collegial

environment to its employees. SCG strives

to create diverse and inclusive workplaces

where all employees can perform to their full

potential and to be a good corporate citizen

for their communities by supporting charitable

organisations that promote education and

social wellbeing.

As an investment fund, the Group outsources

many of its activities to external service

providers and, therefore, the Group has no

direct Greenhouse Gas Emissions to report

from its own operations and is currently not

required to report on any other emission

producing sources.

While there is some travel involved for

the Directors and representatives from

the Investment Adviser, the Company’s

service providers are Guernsey office-based

companies, and the majority of the Directors

are based in Guernsey, thus having a relatively

low impact on the environment and negating

the need for long commutes or flights to and

from Board meetings. As a result of Covid-19

there has been an acceleration in the use

of interactive and virtual technology for

meetings, further reducing the need for travel.

The Group has no employees and the Board

is composed entirely of non-executive

Directors. Therefore, the Group is not within

scope of the Modern Slavery Act 2015 and

is therefore not obliged to make a human

trafficking statement. However, the business

of the Company is conducted ethically and

with integrity and has a zero tolerance policy

towards modern slavery.

BOARD DIVERSITY

The Board considers that its members

have a balance of skills, qualifications

and experience which are relevant to

the Company. The Board supports the

recommendations of the Davies Report,

the Hampton Alexander Review and

the Parker Review and believes in the

value and importance of diversity in the

boardroom and it continues to consider

the recommendations of these reports and

reviews as part of its succession planning.

The Company has no employees and

therefore has no disclosures to make in

this regard.

John Whittle | Chairman

23 March 2023

MARKET SUMMARY AND

INVESTMENT OUTLOOK

After decades of declining interest rates and

a long period of benign inflation, 2022 saw a

sea change in inflation and a knock on effect

into interest rates across the globe. Rising

inflation was driven by two key factors. First

as a consequence of the Covid-19 pandemic

global supply chains and shipments slowed in

2020 and 2021 causing worldwide shortages

and affecting consumer patterns.

The causes of the economic slowdown

included workers becoming sick with Covid-19

as well as mandates and restrictions affecting

the availability of staff resulting in production

and logistics disruption with goods also

remaining at port due to staffing shortages.

The related global chip shortage contributed

to the supply chain crisis, particularly in the

automobile and electronics sectors. During

the Christmas and holiday season of 2021,

an increase in spending in North America,

combined with the spread of the Omicron

variant of Covid-19, further exacerbated

already tight supplies.

To start with, the market largely expected

these issues to be transitory and inflation

would settle back as an equilibrium in supply

chains was restored. As a result central banks

were initially cautious about raising rates

which could stall a fragile economic recovery.

Market concerns began to rise about more

persistent inflation in the later part of 2021,

but the second driver that compounded the

issues was the war in Ukraine which further

disrupted supply of energy, commodities and

food. The result was an unprecedented rise

in inflation in almost every country in the

world and a huge policy response.

Subsequently US, UK and Eurozone inflation

has peaked at 9.1 per cent,11.1 per cent and

10.6 per cent respectively. In response the

central banks have acted rapidly, with the

US Fed Funds rate, UK Bank of England Base

Rate and the ECB deposit policy rate leaping

from 0-0.25 per cent, 0.25 per cent and -0.5

per cent to 4.25-4.5 per cent, 3.5 per cent

and 2.0 per cent respectively between the

end of 2021 and the end of 2022. The knock

on effect for longer rates is that benchmarks

such as the five year swap which are

typically the benchmark for commercial real

estate loans have also risen significantly. The

US, UK and Euro 5 year swaps grew from

1.11 per cent, 1.05 per cent and -0.02 per

cent to 3.70 per cent, 4.10 per cent and

3.18 per cent respectively during the year.

At the beginning of the year most economists

had seen inflation having peaked and the

expectations of future interest rises having

peaked too. Goldman Sachs expected UK

rates peaking at 4.5 per cent in May 2023

versus expectations by some economists

that they might rise as far as 5 per cent or

even 6 per cent previously, however fears

that inflation and higher rates will be more

sticky have been growing in recent weeks

due to economic data particularly the

employment statistics.

Inflation and interest rates impact hard assets

in a number of ways. For example higher

inflation in labour and construction materials

and higher interest rates for the financing

of development all lead to a higher overall

construction cost which can lead to reduced

supply which benefits existing stock. Higher

rates generally can also put pressure on real

estate yields that may look less desirable

versus other forms of long income such as

long dated bonds and higher financing costs

will leave levered real estate buyers with less

free cash after debt. On the other side of

the coin, the income of real assets is often

strongly linked to inflation either through direct

linking in the terms of a lease or through

correlation of revenue with inflation.

In markets such as logistics and residential

to rent, low levels of vacancy combined with

high demand have seen increasing rents and

this trend is likely to continue in a number of

areas where there is insufficient new supply

delivered although a bad recession could

reset demand and / or the tenants ability

to pay. Rising rents will be supportive of

values in these asset classes even while

yields are softening.

Real estate and leveraged finance volumes

fell significantly in 2022. Conditions have

improved in the first weeks of 2023 but

volumes are still lower and pricing elevated. A

large share of the increase in financing costs

has been the base interest rate component

mentioned earlier with spreads having

widened as well. Larger loans that require

distributions through syndication CMBS

or CLOs are still rare in the US and there

have been none in Europe. However, we do

continue to see steady underlying activity in

bilateral and small club deals with spreads in

Europe having changed much less than in the

bond markets since 2021 albeit with more

conservative risk metrics and structures.

As is common in lower volume markets

there has been an increased gap in appetite

between prime and secondary assets and

stock selection through asset class, sponsor

and business plan combination is absolutely

key. Where rates settle is still uncertain and

it is likely that until the equilibrium is met

we will still see smaller volumes both in

transaction and financing volumes.

We are also continuing to see the existing

themes in the bank lending market. There

is a focus on stress tests, capital treatment

and managing risk weighted assets. As a

result, the trend towards banks working

together with non-banks in co-origination or

financing of loans as opposed to providing

direct loans is persisting. This is evident in

the latest Bayes lending survey which tracks

the UK commercial real estate lending

market. The most recent report shows

that alternative lenders now provide 24 per

cent of new origination from almost none a

decade ago and we see that trend towards

an increased portion of the market with

non-bank lenders continuing.

Strategic and Business Review

Investment Manager’s Report

PORTFOLIO STATISTICS

As at 31 December 2022, the portfolio was invested in line with the Group’s investment policy

and is summarised below.

The maturity profile of investments as at 31 December 2022 is shown below.

Strategic and Business Review

Investment Manager’s Report

31 December

2022

31 December

2021

Number of investments 20 19

Percentage of invested portfolio in floating rate loans

(1)

78.9% 78.0%

Invested Loan Portfolio unlevered annualised total return

(1)

7.8% 6.9%

Invested Loan Portfolio levered annualised total return

(1)

7.9% 7.0%

Weighted average portfolio LTV – to Group first £

(1)

13.2% 16.4%

Weighted average portfolio LTV – to Group last £

(1)

58.6% 61.9%

Average loan term (stated maturity at inception) 5.0 years 4.9 years

Average remaining loan term 1.7 years 2.3 years

Net Asset Value £416.1 m £421.6 m

Amount drawn under Revolving Credit Facility

(including accrued interest)

(£19.2 m) (£8.5 m)

Loans advanced at amortised cost

(including accrued income)

£432.5 m £414.6 m

Cash £3.6 m £3.0 m

Other net assets / (liabilities)

(including the value of FX hedges)

(£0.8 m) £12.5 m

(1)

Alternative Performance Measure – refer to page 97 for definitions and methodology.

excludes any permitted extensions. Note that borrowers may elect to repay loans before contractual maturity.

Sector

% of invested

assets

Hospitality 38.7

Office 20.8

Retail 11.4

Residential 10.6

Light industrial 6.5

Healthcare 5.9

Life Sciences 4.6

Logistics 1.1

Other 0.4

Country

% of invested

assets

UK 63.1

Republic of Ireland 17.6

Spain 16.5

Netherlands 2.2

Germany 0.6

Remaining years to

contractual maturity

Value of loans

(£m)

% of invested

portfolio

0 to 1 years £172.6 40.5

1 to 2 years £107.4 25.2

2 to 3 years £86.7 20.4

3 to 5 years £59.2 13.9

Loan currency

% of invested

assets

Sterling 63.1

Euro 36.9

Loan type

% of invested

assets

Whole loans 70.0

Mezzanine 30.0

PORTFOLIO DIVERSIFICATION

The Group continues to achieve good portfolio

diversification as shown in the tables below:

The currency split refers to the underlying loan currency; however,

the capital and interest during protected periods on all non-sterling

exposure is hedged back to sterling.

Strategic and Business Review

Investment Manager’s Report

INVESTMENT DEPLOYMENT

As at 31 December 2022, the Group had 20 investments and commitments of £474.9 million as follows:

Transaction

Sterling

equivalent

balance

(1)

Sterling

equivalent unfunded

commitment

(1)

Sterling Total (Drawn

and Unfunded)

Hospitals, UK £25.0 m £25.0 m

Hotel & Residential, UK £49.9 m £49.9 m

Office, London £19.0 m £1.5 m £20.5 m

Hotel, Oxford £23.0 m

£23.0 m

Hotel, Scotland £42.6 m £42.6 m

Hotel, North Berwick £15.0 m £15.0 m

Life Science, UK £19.5 m £7.1 m £26.6 m

Hotel and Office, Northern Ireland £11.5 m £11.5 m

Hotels, United Kingdom £32.0 m £18.6 m £50.6 m

Office and Industrial Portfolio, UK £5.5 m £5.5 m

Industrial Estate, UK £27.2 m £19.0 m £46.2 m

Total Sterling Loans £270.2 m £46.2 m £316.4 m

Three Shopping Centres, Spain £30.3 m £30.3 m

Shopping Centre, Spain £15.1 m £15.1 m

Hotel, Dublin £42.0 m £42.0 m

Office, Madrid, Spain £16.4 m £0.9 m £17.3 m

Mixed Portfolio, Europe £7.8 m £7.8 m

Mixed Use, Dublin £11.2 m £1.8 m £13.0 m

Office Portfolio, Spain £8.5 m £0.1 m £8.6 m

Office Portfolio, Ireland £21.7 m £21.7 m

Logistics Portfolio, Germany £2.7 m £2.7 m

Total Euro Loans £155.7 m £2.8 m £158.5 m

Total Portfolio £425.9 m £49.0 m £474.9 m

(1)

Euro balances translated to sterling at period end exchange rates.

Between 1 January and 31 December 2022,

the following significant investments activity

occurred (included in the table above):

Additional funding by the Group (new loans

and existing commitments)

NEW LOAN: Office and Industrial Portfolio,

UK and The Netherlands

On 26 May 2022, the Group announced its

€16.4 million and £5.5 million investment in

a three-year multi-currency loan secured on

a portfolio of five offices and one industrial

property located in the Netherlands and the

UK. The €16.4 million tranche of the loan

was repaid in December 2022 and the

£5.5 million tranche of the loan was repaid

in February 2023.

NEW LOAN: Industrial Estate, UK

In September 2022 the Group funded the

initial advance of a £46.2 million floating rate

whole loan secured by an industrial estate in

Loughborough, UK.

In addition to the new loans detailed above

the Group also funded a further £14.7 million

in relation to loan commitments made in prior

years which were unfunded.

Loan Repayment

The following final loan repayment was

received during the year:

REPAYMENT OF LOAN: Office, Scotland

The £5 million loan repaid in full upon the sale

of the underlying property in line with the

sponsors business plan during the second

quarter of 2022.

Amortisation and early partial repayments

The following material loan amortisation

and early partial repayment amounts were

received during the year:

• €16.8 million of unscheduled amortisation

on the loan on the Mixed Portfolio, Europe,

following asset sales in line with the

borrower’s business plan;

• €16.4 million repayment of the euro tranche

of the Office and Industrial Portfolio, UK and

The Netherlands which was a new loan in

2022, following asset sales in line with the

borrower’s business plan;

• €12.6 million of early partial repayment on

Hotel, Dublin from surplus cash;

• €7.2 million of unscheduled amortisation

on the loan on the Office Portfolio, Dublin,

following an asset sale in line with the

borrower’s business plan;

• €3.1 million of unscheduled amortisation on

Logistics Portfolio, Germany, following an

asset sale in line with business plan; and

• €1.5 million of scheduled amortisation

on loan relating to Three Shopping

Centres, Spain loan.

PORTFOLIO OVERVIEW

The portfolio continues to perform in line

with expectations. All interest and scheduled

amortisation has been paid in line with

contractual obligations. Borrowers are also

continuing to make progress on underwritten

business plans including executing strategic

asset sales and paying down the loans.

During 2022, a total of £56.9 million was

repaid. The majority of these repayments were

related to strategic underlying property sales

executed by borrowers in line with business

plan and typically following the completion of

underwritten asset management initiatives,

with the remainder representing regular

scheduled loan amortisation or borrowers

electing to voluntarily pay down loan balances

with surplus cash.

The Group’s exposure to development and

heavy refurbishment projects continues to

decrease as current developments reach

completion. As at 31 December 2022,

£63 million or 13 per cent of total loan

commitments represented loans funding two

construction projects. Both of these projects

are expected to have reached substantial

completion during the first quarter of 2023.

The larger of these projects (with a total Group

loan commitment of £49 million) has pre-sold

the majority of its residential for-sale product

and we are forecasting the loan to be fully

repaid during 2023 from the proceeds of pre-

sold unit completions.

The Group continues to closely monitor

all of its loan exposures. Asset classes

representing more than 10 per cent of total

investments include Hospitality (39 per cent),

Office (21 per cent), Retail (11 per cent) and

Residential (11 per cent). The Hospitality

exposure is diversified across seven different

loan investments. Hotel performance on the

trading hotel assets has continued to improve

and recover from the pandemic very well

during 2022. Despite the potential that trading

may be impacted from lower discretionary

consumer spending related to inflationary

pressures, the Group’s borrowers on trading

assets such as hotels have generally indicated

a positive end to 2022 and the outlook for

2023 is cautiously optimistic based on forward

Strategic and Business Review

Investment Manager’s Report

sales activity as at year end. Office exposure

(21 per cent) is spread across eight loan

investments. Occupancy across the leased

office portfolio has held up well, with the vast

majority of the underlying tenants renewing

leases and staying in occupation. We also

continue to see prospective new tenants being

attracted particularly to newly refurbished,

high quality buildings. The Retail exposure (11

per cent) has continued to perform in line

with expectations; occupancy continues to

remain robust and footfall continues its post

pandemic recovery. Our retail loan borrowers

continue their active asset management and

are signing new leases where tenants wish to

expand and renew existing leases. Residential

exposure (11 per cent) is predominantly

related to the successfully pre-sold residential

for sale development project that is due to

complete during the first half of 2023, with

the loan projected to be fully repaid in 2023.

In general, market outlook for residential

product remains high as rents have trended

upwards with inflation over the prior year and

many markets remain supply challenged.

Across all loans we continue to benefit from

material headroom in underlying collateral

value against the loan basis, with a current

weighted average LTV of 58.6 per cent

across the portfolio. These metrics are based

on independent third party appraisals which

are typically updated annually for income

producing assets and following completion

on newly constructed or refurbished assets.

While the average age of valuations is

just over one year for income producing

assets and we recognise that interest rate

increases within the last twelve months

are expected to place downward pressure

on valuation inputs, we are confident in the

very significant buffer to absorb any negative

valuation impact of the current market. On

loans where new valuations were instructed

in the second half of 2022, average values

did not change materially as in many cases

increased rents and asset management

initiatives being achieved by sponsors

outweighed or offset any increase in discount

or capitalisation rates.

LIQUIDITY AND HEDGING

The Group is very modestly levered with net

debt of £15.4 million (3.7 per cent of NAV)

at 31 December 2022 and has significant

liquidity available with undrawn revolving credit

facilities (see note 17(

) and note 23 for further

information) to fund existing commitments.

The way in which the Group’s borrowing

facilities are structured means that it does not

need to fund mark to market margin calls. The

Group does have the obligation to post cash

collateral under its hedging facilities. However,

cash would not need to be posted until the

hedges were more than £20 million out of the

money. The mark to market of the hedges at

31 December 2022 was £0.7 million (in the

money) and with the robust hedging structure

employed by the Group, cash collateral has

never been required to be posted since

inception. The Group has the majority of its

investments currently denominated in Sterling

(although this can change over time) and is

a sterling denominated group. The Group is

therefore subject to the risk that exchange

rates move unfavourably and that a) foreign

exchange losses on the loan principal are

incurred and b) that interest payments

received are lower than anticipated when

converted back to Sterling and therefore

returns are lower than the underwritten

returns. The Group manages this risk by

entering into forward contracts to hedge the

currency risk. All non-Sterling loan principal

is hedged back to Sterling to the maturity

date of the loan (unless it was funded using

the revolving credit facilities in which case it

will have a natural hedge). Interest payments

are generally hedged for the period for which

prepayment protection is in place. However,

the risk remains that loans are repaid earlier

than anticipated and forward contracts need

to be broken early. In these circumstances

the forward curve may have moved since the

forward contracts were placed which can

impact the rate received. In addition, if the

loan repays after the prepayment protection,

interest after the prepayment protected

period may be received at a lower rate than

anticipated leading to lower returns for

that period. Conversely the rate could have

improved and returns may increase.

EXPECTED CREDIT LOSSES (IMPAIRMENT)

All loans within the portfolio are classified and measured at amortised cost less impairment.

Under IFRS 9 a three stage approach for recognition of impairment was introduced, based on

whether there has been a significant deterioration in the credit risk of a financial asset since initial

recognition. These three stages then determine the amount of impairment provision recognised.

For the purposes of classifying between

stages 1 to 3 after initial recognition, the

Group considers a change in credit risk based

on a combination of the following factors:

• Underlying income performance is at a

greater than 10 per cent variance to the

underwritten loan metrics;

• Loan to Value is greater than 75-80 per cent;

• Loan to Value or income covenant test

results are at a variance of greater than

5-10 per cent of loan default covenant level;

• Late payments have occurred and not

been cured;

• Loan maturity date is within six months

and the borrower has not presented an

achievable refinance or repayment plan;

At Initial Recognition

Recognise a loss allowance equal to 12 months expected

credit losses resulting from default events that are possible

within 12 months.

After initial recognition:

Stage 1

Credit risk has not increased significantly since initial recognition.

Recognise 12 months expected credit losses.

Stage 2

Credit risk has increased significantly since initial recognition.

Recognise lifetime expected losses.

Interest revenue recognised on a gross basis.

Stage 3

Credit impaired financial asset.

Recognise lifetime expected losses.

Interest revenue recognised on a net basis (i.e., losses are

“above the line” and impact P&L and NAV).

• Covenant and performance milestones

criteria under the loan have required more

than two waivers;

• Increased credit risk has been identified on

tenants representing greater than 25 per

cent of underlying asset income;

• Income rollover / tenant break options exist

such that a lease up of more than 30 per

cent of underlying property will be required

within 12 months in order to meet loan

covenants and interest payments; and

• Borrower management team quality has

adversely changed.

At 31 December 2022 two loans which

account for 10.8 per cent of loans advanced

by the Group are classified as Stage 2 and the

remaining loans are still classified as Stage

1. The loans classified to Stage 2 are in the

Spanish retail sector.

It is important to note that although these

loans have been classified as Stage 2 no ECLs

have been recognized. This is because the

formula for calculating the expected credit

loss is:

“Present Value of loan” x “probability of

default” x “value of expected loss”.

Although credit risk has increased for these

loans compared with the credit risk at

origination we have considered a number

of scenarios and as a result of these do not

currently expect to realise a loss in the event

of a default (i.e. the last part of the formula

above is considered to be zero for all loans).

This assessment has been made, despite the

continued global economic pressure on the

retail markets, on the basis of information in

our possession at the date of reporting, our

assessment of the risks of each loan and

certain estimates and judgements around

future performance of the assets. The position

on any potential ECLs on the Stage 2 assets

in particular continues to be closely monitored

and analysed, and we have sought input,

analysis and commentary from Spanish

market advisers and have updated external

valuations during 2022 to supplement our

own information. Although we continue to

update the information available at this point

in time we have no reason to believe that any

ECLs should be recognised against any of the

loans determined to be Stage 2. The reasons,

estimates and judgements supporting our

current assessment are as follows:

• Significant headroom on the two loans with

LTVs of between 70 per cent and 73 per

cent based on the latest valuations dated

June 2022;

• Performance of the centres when local

restrictions were lifted following the

different waves of Covid-19 has been very

encouraging for future recovery; as a result

we consider that income in the centers is

well positioned to recover post pandemic;

• We have determined that although there is

pressure in this market, it is unlike the UK

retail market as we are currently seeing no

evidence of significant liquidations in the

Spanish retail market.

Strategic and Business Review

Investment Manager’s Report

FAIR VALUE OF PORTFOLIO VS AMORTISED COST

The table below represents the value of the loans based on a discounted cash flow basis using

different discount rates.

The effective interest rate (“EIR”) – i.e. the discount rate at which future cash flows equal the

amortised cost, is 8.9 per cent. We have sensitised the cash flows at EIR intervals of 0.5 per

cent up to +/- 2.0 per cent. The table reflects how a change in market interest rates or credit

risk premiums may impact the fair value of the portfolio versus the amortised cost. The Group

considers the EIR of 8.9 per cent to be relatively conservative as many of these loans were

part of a business plan which involved transformation and many of these business plans are

either completed or well advanced in execution and therefore significantly de-risked from the

original underwriting and pricing. The volatility of the fair value to movements in discount rates

is low due to the low remaining duration of most loans.

Discount Rate Fair Value % of Book Value

6.0% (fair value) £453,301,433 104.8

6.9% £446,378,688 103.2

7.4% £442,812,482 102.4

7.9% £439,304,831 101.6

8.4% £435,854,418 100.8

8.9% £432,459,966 100.0

9.4% £429,120,227 99.2

9.9% £425,833,994 98.5

10.4% £422,600,089 97.7

10.9% £419,417,368 97.0

• On the origination of a loan, for a straight

forward standing investment asset

(for example, an occupied office), the

independent open market value determined

by an independent valuer under RICS

guidelines will be used. When considering

the relevance of these valuations in the

current market, it is important to consider

how quickly a portfolio churns. Our average

loan term from origination to repayment is

approximately 2.4 years and therefore our

valuations have been relatively fresh.

• After loan origination the Group has the

right under loan documents to obtain

valuations on an annual basis at the

expense of the borrower (based on loan

anniversary, not Group financial year end).

Where a follow on valuation has been

done we use the latest valuation number

in our calculations. However, the Group

does not instruct independent third party

valuations on a strict annual basis, only

when it is considered necessary and useful

to obtain one. 65 per cent of the total

income producing loan book have had their

valuation updated in the twelve months to

31 December 2022.

• For development projects there are a

number of potential valuation methodologies.

Our selected approach is based on giving the

clearest and most consistent presentation

of the risk. For development projects our

calculation includes the total facility available

and is calculated against the appraised

market value on completion of the relevant

project. There are other potential approaches

such as using current drawn loan balance

and current value or using total cost as a

proxy for value. However each of these

approaches has limitations. For example,

using the approach of drawn loan balance

divided by current project value will typically

understate the LTV in the earlier days of a

development when less debt is drawn before

converging to a higher LTV that matches

our methodology at the end once all the

debt is drawn. We generally retain the same

rights to valuation on development loans

as for investment assets. It is also worth

noting that the weighting of the loan within

the portfolio calculation is based off the

latest drawn balance and not the total loan

commitment.

Total loan drawn less any deductible lender

controlled cash reserves and less any

amortization received to date (including any

debt provided by other lenders which rank

alongside or senior to the Group’s position)

Market value determined by the last

formal lender valuation received by the

reporting date

LOAN TO VALUE

Given the need for the Group and most of its

peers to record loans at amortised cost, the

loan to value of companies in our sector has

understandably been an area of focus for

many of our shareholders and stakeholders

seeking to understand underlying risk further.

In order to try to assist in understanding the

underlying credit risk, we have always quoted

the last £ loan to value (“last LTV”) of our

portfolio and have outlined further detail below

on our approach to this calculation.

Methodology

Our methodology to calculate the last LTV for

each individual loan is:

Each individual loan LTV is then weighted by

the amount of the loan currently drawn (in the

Group only, ignoring the position of other third

party lenders) to give a weighted average last

LTV across the Group’s portfolio.

Valuations Process

The following describes the valuation basis

that is used in our calculation. As the vast

majority of our portfolio is originated directly

by the Investment Adviser, the Group has

discretion over when and how to instruct

valuations. We consider this to be a strength

of our valuation process as we have control

over timing and complete access to the detail

of the valuation process and the output.

Where loans are not directly originated the

lender could have a lack of control over the

timing and no input to the process which we

prefer to avoid where possible.

Strategic and Business Review

Investment Manager’s Report

Change in

Valuation

Hospitality Retail Residential Other Total

-15% 67.5% 81.5% 67.6% 67.2% 69.0%

-10% 63.7% 77.0% 63.8% 63.5% 65.1%

-5% 60.4% 72.9% 60.5% 60.1% 61.7%

0% 57.3% 69.3% 57.4% 57.1% 58.6%

5% 54.6% 66.0% 54.7% 54.4% 55.8%

10% 52.1% 63.0% 52.2% 51.9% 53.3%

15% 49.9% 60.2% 49.9% 49.7% 51.0%

On the basis of the methodology previously

outlined, at 31 December 2022 the Group

has an average last LTV of 58.6 per cent

(2021: 61.9 per cent).

The table above shows the sensitivity of

the loan to value calculation for movements

in the underlying property valuation

and demonstrates that the Group has

considerable headroom within the currently

reported last LTVs

Dividend Policy

To date, the Company has paid dividends of

5.5 pence per Ordinary Share in respect of

the year ended 31 December 2022 (2021:

5.5 pence per Ordinary Share). In addition,

on 23 March 2023, the Company declared

a special dividend of 2 pence per Ordinary

Share in respect of the year ending 31

December 2022 to be paid on 21 April 2023

to shareholders on the register as at 31

March 2023. Dividends are recognised in the

Consolidated Statement of Changes in Equity

when declared. Dividends are usually paid

within one month of the declaration date.

The Company may pay dividends out of

reserves provided that the Board of Directors

is satisfied on reasonable grounds that the

Company will, immediately after payment,

satisfy the solvency test (as defined in

the Companies (Guernsey) Law, 2008, as

amended), and satisfy any other requirement

in its memorandum and articles.

The following loans have been repaid in

full since year end up to 23 March 2023:

• Hotel, Oxford - £22,950,000

• Office and Industrial Portfolio, UK -

£5,500,000

During January and February 2023, a

total amount of £19,000,000 was paid to

Morgan Stanley as repayment of amounts

owed as at 31 December 2022 under the

credit facility held with them.

On 21 January 2023 the Directors declared

a dividend in respect of the fourth quarter

of 2022 of 1.375 pence per Ordinary Share

payable on 24 February 2023 to shareholders

on the register at 3 February 2023.

In addition, on 23 March 2023, the

Company declared a special dividend of 2

pence per Ordinary Share in respect of the

year ending 31 December 2022 to be paid

on 21 April 2023 to shareholders on the

Subsequent to year end the Lloyds credit

facility agreement was extended to May

2024 with a reduced facility amount of

£25.0 million.

Starwood European Finance

Partners Limited | Investment Manager

23 March 2023

For the year ended December 2022

5.5 pence per share has been paid out in

dividends which to date was covered 1.24x

by earnings (excluding unrealised FX gains

and losses and realised FX gains on hedges

relating to loans that have been extended).

In addition, on 23 March 2023, the Company

has declared a special dividend of 2 pence

per Ordinary Share in respect of the year

ending 31 December 2022 to be paid on 21

April 2023 to shareholders on the register as

at 31 March 2023. The Company maintains

a dividend reserve which is utilised, when

needed, to ensure dividends are not paid out

of capital.

EVENTS AFTER THE

REPORTING PERIOD

The following amounts have been drawn

under existing commitments, up to

23 March 2023:

• Mixed Use, Dublin - €109,357

The following loan amortisation (both

scheduled and unscheduled) has been

received since the year-end up to

23 March 2023:

• Hotel, Dublin - €2,449,200

• Hotel and Office, Northern Ireland -

£1,000,000

• Mixed Portfolio, Europe - €1,516,035

• Three Shopping Centres, Spain - €359,732

Governance

Board of Directors

JOHN WHITTLE | Non-executive Director – Chairman of the Board

John is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the Institute of

Directors Diploma in Company Direction. He is a Non-Executive Director and Audit Committee Chairman of The

Renewable Infrastructure Group Ltd (FTSE 250), Sancus Lending Group Ltd (listed on AIM), and Chenavari Toro

Limited Income Fund Limited (listed on the SFS segment of the Main Market of the London Stock Exchange).

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 Pricewaterhouse in London before embarking on a

career in business services, predominantly telecoms. He co-led the business turnaround of Talkland International

(which became Vodafone Retail) and was directly responsible for the strategic shift into retail distribution and its

subsequent implementation; he subsequently worked on the private equity acquisition of Ora Telecom. John is a

resident of Guernsey.

GARY YARDLEY | Non-executive Director

Gary is a Fellow of the Royal Institution of Chartered Surveyors and holds a degree in estate management from

Southbank University and an MBA. He has been a senior deal maker in the UK and European real estate market

for over 25 years. Gary was formally Managing Director & Chief Investment Officer of Capital & Counties Property

PLC (“Capco”) and led Capco’s real estate investment and development activities. Leading Capco’s team on the

redevelopment of Earls Court, Gary was responsible for acquiring and subsequently securing planning consent for

over 11m sq. ft. at this strategic opportunity area capable of providing over 7,500 new homes for London. Gary

was also heavily involved in the curation and growth of the Covent Garden estate for Capco, now an established

premier London landmark. Gary is a Chartered Surveyor with over 30 years’ experience in UK & European real

estate. He is a former CIO of Liberty International and former equity partner of King Sturge and led PwC’s real

estate team in Prague and Central Europe in the early 1990s. Gary is a resident of the United Kingdom.

SHELAGH MASON | Non-executive Director – Management Engagement Committee

Chairman and Senior Independent Director

Shelagh Mason is a solicitor specialising in English commercial property who retired as a consultant with Collas

Crill LLP in 2020. She is the Non-Executive Chairman of the Channel Islands Property Fund Limited listed on the

International Stock Exchange and is also Non-Executive Chairman of Riverside Capital PCC, sits on the board of

Skipton International Limited, a Guernsey Licensed bank, and until 28 February 2022, she was a Non-Executive

Director of the Renewables Infrastructure Fund a FTSE 250 company, standing down after nine years on the board. In

addition to the Company, she has a non-executive position with Ruffer Investment Company Limited, also a FTSE 250

company. Previously Shelagh was a member of the board of directors of Standard Life Investments Property Income

Trust, a property fund listed on the London Stock Exchange for 10 years until December 2014. She retired from the

board of Medicx Fund Limited, a main market listed investment company investing in primary healthcare facilities in

2017 after 10 years on the board. She is a past Chairman of the Guernsey Branch of the Institute of Directors and

she also holds the IOD Company Direction Certificate and Diploma with distinction. Shelagh is a resident of Guernsey.

CHARLOTTE DENTON | Non-executive Director - Audit Committee Chairman

Charlotte is a Fellow of the Institute of Chartered Accountants in England and Wales and holds a degree in

politics from Durham University. She is also a member of the Society of Trust and Estate Practitioners, a

Chartered Director and a fellow of the Institute of Directors. During Charlotte’s executive career she worked in

various locations through roles in diverse organisations, including KPMG, Rothschild, Northern Trust, a property

development startup and a privately held financial services group. She has served on boards for over fifteen years

and is currently a Non-Executive Director of various entities including Butterfield Bank (Guernsey) Limited, the GP

boards of Private Equity groups Cinven and Hitec and the Investment Manager for NextEnergy. She is also the

Audit Chair for the listed Investment Company River and Mercantile UK Micro Cap. Charlotte is a resident

of Guernsey.

PRINCIPAL ACTIVITIES AND

INVESTMENT OBJECTIVE

The Principal Activities and Investment

Objective are fully detailed in the Objective and

Investment Policy section.

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

as a registered closed-ended investment

company. The Company’s Ordinary Shares

were admitted to the premium segment of

the Financial Conduct Authority’s (“FCA”)

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 have

taken place since IPO and are listed under

“Capital” below. The issued capital during

the year comprises the Company’s Ordinary

Shares denominated in Sterling.

The Company makes 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).

References to the Group refer to the

Company and its subsidiaries.

DIVIDEND POLICY

The Company has a target dividend of 5.5

pence per Ordinary Share per annum, based

on quarterly dividend payments.

DIVIDENDS PAID AND PAYABLE

The Company has paid dividends of 1.375

pence per Ordinary Share for each of the

calendar quarters of 2022. To date, the

Company has paid a total of £22,107,601

in respect of 2022 (5.5 pence per Ordinary

Share) (2021: £22,490,120: 5.5 pence per

Ordinary Share). In addition, on 23 March

2023, the Company declared a special

dividend of 2 pence per Ordinary Share in

respect of the year ending 31 December 2022

to be paid on 21 April 2023 to shareholders

on the register as at 31 March 2023.

BUSINESS REVIEW

The Group’s performance during the year

to 31 December 2022, its position at that

date and the Group’s future developments

are detailed in the Chairman’s Statement,

the Strategic Report and the Investment

Manager’s Report.

CAPITAL

As part of the Company’s IPO completed on

17 December 2012, 228,500,000 Ordinary

Shares of the Company, with an issue price

of 100 pence per share, 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.

The following issues have been made since

the IPO:

Admission Date

Number of

Ordinary Shares

Price (pence per

Ordinary Share)

21 March 2013 8,000,000 104.25

9 April 2013 1,000,000 104.50

12 April 2013 600,000 104.00

23 July 2015 23,780,000 103.00

29 September 2015 42,300,000 102.75

12 August 2016 70,839,398 103.05

15 May 2019 38,200,000 104.75

Governance

Report of the Directors

The Company holds 17,626,702 (2021:

4,308,125) shares in treasury. The total

number of voting rights in the Company

is 395,592,696, which may be used by

shareholders as the denominator for the

calculations by which they can determine if

they are required to notify their interest in, or a

change to their interest in, the Company under

the Financial Conduct Authority’s Disclosure

and Transparency Rules. As disclosed in the

Chairman’s Statement, during the year ended

31 December 2022, the Company bought

back 13,318,577 Ordinary Shares at an

average cost of 92.84 pence per share (2021:

660,000 Ordinary Shares at an average cost

of 89.63 pence per share).

SUBSTANTIAL INTERESTS

Information provided to the Company by major

shareholders pursuant to the FCA’s Disclosure

and Transparency Rules (“DTR”) is published

via a Regulatory Information Service and is

available on the Company’s website. The

Company has been notified under Rule 5 of

the DTR of the following holdings of voting

rights in its shares as at 31 December 2022

and as at the date of this report.

Name

% holding of Ordinary

Shares at 31 December

2022

% holding of Ordinary

Shares at 7 March 2023

(the latest available)

BlackRock 19.37 19.27

Close Brothers Asset

Management

7.72 7.84

Waverton Investment

Management

7.71 7.99

Schroder Investment

Management

5.85 6.39

Fidelity International 5.05 5.05

SG Private Banking 4.09 3.76

Premier Miton Investors 3.99 3.99

Quilter Cheviot Investment

Manager

3.88 3.85

James Hambro & Partners 3.50 2.73

City of London 3.18 3.35

The Directors have adopted a code of

Directors’ dealings in Ordinary Shares, which

is based on EU Market Abuse Regulation

(“MAR”). MAR came into effect across the

EU (including the UK) on 3 July 2016. The

Board is responsible for taking all proper

and reasonable steps to ensure compliance

with MAR by the Directors and reviews such

compliance on a regular basis.

DIRECTORS’ INTERESTS

IN SHARES

The Directors’ interests in shares are

shown opposite:

Name

Ordinary Shares at

31 December 2022

Ordinary Shares at

31 December 2021

John Whittle 33,866 23,866

Shelagh Mason 112,819 112,819

Charlotte Denton 44,444 -

Gary Yardley - -

Governance

Report of the Directors

EVENTS AFTER THE

REPORTING PERIOD

Details of events after the reporting period

are contained in note 23 to the consolidated

financial statements.

INDEPENDENT AUDITOR

The Directors, at the recommendation of

the Audit Committee, conducted a tender

for the position of Independent Auditor

to the Company for the audit of the year-

ending 31 December 2023 as a form of best

practice given PricewaterhouseCoopers

CI LLP has served as the Company’s

Independent Auditor for two consecutive

terms of five years. Following a competitive

tender process, the Audit Committee

recommended that the Board continue to

engage PricewaterhouseCoopers CI LLP, who

have been engaged since the Company’s

inaugural meeting on 22 November 2012

and have been re-appointed at each AGM

held since. PricewaterhouseCoopers CI

LLP have indicated their willingness to

continue as Auditor. The Directors, at the

recommendation of the Audit Committee,

will place a resolution before the AGM to

re-appoint them as independent auditor

for the ensuing year, and to authorise the

Directors to determine their remuneration.

INVESTMENT MANAGER AND

SERVICE PROVIDERS

The Investment Manager during the year was

Starwood European Finance Partners Limited

(the “Investment Manager”), incorporated

in Guernsey with registered number 55819

and regulated by the GFSC and Alternative

Investment Fund Management Directive. The

Investment Manager has appointed Starwood

Capital Europe Advisers, LLP (the “Investment

Adviser”), an English limited liability

partnership authorised and regulated by the

FCA, to provide investment advice pursuant to

an Investment Advisory Agreement.

The administration of both the Company and

Investment Manager was delegated to Apex

Fund and Corporate Services (Guernsey)

Limited (the “Administrator”) during the year.

ORDERLY REALISATION AND

RETURN OF CAPITAL TO

SHAREHOLDERS

Under the Company’s discount control

mechanisms (contained within its previous

Articles of Association), the Company would

have been required to offer to redeem up

to 75 per cent of the shares in issue as the

Company’s discount to its Net Asset Value

per share was greater than 5 per cent or

more during the six-month period ending 31

December 2022 (the “Tender Offer”).

However, 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 to be held on 27 January 2023 (the

“EGM”) was published. The Circular set out

details of, and sought shareholder approval

for, certain 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 the 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. The

current Investment Objective and Policy

of the Company following the approval of

the Proposals are set out on page 4. The

Company maintains share repurchase

powers, as approved at the 10 June 2022

Annual General Meeting, that allow the

Company to repurchase Ordinary Shares in

the Market up to 14.99 per cent of the share

capital, subject to annual renewal of the

Shareholder authority. It is not the intention

of the Company to raise fresh capital

including through a placing programme

(subject to the publication of a prospectus of

the Company) and through opportunistic tap

issues following the approval of the Proposals

at the EGM.

SHARE BUYBACKS

The Company renewed its authority at the

recent AGM to purchase in the market up

to 14.99 per cent of the Ordinary Shares

in issue on 10 June 2022 at a price not

exceeding: (i) five per cent above the average

of the mid-market values of the Ordinary

Shares for the five Business Days before the

purchase is made; or (ii) the higher of the

last independent trade or the highest current

independent bid for the Ordinary Shares.

The Directors will give consideration to

repurchasing Shares under this authority, but

are not bound to do so, where the market

price of an Ordinary Share trades at more

than 7.5 per cent below the Net Asset Value

per Share for more than 3 months, subject

to available cash not otherwise required for

working capital purposes or the payment of

dividends in accordance with the Company’s

dividend policy.

If not previously used, this authority shall

expire at the conclusion of the Company’s

AGM in 2023. The Directors intend to seek

annual renewal of this buyback authority

from Shareholders each year at the

Company’s AGM.

As disclosed in the Chairman’s statement,

the Company has bought back 13,318,577

shares during the year ended 31 December

2022 at an average cost per share of 92.84

pence. These shares are held in treasury.

John Whittle | Chairman

23 March 2023

Governance

Directors’ Remuneration Report

REMUNERATION POLICY

& COMPONENTS

The Board endeavours to ensure the

remuneration policy reflects and supports

the Company’s strategic aims and objectives

throughout the year under review. It has

been agreed that, due to the small size

and structure of the Company, a separate

Remuneration Committee would be inefficient;

therefore, the Board as a whole is responsible

for discussions regarding remuneration.

As per the Company’s Articles of

Incorporation, all Directors are entitled

to such remuneration as is stated in the

Company’s Prospectus or as the Company

may determine by ordinary resolution; to not

exceed the aggregate overall limit of £300,000

per annum. Subject to this limit, it is the

Company’s policy to determine the level of

Directors’ fees, having regard for the level of

fees payable to non-executive Directors in

the industry generally, the role that individual

Directors fulfil in respect of responsibilities

related to the Board, Management

Engagement Committee and Audit Committee

and the time dedicated by each Director to the

Company’s affairs. Base fees are set out in the

table below.

Director

Role

Total Fee

2022

Total Fee

2021

John Whittle

Chairman with effect from

1 January 2022

60,000 45,000

Shelagh Mason

Management Engagement

Committee Chairman and Senior

Independent Director

45,000 42,500

Charlotte Denton

Audit Committee Chairman with

effect from 1 January 2022

50,000 40,000

Gary Yardley

Non-Executive Director with effect

from 6 September 2021

42,000 12,712

Stephen Smith

Chairman with effect to

31 December 2021

- 50,000

Aggregate fees 197,000 190,212

Aggregate expenses 6,373 5,198

Total 203,373 195,410

As outlined in the Articles of Incorporation, the

Directors may also be paid for all reasonable

travelling, accommodation and other out-

of-pocket expenses properly incurred in

the attendance of Board or Committee

meetings, general meetings, or meetings with

shareholders or debentures of the Company or

otherwise in discharge of their duties; and all

reasonable expenses properly incurred by them

seeking independent professional advice on any

matter that concerns them in the furtherance

of their duties as Directors of the Company.

No Director has any entitlement to pensions,

paid bonuses or performance fees, has been

granted share options or been invited to

participate in long-term incentive plans. No

loans have been originated by the Company

for the benefit of any Director.

None of the Directors have a service contract

with the Company. Each of the Directors have

entered into a letter of appointment with the

Company. The letters of appointment were

reviewed and amended in 2019 by an external

party to ensure that they were in line with

market standards prevailing at the time. Each

Director is subject to annual re-election.

The Directors do not have any interests

in contractual arrangements with the

Company or its investments during the

year under review, or subsequently. Each

appointment can be terminated in accordance

with the Company’s Articles and without

compensation. As outlined in the letters

of appointment, each appointment can be

terminated at the will of both parties with

one month’s notice either by (i) written

resignation; (ii) unauthorised absences from

Board meetings for 12 months or more; (iii)

written request of the other Directors; or (iv) a

resolution of the shareholders.

Directors’ and Officers’ liability insurance

cover is maintained by the Company but is not

considered a benefit in kind nor constitutes

a part of the Directors’ remuneration. The

Company’s Articles indemnify each Director,

Secretary, agent and officer of the Company,

former or present, out of assets of the

Company in relation to charges, losses,

liabilities, damages and expenses incurred

during the course of their duties, in so far

as the law allows and provided that such

indemnity is not available in circumstances of

fraud, wilful misconduct or negligence.

By order of the Board

John Whittle | Chairman

23 March 2023

Governance

Corporate Governance Statement

JOHN WHITTLE | Chairman

As a regulated Guernsey incorporated

company with a Premium Listing on the

Official List and admission to trading on the

Main Market for Listed Securities of the

London Stock Exchange, the Company is

required to comply with the principles of the

UK Corporate Governance Code dated July

2018 (“UK Code”).

As an AIC member, the Board has also

considered the principles and provisions of

the AIC Code of Corporate Governance dated

February 2019 (“AIC Code”). The AIC Code

addresses all the principles set out in the

UK Code, as well as setting out additional

principles and provisions on issues of specific

relevance to the Company. The AIC Code has

been endorsed by the Financial Reporting

Council as ensuring investment company

boards fully meet their obligations to the UK

Code and LR 9.8.6 of the Listing Rules.

Except as disclosed within the report, the

Board is of the view that throughout the

year ended 31 December 2022, the

Company complied with the principles

and provisions of the AIC Code. Key

issues affecting the Company’s corporate

governance responsibilities, how they are

addressed by the Board and application of

the AIC Code are presented below. There

is no information that is required to be

disclosed under Listing Rule 9.8.4.

The UK Code includes provisions relating to:

the role of the chief executive; executive

Directors’ remuneration; and the need for

an internal audit function which are not

considered by the Board to be relevant to

the Company, being an externally managed

investment company. The Company has

therefore not reported further in respect

of these provisions.

The Guernsey Financial Services Commission

Finance Sector Code of Corporate

Governance (“GFSC Code”) came into force

in Guernsey on 1 January 2012 and was

amended in February 2016 and June 2021.

The Company is deemed to satisfy the GFSC

Code provided that it continues to conduct

its governance in accordance with the

requirements of the AIC Code.

CHAIRMAN

Appointed to the position of Chairman of

the Board on 1 January 2022, John Whittle

is responsible for leading the Board in all

areas, including determination of strategy,

organising the Board’s business and ensuring

the effectiveness of the Board and individual

Directors. He also endeavours to produce an

open culture of debate within the Board.

The Chairman’s appointment is in line with the

previously released Succession Plan. Prior to

the Chairman’s appointment, a job specification

was prepared which included an assessment

of the time commitment anticipated for the

role. Discussions were undertaken to ensure

that the Chairman was sufficiently aware of

the time needed for his role and agreed to this

upon signature of his letter of appointment.

Other significant business commitments of the

Chairman were disclosed to the Company prior

to his appointment to the Board and a current

list of commitments is set out in his biography

on page 28.

The effectiveness and independence of the

Chairman is evaluated on an annual basis as

part of the Board’s performance evaluation;

the Management Engagement Committee

Chairman is tasked with collating feedback and

discussing with the Chairman on behalf of the

rest of the Board.

As per the Company’s Articles, all Directors,

including the Chairman, must disclose any

interest in a transaction that the Board and

Committees will consider. To ensure that all

Board decisions are independent, the said

conflicted Director is not entitled to vote in

respect of any arrangement connected to

the interested party but may be counted in

the quorum.

BOARD

Independence and Disclosure

The Chairman confirms that the initial Board,

consisting of Messrs. Jonathan Bridel (resigned

31 December 2020), Stephen Smith (resigned

31 December 2021) and himself were

selected prior to the Company’s launch and

were able to assume all responsibilities at an

early stage, independent of the Investment

Manager and Investment Adviser. Shelagh

Mason was appointed as a non-executive

Director during 2020 and Charlotte Denton

and Gary Yardley were appointed as non-

executive Directors on 1 January 2021 and 6

September 2021, respectively, in accordance

with the Board’s previous Succession Planning

Memorandum. The Board is composed entirely

of independent non-executive Directors, who

meet as required without the presence of the

Investment Manager or service providers to

scrutinise the achievement of agreed goals,

objectives and monitor performance. Through

the Audit Committee and the Management

Engagement Committee they are able to

ascertain the integrity of financial information

and confirm that all financial controls and risk

management systems are robust and analyse

the performance of the Investment Manager

and other service providers on a regular basis.

Following the annual performance evaluation,

it was deemed that the Directors had been

proven to challenge the Investment Manager

throughout the year under review, as minuted

and recorded, therefore for the purposes of

assessing compliance with the AIC Code, the

Board as a whole considers that each Director

is independent of the Investment Manager and

free from any business or other relationship

that could materially interfere with the exercise

of their independent judgment. If required,

the Board is able to access independent

professional advice. The Investment Manager is

also requested to declare any potential conflicts

surrounding votes, share dealing and soft

commissions on an annual basis to the Board

to help with the assessment of investments.

Open communication between the

Investment Manager and the Board is

facilitated by regular Board meetings, to

which the Investment Manager is invited to

attend and update the Board on the current

status of the Company’s investments, along

with ad hoc meetings as required.

Coming to mutual agreement on all decisions,

it was agreed that the Board had acted in the

best interests of the Company to the extent

that, if deemed appropriate, a Director would

abstain or have his objection noted, which

would be reflected within the minutes.

Similar to the process outlined above for

the appointment of the Chairman, a job

specification was prepared for each initial

directorship which included an assessment

of the time commitment anticipated for the

role to ensure each Director was aware of

the time commitment needed for the role.

The Directors’ other significant business

commitments were disclosed to the

Company prior to their appointment to the

Board and were publicly disclosed in the

Company’s Prospectus dated 28 November

2012. A similar process was followed as

part of the succession planning outlined

above. Any subsequent changes have been

declared. Certain of these commitments can

be identified in each Director’s biography on

page 28. Details of the skills and experience

provided by each Director can also be found

in their biographies, alongside identification

of the role each Director currently holds in

the Company.

The terms and conditions of appointment for

non-executive Directors are outlined in their

letters of appointment and are available for

inspection by any person at the Company’s

registered office during normal business hours

and at the AGM for fifteen minutes prior to and

during the meeting. The letters of appointment

were previously reviewed by an external party

and amended to ensure that they are in line

with current market standards.

There is no executive Director function in

the Company; all day-to-day functions are

outsourced to external service providers.

Development

The Board believes that the Company’s

Directors should develop their skills and

knowledge through participation at relevant

courses. The Chairman is responsible for

reviewing and discussing the training and

development of each Director according to

specific needs. Upon appointment, all Directors

participate in discussions with the Chairman

and other Directors to understand the

responsibilities of the Directors, in addition to

the Company’s business and procedures. The

Company also provides regular opportunities

for the Directors to obtain a thorough

understanding of the Company’s business

by regularly meeting members of the senior

management team from the Investment

Manager, Investment Adviser and other service

providers, both in person, by phone and through

virtual meetings.

Balance of the Board and Diversity Policy

It is perceived that the Board is well-balanced,

with a wide array of skills, experience and

knowledge that ensures it functions correctly

and that no single Director may dominate the

Board’s decisions.

The Board’s position on diversity can be seen

in the Strategic Report. All Directors currently

sit on all the Committees, with the exception

of the Chairman, who is not a member of

the Audit Committee; additionally, no single

Director fills more than one Committee

chairmanship post.

Annual Performance Evaluation

The Board’s balance is reviewed on a regular

basis as part of a performance evaluation

review. Using a pre-determined template

based on the AIC Code’s provisions as a basis

for review, the Board undertook an evaluation

of its performance, and in addition, an

evaluation focusing on individual commitment,

performance and contribution of each Director

was conducted. The Chairman then met

with each Director to fully understand their

views of the Company’s strengths and to

identify potential weaknesses. If appropriate,

new members are proposed to resolve any

perceived issues, or a resignation is sought.

Following discussions and review of the

Chairman’s evaluation by the other Directors,

the Management Engagement

Committee Chairman reviewed the Chairman’s

performance. Training and development

needs are identified as part of this process,

thereby ensuring that all Directors are able to

discharge their duties effectively.

Given the Company’s size and the structure

of the Board, no external facilitator or

independent third party was used in the

performance evaluation. The need to appoint

an external facilitator is reviewed by the Board

on an annual basis.

Governance

Corporate Governance Statement

Re-election and Board Tenure

There is currently no Nominations Committee

for the Company as it is deemed that the size,

composition and structure of the Company

would mean the process would be inefficient

and counterproductive. The Board therefore

undertakes a thorough process of reviewing

the skill set of the individual Directors,

and proposes new, or renewal of current

appointments to the Board.

Each Director is required to be elected

by shareholders at the AGM following his

appointment by the Board. As part of the

recommendations of the AIC Code, the

Directors put themselves forward for annual

re-election. In light of this, all Directors,

are therefore submitting themselves for

re-election.

The Audit Committee Members and the Board

confirm that all Directors have proven their

ability to fulfil all legal responsibilities and to

provide effective independent judgment on

issues of strategy, performance, resources

and conduct. The Board therefore has no

hesitation in recommending to Shareholders

that all Directors are re-elected.

Appointment Process

The Directors appointment process involves

identifying gaps and needs in the Board’s

composition and then reviewing the skill set of

potential candidates with a view to making an

appointment that fills the identified gaps and

needs. Currently there is no gap that currently

needs to be filled. Should a gap be identified,

the Board would engage an independent

search consultancy with no connection to

the Company or its Directors, to assist in

appointments to satisfy such gaps.

Succession Planning

The Company enters its eleventh year in

2023 and the Board has been mindful in the

implementation of the previously announced

succession plan. During Q4 2019, the Directors

devised a Succession Planning Memorandum.

The Memorandum stated that a new Director

was to be appointed to the Board during the

second half of 2021 giving them time to get up

to speed prior to Stephen Smith standing down

from the Board in December 2021. Charlotte

Denton and Gary Yardley were duly appointed

on 1 January 2021 and 6 September 2021,

respectively.

Upon Stephen Smith’s retirement from the

Board during December 2021, John Whittle

was subsequently appointed as Chairman of

the Board as of 1 January 2022. Charlotte

Denton became Chairman of the Audit

Committee as of 1 January 2022. Shelagh

Mason became the Senior Independent

Director as of 20 January 2022.

As disclosed in previous reports, it was the

Board’s intention that John Whittle would

remain on the Board until December 2023 in

light of (i) John Whittle’s extensive familiarity

with the Company; (ii) the previously

challenging market circumstances facing the

Company; and (iii) the extensive rotation of the

Board in recent years. Given the shareholder

approval to progress the Orderly Realisation and

Return of Capital, as passed by shareholder

resolution at the Extraordinary General Meeting

on 27 January 2023, the Board are of the

view that it is in shareholders’ best interests

that John Whittle remains on the Board until

the completion of the Orderly Realisation and

Return of Capital to Shareholders. This will

ensure that the Board and shareholders will

benefit from the significant experience and

knowledge of the Company and its portfolio

that John Whittle has developed since the

Company’s IPO.

In terms of the new appointments, with the

approval of the Orderly Realisation and Return

of Capital and the previously announced

succession plan being largely completed, the

Directors believe that the current composition

of three Guernsey Directors and one Director

from the United Kingdom works well in terms

of satisfying the Company’s requirements.

To the extent applicable or required, the Board

will continue to consider diversity when

making the new appointments to the Board.

At present, the Directors wish to leave the

succession and the tenure policy of the

Chairman open indefinitely, with no changes

currently planned.

BOARD AND COMMITTEES

Board

Matters reserved for the Board include review

of the Company’s overall strategy and business

plans; approval of the Company’s half-yearly

and annual reports; review and approval of any

alteration to the Group’s accounting policies

or practices and valuation of investments;

approval of any alteration to the Company’s

capital structure; approval of the dividend

policy; appointments to the Board and

constitution of Board Committees; observation

of relevant legislation and regulatory

requirements; and performance review of

key service providers. The Board also retains

ultimate responsibility for Committee decisions;

every Committee is required to refer to the

Board, who will make the final decision.

Terms of reference that contain a formal

schedule of matters reserved for the Board of

Directors and its duly authorised Committee

for decision has been approved and can be

reviewed at the Company’s registered office.

The meeting attendance record is displayed

in the Corporate Governance statement. The

Company Secretary acts as the Secretary to

the Board.

Audit Committee

The Board has established an Audit Committee

which was composed of all the independent

members of the Board other than Chairman

of the Board. The Chairman of the Board,

although not a member of the Committee,

may still attend the meetings upon invitation

by the Audit Committee Chairman. The Audit

Committee, its membership and its terms of

reference are kept under regular review by

the Board, and it is confident that all members

have sufficient financial skills and experience,

and competence relevant to the Company’s

sector. John Whittle was the Audit Committee

Chairman until 31 December 2021. Charlotte

Denton was appointed on 24 March 2021

to the Audit Committee and has become

chairman of the Audit Committee with effect

from 1 January 2022.

The Audit Committee met four times during

2022 (2021: three times). The Company

Secretary acts as the Secretary to the

Audit Committee.

Owing to the size and structure of the

Company, there is no internal audit function.

The Audit Committee has reviewed the need

for an internal audit function and perceived

that the internal financial and operating control

systems in place within the Group and its

service providers, for example as evidenced

by the Report on Controls at a Service

Organisation (“SOC 1 Type 2 Report”) on the

internal procedures of the Administrator, give

sufficient assurance that a sound system of

internal control is maintained that safeguards

shareholders’ investment and Group’s assets.

The Audit Committee is intended to assist the

Board in discharging its responsibilities for the

integrity of the Group’s consolidated financial

statements, as well as aiding the assessment

of the Group’s internal control effectiveness

and objectivity of the external Auditors.

Further information on the Audit Committee’s

responsibilities is given in the Report of the

Audit Committee.

Formal terms of reference for the Audit

Committee are available at the registered

office and on the Company’s website and

are reviewed on a regular basis.

Management Engagement Committee

The Company has established a Management

Engagement Committee which comprises

all the Directors, with Shelagh Mason as the

Chairman of the Committee. The Management

Engagement Committee’s main function is

to review and make recommendations on

any proposed amendment to the Investment

Management Agreement and keep under

review the performance of the Investment

Manager; and undertake an assessment

of the Investment Manager’s scope and

responsibilities as outlined in the service

agreement and prospectus on a formal basis

every year. Discussions on the Investment

Manager’s performance are also conducted

regularly throughout the year by the Board.

Reviews of engagements with other service

providers, such as the Administrator, to

ensure all parties are operating satisfactorily

are also undertaken by the Management

Engagement Committee so as to ensure

the safe and accurate management and

administration of the Company’s affairs and

business and that they are competitive and

reasonable for Shareholders.

The Management Engagement Committee

met twice during 2022 (2021: once) and

undertook a review of the key service

providers to the Group and the Company,

utilising a service provider questionnaire. No

material weaknesses were identified and the

recommendation to the Board was that the

current arrangements were appropriate and

provided good quality services and advice to

the Company and the Group.

Formal terms of reference for the Management

Engagement Committee are available at the

registered office and the Company’s website

and are reviewed on a regular basis.

(1)

The ad hoc Board meetings are convened at short notice to deal with administrative matters. It is not therefore always logistically feasible, or a

necessity, for the Chairman of the Board to attend such meetings.

Scheduled

Board

Ad hoc

Board

(1)

Audit

Committee

Management

Engagement

Committee

John Whittle 4 9 4 2

Shelagh Mason 4 10 4 2

Charlotte Denton 4 9 4 2

Gary Yardley 4 9 4 2

Total Meetings

for year

4 10 4 2

The Company Secretary acts as the secretary

to the Management Engagement Committee.

Board and Committee Meeting Attendance

Individual attendance at Board and committee

meetings is set out above.

In addition to the scheduled quarterly and

additional ad hoc meetings, the Directors

and the Investment Manager have been

provided with a number of videoconference

or telephone investment briefings by the

Investment Adviser in order to keep the

Directors and the Investment Manager fully

apprised and up to date with the current

investment status and progress. During 2018,

a committee of one Director was appointed

to approve dividends should a quorum of two

Directors not be available.

BOARD REMUNERATION

As outlined in the Prospectus, Directors are

paid in accordance with agreed principles

aimed at focusing on long-term performance

of the Company. Further information can be

found in the Directors’ Remuneration Report

COMPANY SECRETARY

Reports and papers, containing relevant,

concise and clear information, are provided to

the Board and Committees in a timely manner

to enable review and consideration prior to

both scheduled and ad-hoc specific meetings.

This ensures that Directors are capable of

contributing to, and validating, the development

of Company strategy and management. The

regular reports also provide information that

enables scrutiny of the Company’s Investment

Manager and other service providers’

Governance

Corporate Governance Statement

performance. When required, the Board has

sought further clarification of matters with

the Investment Manager and other service

providers, both by means of further reports and

in-depth discussions, in order to make more

informed decisions for the Company.

Under the direction of the Chairman, the

Company Secretary facilitates the flow of

information between the Board, Committees,

the Investment Manager and other service

providers through the development of

comprehensive, detailed meeting packs,

agendas and other media. These are circulated

to the Board and other attendees in sufficient

time to review the data.

Full access to the advice and services of the

Company Secretary is available to the Board;

in turn, the Company Secretary is responsible

for advising on all governance matters through

the Chairman. The Articles and schedule of

matters reserved for the Board indicate the

appointment and resignation of the Company

Secretary is an item reserved for the full Board.

A review of the performance of the Company

Secretary is undertaken by the Board on a

regular basis.

FINANCIAL AND BUSINESS

INFORMATION

An explanation of the Directors’ roles and

responsibilities in preparing the Annual

Report and Audited Consolidated Financial

Statements for the year ended 31 December

2022 is provided in the Statement of Directors’

Responsibilities.

Further information enabling shareholders to

assess the Company’s performance, business

model and strategy can be sourced in the

Chairman’s Statement, the Strategic Report

and the Report of the Directors.

GOING CONCERN

The Directors also considered it appropriate

to prepare the financial statements on the

going concern basis, as explained in the

‘Basis of preparation’ paragraph in note 2(a)

of the financial statements which includes

consideration of the EGM.

RISK CONTROL

In addition to the earlier assessment of

principal risks and uncertainties contained

within the Strategic Report, the Board is

required annually to review the effectiveness

of the Group’s key internal controls such as

financial, operational and compliance controls

and risk management. The controls are

designed to ensure that the risk of failure to

achieve business objectives is minimised and

are intended to provide reasonable assurance

against material misstatement or loss. This

is not absolute assurance that all risks are

eliminated.

Through regular meetings of the Audit

Committee, the Board seeks to maintain

full and effective control over all strategic,

financial, regulatory and operational issues.

The Board maintains an organisational and

committee structure with clearly defined lines

of responsibility and delegation of authorities.

RISK MANAGEMENT

As part of the compilation of the risk register

for the Company, appropriate consideration has

been given to the relevant control processes

and that risk is considered, assessed and

managed as an integral part of the business.

The Company’s system of internal control

includes inter alia the overall control exercise,

procedures for the identification and evaluation

of business risk, the control procedures

themselves and the review of these internal

controls by the Audit Committee on behalf of

the Board. Each of these elements that make

up the Company’s system of internal financial

and operating control is explained in further

detail as below.

(i) Control Environment

The Company is ultimately dependent upon

the quality and integrity of the staff and

management of the Investment Manager,

the Investment Adviser and its Fund

Administration & Company Secretarial service

provider. In each case, qualified and able

individuals have been selected at all levels.

The staff of both the Investment Manager

and Administrator are aware of the internal

controls relevant to their activities and are also

collectively accountable for the operation of

those controls. Appropriate segregation and

delegation of duties is in place.

The Audit Committee undertakes a review

of the Company’s internal financial and

operating controls on a regular basis.

The Auditors of the Company consider

internal controls relevant to the Company’s

preparation and fair presentation of the

consolidated financial statements in order

to design their audit procedures, but not for

the purpose of expressing an audit opinion

on the effectiveness of the Company’s

internal controls.

In its role as a third-party fund administration

services provider, Apex Fund and Corporate

Services (Guernsey) Limited produces an

annual SOC 1 Type 2 Report on the internal

control procedures in place within Apex Fund

and Corporate Services (Guernsey) Limited

and this is subject to review by the Audit

Committee and the Board.

(ii) Identification and Evaluation of

Business Risks

Another key business risk is the performance of

the Company’s investments. This is managed

by the Investment Manager, which undertakes

regular analysis and reporting of business

risks in relation to the loan portfolio, and then

proposes appropriate courses of action to the

Board for their review.

(iii) Key Procedures

In addition to the above, the Audit Committee’s

key procedures include a comprehensive

system for reporting financial results to the

Board regularly, as well as quarterly impairment

reviews of loans conducted by the Board as

a whole (including reports on the underlying

investment performance).

Although no system of internal control can

provide absolute assurance against material

misstatement or loss, the Company’s system

is designed to assist the Directors in obtaining

reasonable assurance that problems are

identified on a timely basis and dealt with

appropriately. The Company, given its size, does

not have an internal audit function. It is the view

of the Board that the controls in relation to the

Company’s operating, accounting, compliance

and IT risks performed robustly throughout

the year. In addition, all have been in full

compliance with the Company’s policies and

external regulations, including:

• Investment policy, as outlined in the IPO

documentation, and subsequently amended

by EGMs held on 2 May 2014, 9 March 2015,

6 May 2016 and 27 January 2023;

• Personal Account Dealing, as outlined in the

Model Code;

• Whistleblowing Policy;

• Anti-Bribery Policy;

• Applicable Financial Conduct Authority

Regulations;

• Listing Rules, and Disclosure and

Transparency Rules;

• Treatment and handling of confidential

information;

• Conflicts of interest;

• Compliance policies; and

• Anti-Money Laundering Regulations.

There were no protected disclosures made

pursuant to the Company’s whistleblowing

policy, or that of service providers in relation

to the Company, during the year to

31 December 2022.

In summary, the Board considers that the

Company’s existing internal financial and

operating controls, coupled with the analysis

of risks inherent in the business models of

the Company and its subsidiaries, continue to

provide appropriate tools for the Company to

monitor, evaluate and mitigate its risks.

ALTERNATIVE INVESTMENT

FUND MANAGEMENT DIRECTIVE

(“AIFMD”)

The AIFMD, which was implemented

across the EU on 22 July 2013 with the

transition period ending 22 July 2014, aims

to harmonise the regulation of Alternative

Investment Fund Managers (“AIFMs”)

and imposes obligations on managers

who manage or distribute Alternative

Investment Funds (“AIFs”) in the EU or

who market shares in such funds to EU

investors. Following the UK’s cessation of EU

membership on 31 January 2020, the FCA

has implemented an equivalent regulation

(“UK AIFMD”) for the marketing of AIFs in the

UK and to UK investors.

After seeking professional regulatory and

legal advice, the Company was established

in Guernsey such that, upon implementation

of AIFMD it would be a Non-EU/UK AIF, with

Starwood European Finance Partners Limited

appointed to act as the Non-EU/UK AIFM.

In accordance with AIFMD disclosure

obligations, note 6 provides a summary of

realised and unrealised gains and losses.

The Investment Manager does not receive an

additional fee, to that stated in notes 3 and

22, as a result of acting as the AIFM. The

Board of the Investment Manager received an

aggregate fee of £63,600 for the year ended

31 December 2022.

The marketing of shares in AIFs that are

established outside the EU/UK (such

as the Company) to investors in an EU

member state/ UK is prohibited unless

certain conditions are met. Certain of these

conditions are outside the Company’s control

as they are dependent on the regulators

of the relevant third country (in this case

Guernsey) and the relevant EU member

state/UK entering into regulatory co-

operation agreements with one another.

The AIFM has given written notification

to the United Kingdom Financial Conduct

Authority (“FCA”), pursuant to Regulation 59

of the Alternative Investment Fund Managers

Regulations 2013 (SI 1773/2013) (the “AIFM

Regulations”) of its intention to market the

shares to investors in the United Kingdom in

accordance with the AIFM Regulations and

the rules and guidance of the FCA.

The AIFM has given written notification to

the Netherlands Authority for the Financial

Markets (“AFM”) pursuant to Article 1:13b

section 1 and 2 of the Act on the Financial

Supervision (Wet op het financieel toezicht)

(the “AFS”) of its intention to market the

shares to investors in the Netherlands in

accordance with the AFS, any rules and

regulations promulgated pursuant thereto

and the rules and guidance of the AFM.

On 12 February 2016, the AIFM obtained a

marketing licence in Sweden in accordance

with Chapter 5, Section 10 of the Swedish

Alternative Investment Fund Managers

Act (Sw. lag (2013:561) om förvaltare av

alternativa investeringsfonder). This enables

shares in the Company to be marketed to

professional investors in Sweden.

Currently, the National Private Placement

Regime (“NPPR”) provides a mechanism to

market Non-EU AIFs that are not allowed

to be marketed under the AIFMD domestic

marketing regimes. The Board is utilising

NPPR in order to market the Company,

specifically in the UK, Sweden and the

Netherlands. The Board works with the

Company’s advisers to ensure the necessary

conditions are met, and all required notices

and disclosures are made under NPPR.

Any regulatory changes arising from

implementation of the AIFMD (or otherwise)

that limit the Company’s ability to market

future issues of its shares may adversely

affect the Company’s ability to carry out its

investment policy successfully and to achieve

its investment objective, which in turn may

adversely affect the Company’s business,

financial condition, results of operations,

NAV and/or the market price of the

Ordinary Shares.

The Board, in conjunction with the

Company’s advisers, will continue to monitor

the development of the AIFMD and its impact

on the Company. The Company will continue

to use NPPR pending further consultation

from the European Securities and Marketing

Authority (“ESMA”).

The Board has considered the disclosure

obligations under Articles 22 and 23 and can

confirm that the Company complies with

the various organisational, operational and

transparency obligations.

The Board has considered requirements of

Articles 6 and 7 of Regulation 2019/2088

on sustainability-related disclosures in the

financial services sector dated 27 November

2019 and have made the necessary

disclosures on the Company’s website.

FOREIGN ACCOUNT TAX

COMPLIANCE ACT (“FATCA”) AND

THE OECD COMMON REPORTING

STANDARDS (“CRS”)

FATCA became effective on 1 January

2013 and is being gradually implemented

internationally. The legislation is aimed at

determining the ownership of US assets

in foreign accounts and improving US Tax

compliance with respect to those assets.

More than 90 jurisdictions, including all 34

member countries of the Organisation for

Economic Co-operation and Development

(“OECD”) and the G20 members, have

committed to implement the Common

Reporting Standard for automatic exchange of

tax information (“CRS”). Building on the model

created by FATCA, the CRS creates a global

standard for the annual automatic exchange

of financial account information between the

relevant tax authorities.

The Board in conjunction with the Company’s

service providers and advisers have ensured

that the Company complies with FATCA and

CRS’s requirements to the extent relevant to

the Company.

SECTION 172 STATEMENT

Whilst directly applicable to UK domiciled

companies, the intention of the AIC Code is that

the below matters set out in section 172 of the

UK Companies Act, 2006 are reported.

Risk Management

In order to minimise the risk of failure to

achieve business objectives, the Company

actively identifies, evaluates, manages

and mitigates risk as well as continually

evolving the approach to risk management.

For further details in connection with Risk

Management of the Company, please refer

to the Strategic Report and the Corporate

Governance Statement.

Governance

Corporate Governance Statement

Our People

The Company has no employees, however, to

succeed we need to manage the Company’s

performance by bringing through talent to

the Board while ensuring we operate as

efficiently as possible, as demonstrated with

the succession plan. For further details in

connection with the succession plan, please

refer to the Corporate Governance Statement.

Business Relationships

In order for the Company to succeed, it

requires to develop and maintain long-term

relationships with service providers and

borrowers. The Company values all of its

service providers and borrowers.

Community and Environment

As an investment company, the Group’s

activities have minimal direct impact on the

environment. Please refer to the Strategic

Report for more details in connection with

the impact of the Group’s operations on the

community and environment.

Business Conduct

The Company is committed to act responsibly

and ensure that the business operates in a

responsible and effective manner and with

high standards in order to meet its objectives.

Shareholders

The Board place a great deal of importance

on communication with all shareholders and

envisage to continuing effective dialogue with

all shareholders. Please refer to section below

for more details on how the Company engages

with the shareholders.

Throughout 2023, the Board of the Company,

both individually and together, will continue to

review and challenge how the Company can

continue to act in good faith to promote the

success of the Company for the benefit of its

stakeholders in the decisions taken.

DIALOGUE WITH SHAREHOLDERS

The Directors place a great deal of importance

on communication with shareholders. The

Company’s Chairman, Investment Manager and

the Broker, aim to meet with large shareholders

at least annually, together with the Investment

Adviser, and calls are undertaken on a regular

basis with shareholders. The Board also

receives regular reports from the Broker on

shareholder issues. Publications such as the

Annual Report and Consolidated Financial

Statements and quarterly factsheets - which

in light of the considerable disruption from

Covid-19 the Board has sought to provide more

detailed updates and disclosures - are reviewed

and approved by the Board prior to circulation

and are widely distributed to other parties who

have an interest in the Company’s performance

and are available on the Company’s website.

The Chairman met with multiple large

shareholders in October 2022, where it was

concluded that the likely take-up of a potential

future Tender Offer would be significant

and that the Company would no longer

be of a viable size to provide shareholders

with sufficient liquidity and scale. Following

these consultations and the subsequent

announcement on 31 October 2022, the

Company’s Proposed Orderly Realisation

was progressed and approved at the EGM as

discussed on page 4.

All Directors are available for discussions

with the shareholders, in particular the

Chairman (John Whittle), Senior Independent

Director (Shelagh Mason) and the Audit

Committee Chairman (Charlotte Denton),

as and when required.

Should a situation arise where shareholders

cast a vote of 20 per cent or more against

a board recommendation the directors will

consult with shareholders to understand their

reasons behind this vote. The Board will publish

the views received from the shareholders

within six months of the shareholder meeting.

CONSTRUCTIVE USE OF AGM

The Notice of AGM is sent out at least 20

working days in advance of the meeting. All

shareholders have the opportunity to put

questions to the Board or Investment Manager,

either formally at the Company’s AGM,

informally following the meeting, or in writing

at any time during the year via the Company

Secretary. The Company Secretary is also

available to answer general shareholder queries

at any time throughout the year.

By order of the Board

John Whittle | Chairman

23 March 2023

Governance

Report of the Audit Committee

The Board is supported by the Audit

Committee, which during the year comprised

of Charlotte Denton, as Chairman, Shelagh

Mason, and Gary Yardley. John Whittle, as

Chairman of the Board, does not sit on the

Audit Committee. The Board has considered

the composition of the Audit Committee and

is satisfied that it has sufficient recent and

relevant skills and experience. In particular the

Board has considered the requirements of the

AIC Code that the Audit Committee should

have at least one Member who has recent

and relevant financial experience and that the

Audit Committee as a whole has competence

relevant to the sector in which the Company

invests. The Board considers all of the relevant

requirements to have been met.

ROLE AND RESPONSIBILITIES

The primary role and responsibilities of the

Audit Committee are outlined in the Audit

Committee’s terms of reference, available at

the registered office, including:

• Reviewing the Group’s internal financial

controls, and the Group’s internal control and

risk management systems;

• Monitoring the need for an internal audit

function annually;

• Monitoring and reviewing the scope,

independence, objectivity and effectiveness of

the external Auditor, taking into consideration

relevant regulatory and professional

requirements;

• Making recommendations to the Board in

relation to the appointment, re-appointment

and removal of the external Auditor and

approving their remuneration and terms of

engagement, which in turn can be placed

before the shareholders for their approval at

the AGM;

• Development and implementation of the

Group’s policy on the provision of non-

audit services by the external Auditor, as

appropriate;

• Reviewing the arrangements in place to

enable Directors and staff of service providers

to, in confidence, raise concerns about

possible improprieties in matters of financial

reporting or other matters insofar as they may

affect the Group;

• Providing advice to the Board on whether

the consolidated financial statements,

taken as a whole, are fair, balanced and

understandable and provide the information

necessary for shareholders to assess the

Group’s performance, business model and

strategy; and

• Reporting to the Board on how the Committee

discharged all relevant responsibilities at each

Board meeting.

Financial Reporting

The primary role of the Audit Committee in

relation to the financial reporting is to review

with the Administrator, Investment Manager

and the Auditor the appropriateness of the

Annual Report and Audited Consolidated

Financial Statements and Interim Condensed

Consolidated Financial Statements,

concentrating on, amongst other matters:

• The quality and acceptability of accounting

policies and practices;

• The clarity of the disclosures and

compliance with financial reporting

standards and relevant financial and

governance reporting requirements;

• Material areas in which significant

judgements have been applied or there has

been discussion with the Auditor;

• Whether the Annual Report and Audited

Consolidated Financial Statements,

taken as a whole, is fair, balanced

and understandable and provides the

information necessary for the shareholders

to assess the Group’s performance,

business model and strategy; and

• Any correspondence from regulators in

relation to the Group’s financial reporting.

To aid its review, the Audit Committee

considers reports from the Administrator

and Investment Manager and also reports

from the Auditor on the outcomes

of their half-year review and annual

audit. The Audit Committee supports

PricewaterhouseCoopers CI LLP (“PwC”)

in displaying the necessary professional

scepticism their role requires.

The Audit Committee met four times during

the year under review; individual attendance

of Directors is outlined in the Corporate

Governance Statement. The main matters

discussed at those meetings were:

• Review and approval of the external Auditor

and when tabled, consideration of the final

audit findings report;

• Discussion and approval of the fee for the

external audit;

• Detailed review of the Annual Report and

Audited Consolidated Financial Statements

and recommendation for approval by

the Board;

• Review and approval of the interim review

findings report of the external Auditor;

• Detailed review of the Interim Condensed

Consolidated Financial Statements and

recommendation for approval by the Board;

• Discussion of reports from the external

Auditor following their interim review and

annual audit;

• Assessment of the effectiveness of the

external Auditor as described below;

• Assessment of the independence of the

external Auditor;

• Review of the Group’s key risks and internal

controls;

• Consideration of the AIC Code, FRC Guidance

on Audit Committees and other regulatory

guidelines; and

• Consideration of the proposals received

as part of the competitive tender process

conducted for the role of the Company’s

independent auditor for the audit of the

year-ended 31 December 2023.

The Committee has also reviewed and

considered the whistleblowing policy in

place for the Administrator and other service

providers and is satisfied the relevant staff can

raise concerns in confidence about possible

improprieties in matters of financial reporting

or other matters insofar as they may affect

the Company.

Annual General Meeting

The Audit Committee Chairman, or other

members of the Audit Committee appointed

for the purpose, shall attend each AGM

of the Company, prepared to respond to

any shareholder questions on the Audit

Committee’s activities.

Internal Audit

The Audit Committee considers at least once

a year whether or not there is a need for an

internal audit function. Currently, the Audit

Committee does not consider there to be a

need for an internal audit function, given that

there are no employees in the Group and

all outsourced functions are with parties /

administrators who have their own internal

controls and procedures. This is evidenced

by the annual SOC 1 Type 2 Report provided

by the Administrator, which gives sufficient

assurance that a sound system of internal

control is maintained at the Administrator.

SIGNIFICANT ISSUES IN RELATION

TO THE CONSOLIDATED

FINANCIAL STATEMENTS

During the year, the Audit Committee

considered a number of significant risks in

respect of the Annual Report and Audited

Consolidated Financial Statements. The

Audit Committee reviewed the external audit

plan at an early stage and concluded that

the appropriate areas of audit risk relevant

to the Group had been identified and that

suitable audit procedures had been put in

place to obtain reasonable assurance that the

consolidated financial statements as a whole

would be free of material misstatements.

The table on the next page sets out the Audit

Committee’s view of the key areas of risk and

how they have addressed the issues.

Significant Issues Actions to Address Issue

Carrying amount

and impairment/

expected credit

losses of loans

advanced

The Audit Committee reviews the investment process of the Investment Manager and Investment Adviser including

the controls in place around deal sourcing, investment analysis, due diligence and the role of the Investment Adviser’s

investment committee and the Investment Manager’s Board. The Audit Committee also reviews the controls in place

around the effective interest loan models and is notified regularly by the Investment Manager of any changes to

underlying assumptions made in the loan models.

The Audit Committee receives regular updates and reports on the performance of each loan and discusses with the

Investment Manager and Investment Adviser whether there are any indicators of significant increase in credit risk or

impaired or defaulted loans. The Audit Committee also assesses the ECL methodology focusing on the estimation of

probability of default, exposure at default and loss given default.

Formal loan performance reviews and credit risk assessments are also prepared by the Investment Adviser and

Investment Manager which are reviewed at each Audit Committee meeting and the Audit Committee considers

whether there are any indicators that would warrant a change to the expected credit loss assessed for each loan

advanced. For all new loans advanced, the Investment Manager presents, as part of the investment recommendation

process, their assessment of any expected credit loss required at inception of the loan arrangement.

All existing loans advanced as at 31 December 2022 were assessed so as to ensure compliance with IFRS 9. As

disclosed in note 2 and in the Investment Manager’s report, while two loans amounting to £46,909,623 (2021: three

loans amounting to £59,031,888 (one loan was moved to Stage 1 during 2022)) remain classified as Stage 2, during

the year ended 31 December 2022, no expected credit losses were considered necessary based on the loan to value

ratios headroom as at 31 December 2022 and strong security packages in place.

Risk of fraud and

error in income

from loans

advanced

Income from loans advanced is measured in accordance with the effective interest rate method. The requirement to

estimate the expected cash flows when forming an effective interest rate model is subject to significant management

judgements and estimates.

The Audit Committee discusses with the Investment Manager and Investment Adviser the reasons for the changes

in key assumptions made in the loan models such as changes to expected drawdown or repayment dates or other

amendments to expected cash flows such as changes in interbank rates on floating loans. The Audit Committee ensures

that any changes made to the models are justifiable based on the latest available information.

A separate income rationalisation which is prepared outside of the detailed loan models is provided to the Board on a

quarterly basis as a secondary check on the revenue being recognised in the loan models. This is also reviewed by the

Audit Committee and questions raised where appropriate.

Governance

Report of the Audit Committee

REVIEW OF EXTERNAL AUDIT

PROCESS EFFECTIVENESS

The Audit Committee communicated

regularly with the Investment Manager,

Investment Adviser and Administrator to

obtain a good understanding of the progress

and efficiency of the audit process. Similarly,

feedback in relation to the efficiency of the

Investment Manager, Investment Adviser

and other service providers in performing

their relevant roles was sought from relevant

involved parties, including the audit partner

and team. The external Auditor is invited to

attend the Audit Committee meetings at

which the interim and annual consolidated

financial statements are considered, also

enabling the Auditor to meet and discuss any

matters with the Audit Committee without

the presence of the Investment Manager or

the Administrator.

During the year, the Audit Committee

reviewed the external Auditor’s performance,

considering a wide variety of factors including:

• The quality of service, the Auditor’s specialist

expertise, the level of audit fee, identification

and resolution of any areas of accounting

judgement, and quality and timeliness of

papers analysing these judgements;

• Review of the audit plan presented by the

Auditor, and when tabled, the final audit

findings report;

• Meeting with the Auditor regularly to discuss

the various papers and reports in detail;

• Furthermore, interviews of appropriate staff

in the Investment Manager, Investment

Adviser and Administrator to receive

feedback on the effectiveness of the audit

process from their perspective; and

• Compilation of a checklist with which to

provide a means to objectively assess the

Auditor’s performance.

In addition to the regular and ad hoc

meetings held with the auditors, the Audit

Committee Chairman and Chairman of the

Company received a presentation on PwC’s

use of technology in their audit process on

7 February 2022.

AUDITOR’S TENURE

AND OBJECTIVITY

The Group’s current Auditor, PwC, have

acted in this capacity since the Company’s

inaugural meeting on 22 November 2012. The

Committee reviews the Auditor’s performance

on a regular basis to ensure the Group

receives an optimal service and make regular

enquiries to confirm the quality findings of audit

work undertaken by both the firm and lead

engagement partner on the audit. Subject to

annual appointment by shareholder approval

at the AGM, the appointment of the Auditor is

formally reviewed by the Audit Committee on

an annual basis. PwC follows the FRC Ethical

Standards and their rotation rules require the

lead audit partner to rotate every 5 years, key

partners involved in an audit every 7 years

and PwC’s own internal policy would generally

expect senior staff to have consideration given

to the threats to their independence after 7

years and to be rotated after 10 years. Rotation

ensures a fresh look without sacrificing

institutional knowledge.

Rotation of audit engagement partners, key

partners involved in the audit and other staff in

senior positions is reviewed on a regular basis

by the lead audit engagement partner. Roland

Mills is currently serving his fifth year of five as

engagement partner and a new audit partner

will be in place for the 31 December 2023

audit, with a full handover taking place at the

conclusion of the 2022 year end audit.

PwC regularly updates the Audit Committee

on the rotation of audit partners, staff, level

of fees, details of any relationships between

the Auditor and the Group, and also provides

overall confirmation of its independence and

objectivity. There are no contractual obligations

that restrict the Group’s choice of Auditor. Any

non-audit work would be reviewed by the Audit

Committee to confirm it appropriate under

the FRC Ethical Standard and approved by the

Audit Committee Chairman prior to the Auditor

undertaking any work.

Following a review of PwC’s tenure, the Audit

Committee recommended that the Board of

Directors conduct a competitive tender process

for the role of the Company’s independent

auditor for the audit of the year-ended 31

December 2023. Following the completion

of the competitive tender process, the Audit

Committee were satisfied that PwC were

still best placed to service the Company as

its independent auditors and as such will be

recommending their continued appointment by

the Board.

CONCLUSIONS IN RESPECT

OF THE CONSOLIDATED

FINANCIAL STATEMENTS

The production and the audit of the Annual

Report and Audited Consolidated Financial

Statements is a comprehensive process

requiring input from a number of different

contributors. In order to reach a conclusion

on whether the Group’s consolidated

financial statements are fair, balanced and

understandable, as required under the

AIC Code, the Board has requested that

the Audit Committee advise on whether

it considers that the Annual Report and

Consolidated Financial Statements fulfils these

requirements. In outlining its advice, the Audit

Committee has considered the following:

• The comprehensive documentation that is

in place outlining the controls in place for

the production of the Annual Report and

Audited Consolidated Financial Statements,

including the verification processes in place

to confirm the factual content;

• The detailed reviews undertaken at various

stages of the production process by the

Investment Manager, Investment Adviser,

Administrator, Auditor and the Audit

Committee that are intended to ensure

consistency and overall balance;

• Controls enforced by the Investment

Manager, Investment Adviser,

Administrator and other third-party service

providers to ensure complete and accurate

financial records and security of the

Group’s assets; and

• The existence and content of a satisfactory

controls report that has been reviewed

and reported upon by the Administrator’s

service Auditor to verify the effectiveness

of the internal controls of the Administrator,

such as the SOC 1 Type 2 Report.

Governance

Report of the Audit Committee

As a result of the work performed, the Audit

Committee has concluded that it has acted in

accordance with its’ terms of reference and

has ensured the independence and objectivity

of the external Auditor. It has reported to the

Board that the Annual Report for the year

ended 31 December 2022, taken as a whole, is

fair, balanced and understandable and provides

the information necessary for shareholders

to assess the Group’s performance, business

model and strategy. The Board’s conclusions

in this respect are set out in the Statement of

Directors’ Responsibilities.

The Audit Committee has recommended to

the Board that, following a competitive tender

process, the external auditor be re-appointed

for the 2023 year end annual report.

Charlotte Denton | Audit Committee

Chairman

23 March 2023

Governance

Statement of Directors’ Responsibilities

The Directors are responsible for preparing

consolidated financial statements for each

financial year which give a true and fair

view, in accordance with applicable laws

and regulations, of the state of affairs of

the Company and of the profit or loss of the

Company for that year.

Company law requires the Directors to

prepare financial statements for each

financial year. The consolidated financial

statements have been prepared in

accordance with International Financial

Reporting Standards as adopted by the

European Union (“IFRS”). In preparing the

consolidated financial statements, the

Directors are required to:

• Select suitable accounting policies and

apply them consistently;

• Make judgments and estimates that are

reasonable and prudent;

• State whether applicable accounting

standards have been followed, subject

to any material departures disclosed and

explained in the consolidated financial

statements; and

• Prepare the consolidated financial

statements on the going concern basis

unless it is inappropriate to presume that

the Company will continue in business.

The maintenance and integrity of the

Company’s website is the responsibility of

the Directors; the work conducted by the

Auditor does not involve consideration of the

maintenance and integrity of the website

and, accordingly, the Auditor accepts no

responsibility for any changes that may

have occurred to the consolidated financial

statements since they are initially presented

on the website. Legislation in Guernsey

governing the preparation and dissemination

of the consolidated financial statements may

differ from legislation in other jurisdictions.

The Directors are responsible for keeping

proper accounting records that are sufficient

to show and explain the Company’s

transactions and disclose with reasonable

accuracy at any time the financial position of

the Company and the Group and enable them

to ensure that the consolidated financial

statements comply with the Companies

(Guernsey) Law, 2008, as amended. They

are also responsible for safeguarding the

assets of the Company and the Group and

hence for taking reasonable steps for the

prevention and detection of fraud and other

irregularities.

Each of the Directors confirms that, to the

best of their knowledge:

• They have complied with the above

requirements in preparing the consolidated

financial statements;

• There is no relevant audit information of

which the Company’s Auditor is unaware;

• All Directors have taken the necessary

steps that they ought to have taken to

make themselves aware of any relevant

audit information and to establish that the

Auditor is aware of said information;

• The consolidated financial statements,

prepared in accordance with the applicable

set of accounting standards, give a true and

fair view of the assets, liabilities, financial

position and profit or loss of the Company

and Group; and

• The Chairman’s Statement, Strategic

Report, Investment Manager’s Report,

Report of the Directors and Corporate

Governance Statement include a fair review

of the development and the position of the

Company and the Group, together with

a description of the principal risks and

uncertainties that they face and take into

account the results of the EGM.

The UK Code, as adopted through the

AIC Code by the Company, also requires

Directors to ensure that the Annual Report

and Consolidated Financial Statements are

fair, balanced and understandable. In order to

reach a conclusion on this matter, the Board

has requested that the Audit Committee

advise on whether it considers that the

Annual Report and Consolidated Financial

Statements fulfil these requirements.

The process by which the Committee has

reached these conclusions is set out in the

Report of the Audit Committee on pages

40-44. Furthermore, the Board believes

that the disclosures set out on pages 6-9 of

the Annual Report provide the information

necessary for shareholders to assess the

Company’s performance, business model

and strategy.

Having taken into account all the matters

considered by the Board and brought to

the attention of the Board during the year

ended 31 December 2022, as outlined in the

Chairman Statement, Investment Manager’s

Report, Corporate Governance Statement,

Strategic Report and the Report of the Audit

Committee, the Board has concluded that

the Annual Report and Audited Consolidated

Financial Statements for the year ended 31

December 2022, taken as a whole, is fair,

balanced and understandable and provides

the information necessary for shareholders

to assess the Company’s performance,

business model and strategy.

For Starwood European Real Estate

Finance Limited

John Whittle | Chairman

23 March 2023

4646

Financial Statements

Report on the audit of the consolidated financial statements

Financial Statements

Independent Auditor’s Report to the Members of

Starwood European Real Estate Finance Limited

OUR OPINION

In our opinion, the consolidated financial

statements give a true and fair view of the

consolidated financial position of Starwood

European Real Estate Finance Limited (the

“company”) and its subsidiaries (together

“the group”) as at 31 December 2022, and

of their consolidated financial performance

and their consolidated cash flows for the year

then ended in accordance with International

Financial Reporting Standards as adopted by

the European Union and have been properly

prepared in accordance with the requirements

of the Companies (Guernsey) Law, 2008.

WHAT WE HAVE AUDITED

The group’s consolidated financial statements

comprise:

• the consolidated statement of financial

position as at 31 December 2022;

• the consolidated statement of comprehensive

income for the year then ended;

• the consolidated statement of changes in

equity for the year then ended;

• the consolidated statement of cash flows for

the year then ended; and

• the notes to the consolidated financial

statements, which include significant

accounting policies and other explanatory

information.

BASIS FOR OPINION

We conducted our audit in accordance with

International Standards on Auditing (“ISAs”).

Our responsibilities under those standards are

further described in the

Auditor’s responsibilities

for the audit of the consolidated financial

statements

section of our report.

We believe that the audit evidence we have

obtained is sufficient and appropriate to provide

a basis for our opinion.

INDEPENDENCE

We are independent of the group in

accordance with the ethical requirements that

are relevant to our audit of the consolidated

financial statements of the group, as required

by the Crown Dependencies’ Audit Rules and

Guidance. We have fulfilled our other ethical

responsibilities in accordance with these

requirements.

OUR AUDIT APPROACH

OVERVIEW

Audit scope

• The company is based in Guernsey, has

subsidiaries located in Guernsey and

Luxembourg and engages Starwood

European Finance Partners Limited

(the “Investment Manager”) to manage

its assets. The consolidated financial

statements are a consolidation of the

company and all the subsidiaries.

• We conducted our audit of the consolidated

financial statements from information

provided by Apex Fund and Corporate

Services (Guernsey) Limited (the

“Administrator”) and its related group

entities to whom the board of directors has

delegated the provision of certain functions.

We also had significant interaction with

Starwood Capital Europe Advisers, LLP (the

“Investment Adviser”) in completing aspects

of our overall audit work.

• We conducted our audit work in Guernsey

and we tailored the scope of our audit taking

into account the types of investments within

the group, the involvement of the third

parties referred to above, and the industry in

which the group operates.

• We performed an audit of the consolidated

financial information of the company and its

Guernsey and Luxembourg subsidiaries and

we consider them all as one component.

• Scoping was performed at the group level,

irrespective of whether the underlying

transactions took place within the company

or within any of the subsidiaries. Our testing

was performed on a consolidated basis

using thresholds which are determined with

reference to the overall group performance

materiality and the risks of material

misstatement identified.

KEY AUDIT MATTERS

• Carrying amount, expected credit losses

and impairment of loans advanced

• Risk of fraud in income from loans advanced

• Amendment to group investment objective

and policy to pursue a strategy of orderly

realisation

MATERIALITY

• Overall group materiality: £8.3 million

(2021: £8.4 million) based on 2% of

consolidated net assets.

• Performance materiality: £6.2 million

(2021: £6.3 million).

THE SCOPE OF OUR AUDIT

As part of designing our audit, we determined

materiality and assessed the risks of material

misstatement in the consolidated financial

statements. In particular, we considered

where the directors made subjective

judgements; for example, in respect of

significant accounting estimates that involved

making assumptions and considering future

events that are inherently uncertain. As in all

of our audits, we also addressed the risk of

management override of internal controls,

including among other matters, consideration

of whether there was evidence of bias that

represented a risk of material misstatement

due to fraud.

KEY AUDIT MATTERS

Key audit matters are those matters that,

in the auditor’s professional judgement,

were of most significance in the audit of

the consolidated financial statements of

the current period and include the most

significant assessed risks of material

misstatement (whether or not due to fraud)

identified by the auditor, including those

which had the greatest effect on: the overall

audit strategy; the allocation of resources

in the audit; and directing the efforts of the

engagement team. These matters, and any

comments we make on the results of our

procedures thereon, were addressed in

the context of our audit of the consolidated

financial statements as a whole, and in

forming our opinion thereon, and we do not

provide a separate opinion on these matters.

This is not a complete list of all risks identified

by our audit.

Financial Statements

Independent Auditor’s Report to the Members of

Starwood European Real Estate Finance Limited

Key audit matter How our audit addressed the Key audit matter

Carrying amount, expected credit losses and impairment of

loans advanced

As detailed within notes 2(g) and 10 to the consolidated financial

statements, loans advanced at the year-end of £432.5 million are

measured at amortised cost and comprise of both fixed and floating

rate loans.

Loans advanced make up a significant part of the consolidated

statement of financial position and due to the nature of this

balance, their carrying amount, expected credit losses (“ECL”) and

impairment is subject to judgement and estimation.

The judgements exercised in determining the carrying amount, ECL

and impairment of loans advanced could significantly impact the net

asset value of the group and this is considered to be a key source

of estimation uncertainty as described in note 2(c) and 2(h) of the

consolidated financial statements.

The specific areas of judgement include:

• The impact of changes in the expected cash flows for each loan on

the carrying amount of the loans measured at amortised cost; and

• How management determine the underlying assumptions when

determining the carrying amount and preparing the ECL and

impairment review analyses, such as significant changes in the

credit risk of a borrower, changes in the probability of default of

a borrower, changes in valuation of underlying collateral and the

Loan-To-Value ratios headroom, the ability of the borrowers to

deliver in accordance with their business plans and their projected

financial performance figures.

Given the level of judgement and estimate used by management

in determining the carrying amount, ECL, and impairment of loans

advanced, combined with the significance of the balance of the

loans advanced in the consolidated statement of financial position,

meant that this was considered a key audit matter.

We understood and evaluated the internal control environment in place

at the Administrator and the Investment Adviser over the carrying

amount of the loans advanced, in particular management’s processes

and assumptions used to measure the loans at amortised cost and

used to determine ECL and the level of impairment (if any) required on

the loans advanced, either at inception, or on an ongoing basis.

We assessed the accounting policy for loans advanced for compliance

with International Financial Reporting Standards as adopted by the

European Union and planned and executed our audit procedures to

ensure that the loans advanced were accounted for in accordance

with the stated accounting policy.

Our procedures included:

• Detailed testing over the amortised cost models used by

management to value the loans at amortised cost using the effective

interest rate method;

• Testing and challenging the assumptions and inputs into the

amortised cost models and inspecting the associated agreements

and other legal documentation;

• Back-testing procedures were performed to assist in our

conclusions as to the cash flow forecasting reliability applied by the

Investment Adviser;

• Understanding, assessing and challenging the assumptions and

judgements made by the Investment Adviser in respect of the ECL for

each loan advanced including;

obtaining the Investment Adviser’s impairment papers and

assessing the ECL methodology, focussing on and challenging the

estimation of probability of default, exposure at default and loss

given default, and how forward-looking information was considered

in this regard;

assessing the consistency and appropriateness of the Investment

Adviser’s assumptions applied in determining whether any loan

advanced was performing, underperforming or non-performing,

including consideration as to whether a significant increase in credit

risk of each borrower had occurred during the year;

obtaining evidence to support any significant assumptions presented

in the assessment of the ECL, including consideration of the financial

information on the borrower and the collateral in place to assess their

ability to meet future payment commitments, and progress against

business plans, including any ongoing impact caused by COVID-19 or

other global crises, including management’s assessment of the Loan-

To-Value ratio headroom for each of the loans;

assessing the Investment Adviser’s application of its impairment and

ECL criteria to evaluate the appropriateness and completeness of

the loans moved between ECL stages;

recalculating a targeted sample of the Investment Adviser’s

sensitivity analysis of the Loan-To-Values ratios headroom;

engaging our Real Estate valuation experts to work with our audit

team through the inspection of a sample of third-party real estate

valuation reports on the underlying properties against which collateral

is held by the group for the loans advanced, and which underpin the

Loan-To-Value considerations applied in the ECL modelling; and

inspecting a sample of compliance certificates signed by each

respective underlying borrower in respect of compliance with

covenants as at the year-end.

• Obtained and reviewed management’s calculation with respect to any

impairment on loans advanced (if any).

Based on the audit procedures performed we have nothing to report to

those charged with corporate governance.

Key audit matter How our audit addressed the Key audit matter

Risk of fraud in income from loans advanced

Income from loans advanced for the year was £33.4 million (Note

10) and was measured in accordance with the accounting policies

as described in note 2(l) of the consolidated financial statements.

The group has a key investment objective to provide shareholders

with regular dividends through investment in debt instruments and

therefore we focussed on this risk.

The requirement to estimate the expected cash flows when

calculating an effective interest rate model is subject to significant

management judgements and estimates, and as such could be open

to manipulation by management of factors including:

• Expected timing of repayments;

• Expectations of partial or full prepayments; and

• Associated exit fees and make-whole payments.

Changes to the estimated timings of cash flows can have a

significant impact on the recognition of income from loans advanced

and is considered to be a key source of estimation uncertainty as

described in note 2(c) of the consolidated financial statements.

As a result of the significance of interest income and the level of

estimation that can be applied, the risk of fraud in income from loans

advanced was considered a key audit matter.

Amendment to group investment objective and policy to pursue

a strategy of orderly realisation

As referred to in note 2(a), on 28 December 2022, a Circular

relating to the Proposed Orderly Realisation and containing a Notice

of Extraordinary General Meeting (EGM) was published which set

out details of, and sought shareholder approval for, proposals with

respect to the Board’s recommendation to pursue a strategy of

orderly realisation of the group’s loans advanced and the return

of capital over time to shareholders (the “Proposed Orderly

Realisation”).

On 27 January 2023, these Proposals were approved at the EGM.

Based on the current terms of the group’s loans advanced, the

orderly realisation could take up to 5 years to complete and given the

significant shift in the investment strategy, we have considered this

a key audit matter.

We assessed the accounting policy for the recognition of interest

income for compliance with International Financial Reporting Standards

as adopted by the European Union; and we planned and executed

our audit procedures to ensure that income from loans had been

accounted for in accordance with the stated accounting policy.

We held discussions with the Investment Adviser and the Administrator

to understand and evaluate the processes in place for recognising

income from loans and to understand the estimates made.

Our procedures included:

• Detailed testing over the amortised cost models used by

management to measure the loans at amortised cost and calculate

the effective interest income in the consolidated financial statements,

including how the arrangement, origination and commitment fees,

which are integral to the loan arrangements, have been considered in

the models;

• Assessing the judgements made in respect of the estimated cash

flows timing (versus the contractual repayment date) and amount

including arrangement, origination and commitment fees, through

testing of the amortised cost models for each loan;

• Recalculating interest income using the original effective interest rate,

paying due consideration to any early, partial or full prepayments or

management’s re-estimate thereof;

• Inspecting supporting documents, such as correspondence with

the underlying borrower and timing of cash receipts, as part of our

assessment of management’s estimates and assumptions; and

• For those loans advanced that were also held at 31 December 2021,

comparing the estimated future cash flows in the amortised cost

models as at 31 December 2022 and evaluating the rationale behind

any significant changes from the estimated cash flows in the 31

December 2021 models.

Based on the audit procedures performed, we have nothing to report

to those charged with corporate governance.

We obtained a detailed understanding of the Board’s proposals with

respect to the Proposed Orderly Realisation through discussions with the

Board and the Investment Adviser and from reviewing the Circular.

We considered these proposals in light of the requirements of

International Financial Reporting Standards as adopted by the European

Union, the current accounting policies of the group and in considering

the ongoing basis of preparation of the financial statements.

We also considered the adequacy of the disclosures made by the

Directors with respect to the Proposed Orderly Realisation in the Annual

Report and Financial Statements.

Based on our enquiries and the matters considered above with respect

to the Proposed Orderly Realisation, we have nothing to report to those

charged with corporate governance.

Financial Statements

Independent Auditor’s Report to the Members of

Starwood European Real Estate Finance Limited

professional judgement have tailored our audit

scope to account for the group’s consolidated

financial statements as a single component.

Scoping was performed at the group level,

irrespective of whether the underlying

transactions took place within the company

or within the subsidiaries. The group audit

was led, directed, controlled and reviewed by

PricewaterhouseCoopers CI LLP and all audit

work for material items within the consolidated

financial statements was performed in

Guernsey by PricewaterhouseCoopers CI LLP.

The transactions relating to the company

and the subsidiaries are maintained by the

Administrator and its related group entities and

HOW WE TAILORED THE

AUDIT SCOPE

We tailored the scope of our audit to ensure

that we performed enough work to be able to

give an opinion on the consolidated financial

statements as a whole, taking into account

the structure of the group, the accounting

processes and controls, the industry in which

the group operates, and we considered the

risk of climate change and the potential impact

thereof on our audit approach.

The company is based in Guernsey with two

subsidiaries located in Guernsey and three

underlying subsidiaries located in Luxembourg.

The consolidated financial statements are

a consolidation of the company and all the

subsidiaries. We have considered whether

the consolidated subsidiaries included within

the group comprise separate components

for the purpose of our audit scope. However,

we have taken into account the group’s

financial reporting system and the related

controls in place at the Administrator and at

the Investment Adviser, and based on our

therefore we were not required to engage with

component auditors from another PwC global

network firm operating under our instruction.

Our testing was therefore performed on a

consolidated basis using thresholds which

are determined with reference to the overall

group materiality and the risks of material

misstatement identified

MATERIALITY

The scope of our audit was influenced by

our application of materiality. We set certain

quantitative thresholds for materiality. These,

together with qualitative considerations,

helped us to determine the scope of our

audit and the nature, timing and extent of our

audit procedures on the individual financial

statement line items and disclosures and

in evaluating the effect of misstatements,

both individually and in aggregate on the

consolidated financial statements as a whole.

Based on our professional judgement, we

determined materiality for the consolidated

financial statements as a whole as follows:

Overall group materiality £8.3 million (2021: £8.4 million)

How we determined it 2% of consolidated net assets

Rationale for benchmark

applied

We believe consolidated net assets to be the appropriate basis

for determining materiality since this is a key consideration

for members of the company when assessing financial

performance. It is also a generally accepted measure used for

companies in this industry.

We use performance materiality to reduce to

an appropriately low level the probability that

the aggregate of uncorrected and undetected

misstatements exceeds overall materiality.

Specifically, we use performance materiality

in determining the scope of our audit and the

nature and extent of our testing of account

balances, classes of transactions and

disclosures, for example in determining sample

sizes. Our performance materiality was 75%

(2021: 75%) of overall materiality, amounting

to £6.2 million (2021: £6.3 million) for the

group financial statements.

In determining the performance materiality,

we considered a number of factors – the

history of misstatements, risk assessment

and aggregation risk and the effectiveness

of controls - and concluded that an amount

at the upper of our normal range was

appropriate.

We agreed with the Audit Committee that we

would report to them misstatements identified

during our audit above £0.4 million (2021:

£0.4 million) as well as misstatements below

that amount that, in our view, warranted

reporting for qualitative reasons.

REPORTING ON OTHER

INFORMATION

The other information comprises all the

information included in the Annual Report and

Audited Consolidated Financial Statements

(the “Annual Report”) but does not include

the consolidated financial statements and our

auditor’s report thereon. The directors are

responsible for the other information.

Our opinion on the consolidated financial

statements does not cover the other

information and we do not express any form

of assurance conclusion thereon.

In connection with our audit of the

consolidated financial statements, our

responsibility is to read the other information

and, in doing so, consider whether the other

information is materially inconsistent with

the consolidated financial statements or our

knowledge obtained in the audit, or otherwise

appears to be materially misstated. If, based

on the work we have performed, we conclude

that there is a material misstatement of this

other information, we are required to report

that fact. We have nothing to report based on

these responsibilities.

RESPONSIBILITIES FOR THE

CONSOLIDATED FINANCIAL

STATEMENTS AND THE AUDIT

Responsibilities of the directors for the

consolidated financial statements

As explained more fully in the Statement

of Directors’ Responsibilities, the directors

are responsible for the preparation of the

consolidated financial statements that give

a true and fair view in accordance with

International Financial Reporting Standards

as adopted by the European Union, the

requirements of Guernsey law and for such

internal control as the directors determine

is necessary to enable the preparation of

consolidated financial statements that are

free from material misstatement, whether

due to fraud or error.

In preparing the consolidated financial

statements, the directors are responsible for

assessing the group’s ability to continue as

a going concern, disclosing, as applicable,

matters related to going concern and using

the going concern basis of accounting unless

the directors either intend to liquidate the

group or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of the

consolidated financial statements

Our objectives are to obtain reasonable

assurance about whether the consolidated

financial statements as a whole are free

from material misstatement, whether due

to fraud or error, and to issue an auditor’s

report that includes our opinion. Reasonable

assurance is a high level of assurance, but

is not a guarantee that an audit conducted

in accordance with ISAs will always detect

a material misstatement when it exists.

Misstatements can arise from fraud or error

and are considered material if, individually

or in aggregate, they could reasonably be

expected to influence the economic decisions

of users taken on the basis of these

consolidated financial statements.

Financial Statements

Independent Auditor’s Report to the Members of

Starwood European Real Estate Finance Limited

Our audit testing might include testing

complete populations of certain transactions

and balances, possibly using data auditing

techniques. However, it typically involves

selecting a limited number of items for

testing, rather than testing complete

populations. We will often seek to target

particular items for testing based on their

size or risk characteristics. In other cases,

we will use audit sampling to enable us to

draw a conclusion about the population from

which the sample is selected.

As part of an audit in accordance with ISAs,

we exercise professional judgement and

maintain professional scepticism throughout

the audit. We also:

• Identify and assess the risks of material

misstatement of the consolidated financial

statements, whether due to fraud or error,

design and perform audit procedures

responsive to those risks, and obtain audit

evidence that is sufficient and appropriate

to provide a basis for our opinion. The risk

of not detecting a material misstatement

resulting from fraud is higher than for one

resulting from error, as fraud may involve

collusion, forgery, intentional omissions,

misrepresentations, or the override of

internal control.

• Obtain an understanding of internal control

relevant to the audit in order to design

audit procedures that are appropriate in the

circumstances, but not for the purpose of

expressing an opinion on the effectiveness

of the group’s internal control.

• Evaluate the appropriateness of accounting

policies used and the reasonableness

of accounting estimates and related

disclosures made by the directors.

• Conclude on the appropriateness of the

directors’ use of the going concern basis

of accounting and, based on the audit

evidence obtained, whether a material

uncertainty exists related to events or

conditions that may cast significant doubt

on the group’s ability to continue as a going

concern over a period of at least twelve

months from the date of approval of the

consolidated financial statements. If we

conclude that a material uncertainty exists,

we are required to draw attention in our

auditor’s report to the related disclosures in

the consolidated financial statements or, if

such disclosures are inadequate, to modify

our opinion. Our conclusions are based on

the audit evidence obtained up to the date

of our auditor’s report. However, future

events or conditions may cause the group

to cease to continue as a going concern.

• Evaluate the overall presentation, structure

and content of the consolidated financial

statements, including the disclosures,

and whether the consolidated financial

statements represent the underlying

transactions and events in a manner that

achieves fair presentation.

• Obtain sufficient appropriate audit evidence

regarding the financial information of

the entities or business activities within

the group to express an opinion on the

consolidated financial statements. We are

responsible for the direction, supervision and

performance of the group audit. We remain

solely responsible for our audit opinion.

We communicate with those charged with

governance regarding, among other matters,

the planned scope and timing of the audit

and significant audit findings, including any

significant deficiencies in internal control that

we identify during our audit.

We also provide those charged with

governance with a statement that we

have complied with relevant ethical

requirements regarding independence, and

to communicate with them all relationships

and other matters that may reasonably be

thought to bear on our independence, and

where applicable, related safeguards.

From the matters communicated with those

charged with governance, we determine those

matters that were of most significance in the

audit of the consolidated financial statements

of the current period and are therefore the key

audit matters. We describe these matters in

our auditor’s report unless law or regulation

precludes public disclosure about the matter

or when, in extremely rare circumstances,

we determine that a matter should not be

communicated in our report because the

adverse consequences of doing so would

reasonably be expected to outweigh the public

interest benefits of such communication.

Use of this report

This report, including the opinions, has been

prepared for and only for the members as a

body in accordance with Section 262 of The

Companies (Guernsey) Law, 2008 and for

no other purpose. We do not, in giving these

opinions, 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.

REPORT ON OTHER LEGAL AND

REGULATORY REQUIREMENTS

Company Law exception reporting

Under The Companies (Guernsey) Law,

2008 we are required to report to you if, in

our opinion:

• we have not received all the information

and explanations we require for our audit;

• proper accounting records have not been

kept; or

• the consolidated financial statements are not

in agreement with the accounting records.

We have no exceptions to report arising from

this responsibility.

CORPORATE GOVERNANCE

STATEMENT

The Listing Rules require us to review the

directors’ statements in relation to going

concern, longer-term viability and that part

of the corporate governance statement

relating to the company’s compliance with the

provisions of the UK Corporate Governance

Code specified for our review. Our additional

responsibilities with respect to the corporate

governance statement as other information

are described in the Reporting on other

information section of this report.

The company has reported compliance against

the 2019 AIC Code of Corporate Governance

(the “Code”) which has been endorsed by

the UK Financial Reporting Council as being

consistent with the UK Corporate Governance

Code for the purposes of meeting the

company’s obligations, as an investment

company, under the Listing Rules of the FCA.

Based on the work undertaken as part of

our audit, we have concluded that each

of the following elements of the corporate

governance statement, included within the

Strategic Report is materially consistent with

the consolidated financial statements and our

knowledge obtained during the audit, and we

have nothing material to add or draw attention

to in relation to:

• The directors’ confirmation that they have

carried out a robust assessment of the

emerging and principal risks;

• The disclosures in the Annual Report

that describe those principal risks, what

procedures are in place to identify emerging

risks and an explanation of how these are

being managed or mitigated;

• The directors’ statement in the consolidated

financial statements about whether they

considered it appropriate to adopt the going

concern basis of accounting in preparing

them, and their identification of any

material uncertainties to the group’s ability

to continue to do so over a period of at least

twelve months from the date of approval of

the consolidated financial statements;

• The directors’ explanation as to their

assessment of the group’s prospects, the

period this assessment covers and why the

period is appropriate; and

• The directors’ statement as to whether

they have a reasonable expectation that

the company will be able to continue in

operation and meet its liabilities as they

fall due over the period of its assessment,

including any related disclosures drawing

attention to any necessary qualifications or

assumptions.

Our review of the directors’ statement

regarding the longer-term viability of the

group was substantially less in scope than an

audit and only consisted of making inquiries

and considering the directors’ process

supporting their statements; checking that the

statements are in alignment with the relevant

provisions of the Code; and considering

whether the statement is consistent with the

consolidated financial statements and our

knowledge and understanding of the group

and its environment obtained in the course of

the audit.

In addition, based on the work undertaken

as part of our audit, we have concluded

that each of the following elements of the

corporate governance statement is materially

consistent with the consolidated financial

statements and our knowledge obtained

during the audit:

• The directors’ statement that they consider

the Annual Report, taken as a whole, is

fair, balanced and understandable, and

provides the information necessary for the

members to assess the group’s position,

performance, business model and strategy;

• The section of the Annual Report that

describes the review of effectiveness of

risk management and internal control

systems; and

• The section of the Annual Report describing

the work of the Audit Committee.

We have nothing to report in respect of our

responsibility to report when the directors’

statement relating to the company’s

compliance with the Code does not properly

disclose a departure from a relevant provision

of the Code specified under the Listing Rules

for review by the auditors.

OTHER MATTERS

In due course, as required by the Financial

Conduct Authority Disclosure Guidance

and Transparency Rule 4.1.14R, these

consolidated financial statements will

form part of the ESEF-prepared annual

financial report filed on the National Storage

Mechanism of the Financial Conduct

Authority in accordance with the ESEF

Regulatory Technical Standard (“ESEF RTS”).

This auditor’s report provides no assurance

over whether the annual financial report

will be prepared using the single electronic

format specified in the ESEF RTS.

As explained in note 21 to the consolidated

financial statements, in addition to our

responsibility to audit and express an opinion

on the consolidated financial statements in

accordance with ISAs and Guernsey law,

we have been requested by the directors

to express an opinion on the consolidated

financial statements in accordance with

auditing standards generally accepted in the

United States of America as issued by the

AICPA, in order to meet the requirements

of Rule 206(4)-2 under the Investment

Advisers Act (the “Custody Rule”). We have

reported separately in this respect within

the Annual Report.

Roland Mills

For and on behalf of

PricewaterhouseCoopers CI LLP

Chartered Accountants and

Recognised Auditor

Guernsey, Channel Islands

23 March 2023

Financial Statements

Independent Auditor’s Report to the Members of

Starwood European Real Estate Finance Limited

OPINION

We have audited the accompanying

consolidated financial statements of

Starwood European Real Estate Finance

Limited (“the Company”) and its subsidiaries

(together “the group”), which comprise

the consolidated statements of financial

position as of 31 December 2022 and 31

December 2021 and the related consolidated

statements of comprehensive income,

changes in equity and cash flows including

the related notes for the years then ended

(collectively referred to as the “consolidated

financial statements”).

In our opinion, the accompanying

consolidated financial statements present

fairly, in all material respects, the financial

position of the group as of 31 December

2022 and 31 December 2021, and the

results of their operations and their cash

flows for the years then ended in accordance

with International Financial Reporting

Standards (“IFRSs”) as adopted by the

European Union.

BASIS FOR OPINION

We conducted our audit in accordance

with auditing standards generally accepted

in the United States of America (US

GAAS). Our responsibilities under those

standards are further described in the

Auditors’ Responsibilities for the Audit of

the Consolidated Financial Statements

section of our report. We are required to be

independent of the group and to meet our

other ethical responsibilities, in accordance

with the relevant ethical requirements

relating to our audit. We believe that the

audit evidence we have obtained is sufficient

and appropriate to provide a basis for our

audit opinion.

RESPONSIBILITIES OF

MANAGEMENT FOR THE

CONSOLIDATED FINANCIAL

STATEMENTS

Management is responsible for the preparation

and fair presentation of the consolidated

financial statements in accordance with IFRSs

as adopted by the European Union, and for

the design, implementation, and maintenance

of internal control relevant to the preparation

and fair presentation of consolidated financial

statements that are free from material

misstatement, whether due to fraud or error.

In preparing the consolidated financial

statements, management is responsible for

assessing the group’s ability to continue as

going concerns, disclosing as applicable,

matters related to going concern and using

the going concern basis of accounting unless

management either intends to liquidate the

group or to cease operations, or has no

realistic alternative but to do so.

Financial Statements

Independent Auditor’s Report to the Directors of

Starwood European Real Estate Finance Limited (US GAAS)

Financial Statements

Independent Auditor’s Report to the Directors of

Starwood European Real Estate Finance Limited (US GAAS)

AUDITORS’ RESPONSIBILITIES

FOR THE AUDIT OF THE

CONSOLIDATED FINANCIAL

STATEMENTS

Our objectives are to obtain reasonable

assurance about whether the consolidated

financial statements as a whole are free from

material misstatement, whether due to fraud

or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance

is a high level of assurance but is not absolute

assurance and therefore is not a guarantee

that an audit conducted in accordance

with US GAAS will always detect a material

misstatement when it exists. The risk of not

detecting a material misstatement resulting

from fraud is higher than for one resulting from

error, as fraud may involve collusion, forgery,

intentional omissions, misrepresentations, or

the override of internal control. Misstatements

are considered material if there is a substantial

likelihood that, individually or in the aggregate,

they would influence the judgment made by

a reasonable user based on the consolidated

financial statements.

In performing an audit in accordance with

US GAAS, we:

• Exercise professional judgement and

maintain professional scepticism

throughout the audit.

• Identify and assess the risks of material

misstatement of the consolidated financial

statements, whether due to fraud or error,

and design and perform audit procedures

responsive to those risks. Such procedures

include examining, on a test basis, evidence

regarding the amounts and disclosures in

the consolidated financial statements.

• Obtain an understanding of internal control

relevant to the audit in order to design

audit procedures that are appropriate in the

circumstances, but not for the purpose of

expressing an opinion on the effectiveness

of the group’s internal control. Accordingly,

no such opinion is expressed.

• Evaluate the appropriateness of accounting

policies used and the reasonableness of

significant accounting estimates made

by management, as well as evaluate the

overall presentation of the consolidated

financial statements.

• Conclude whether, in our judgement, there

are conditions or events, considered in the

aggregate, that raise substantial doubt about

the group’s ability to continue as a going

concern for a reasonable period of time.

We are required to communicate with those

charged with governance regarding, among

other matters, the planned scope and timing

of the audit, significant audit findings, and

certain internal control-related matters that

we identified during the audit.

OTHER INFORMATION

Management is responsible for the other

information included in the Annual Report

and Audited Consolidated Financial

Statements (the “Annual Report”). The

other information comprises the information

included in the Annual Report, but does

not include the consolidated financial

statements and our auditor’s reports

thereon. Our opinion on the consolidated

financial statements does not cover the

other information, and we do not express an

opinion or any form of assurance thereon.

In connection with our audit of the

consolidated financial statements,

our responsibility is to read the other

information and consider whether a material

inconsistency exists between the other

information and the consolidated financial

statements or the other information

otherwise appears to be materially

misstated. If, based on the work performed,

we conclude that an uncorrected material

misstatement of the other information exists,

we are required to describe it in our report.

RESTRICTION OF USE

This report, including the opinion, has been

prepared for and only for the directors in

relation to the requirements of Rule 206(4)-2

of the Investment Advisers Act of 1940 (the

“Custody Rule”) as it applies to the company

and for no other purpose. We do not, in giving

this opinion, 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.

PricewaterhouseCoopers CI LLP

Chartered Accountants,

Guernsey, Channel Islands

23 March 2023

Financial Statements

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2022

Notes

1 January 2022 to

31 December 2022

1 January 2021 to

31 December 2021

Income

Income from loans advanced 10 33,356,702 28,382,742

Net foreign exchange gains/(losses) 6 3,046,164 (3,043,374)

Total income 36,402,866 25,339,368

Expenses

Investment management fees 3(a), 22 3,122,755 3,147,075

Credit facility interest and amortisation of fees 1,080,499 685,815

Credit facility commitment fees 828,876 844,694

Legal and professional fees 437,622 266,154

Other expenses 432,649 179,262

Administration fees 3(b) 354,426 344,950

Audit and non-audit fees 5 233,773 229,387

Professional fees for the orderly realisation proposals 210,000 -

Directors' fees and expenses 4, 22 203,373 195,410

Broker's fees 3(d) 50,000 53,250

Total operating expenses 6,953,973 5,945,997

Operating profit for the year before tax 29,448,893 19,393,371

Taxation 20 90,287 100,452

Operating profit for the year 29,358,606 19,292,919

Other comprehensive loss

Items that may be reclassified to profit or loss

Exchange differences on translation of foreign operations

2(k) (112,256) (329,895)

Other comprehensive loss for the year (112,256) (329,895)

Total comprehensive income for the year 29,246,350 18,963,024

Weighted average number of shares in issue 7 404,881,933 408,939,505

Basic and diluted earnings per Ordinary Share (pence) 7 7.25 4.72

The accompanying notes form an integral part of these consolidated financial statements.

Notes

As at

31 December 2022

As at

31 December 2021

Assets

Cash and cash equivalents 8 3,576,155 2,994,357

Other receivables and prepayments 9 26,792 37,652

Financial assets at fair value through profit or loss 11 706,661 13,291,598

Loans advanced 10 432,459,966 414,632,512

Total assets 436,769,574 430,956,119

Liabilities

Credit facility 12 18,863,204 7,914,993

Trade and other payables 13 1,758,606 1,484,526

Total liabilities 20,621,810 9,399,519

Net assets 416,147,764 421,556,600

Capital and reserves

Share capital 15 395,075,556 407,440,011

Retained earnings 21,218,267 14,150,392

Translation reserve (146,059) (33,803)

Total equity 416,147,764 421,556,600

Number of Ordinary Shares in issue 15 395,592,696 408,911,273

Net asset value per Ordinary Share (pence) 105.20 103.09

The accompanying notes form an integral part of these consolidated financial statements.

Financial Statements

Consolidated Statement of Financial Position

as at 31 December 2022

These consolidated financial statements were approved and authorised for issue by the Board of Directors on 23 March 2023, and signed on its

behalf by:

Chairman Director

Year ended 31 December 2022

Share capital

Retained

earnings

Translation

reserves

Total Equity

Balance at 1 January 2022 407,440,011 14,150,392 (33,803) 421,556,600

Share buybacks (12,364,455) - - (12,364,455)

Dividends paid - (22,290,731) - (22,290,731)

Operating profit for the year - 29,358,606 - 29,358,606

Other comprehensive loss:

Other comprehensive loss for the year

- - (112,256) (112,256)

Balance at 31 December 2022 395,075,556 21,218,267 (146,059) 416,147,764

The accompanying notes form an integral part of these consolidated financial statements.

Financial Statements

Consolidated Statement of Changes in Equity

for the year ended 31 December 2022

Year ended 31 December 2021

Share capital

Retained

earnings

Translation

reserves

Total Equity

Balance at 1 January 2021 408,031,544 18,369,871 296,092 426,697,507

Share buybacks (591,533) - - (591,533)

Dividends paid - (23,512,398) - (23,512,398)

Operating profit for the year - 19,292,919 - 19,292,919

Other comprehensive loss:

Other comprehensive loss for the year

- - (329,895) (329,895)

Balance at 31 December 2021 407,440,011 14,150,392 (33,803) 421,556,600

Financial Statements

Consolidated Statement of Cash Flows

for the year ended 31 December 2022

(1)

Net of arrangement fees of £820,118 (2021: £1,125,342) withheld.

The accompanying notes form an integral part of these consolidated financial statements.

1 January 2022 to

31 December 2022

1 January 2021 to

31 December 2021

Operating activities:

Operating profit for the year before tax 29,448,893 19,393,371

Adjustments:

Net interest income (33,356,702) (28,382,742)

Decrease/(increase) in prepayments and receivables 10,860 (20,558)

Increase in trade and other payables 458,661 132,570

Net unrealised losses / (gains) on foreign exchange derivatives 12,584,938 (12,373,339)

Net foreign exchange (gains) / losses (15,292,556) 15,488,570

Net foreign exchange gains on hedges 5,618,298 895,944

Credit facility interest 707,171 236,071

Credit facility amortisation of fees 373,328 449,744

Credit facility commitment fees 828,876 844,694

Currency translation difference (5,663,501) 2,722,148

Corporate taxes paid (84,274) (87,724)

(4,366,008) (701,251)

Loans advanced

(1)

(60,788,846) (90,597,307)

Loan repayments and amortisation 56,894,392 103,474,780

Origination fees paid (872,020) (300,456)

Interest income from loans advanced 28,373,979 25,567,309

Commitment and exit fee income from loans advanced 1,211,844 1,115,354

Net cash inflow from operating activities 20,453,341 38,558,429

Cash flows from financing activities

Interest income from cash and cash equivalents - -

Net cash inflow from investing activities - -

Cash flows from financing activities

Share buybacks (12,364,455) (677,120)

Dividends paid (22,290,731) (23,512,398)

Proceeds under credit facility 94,223,490 63,800,000

Repayments under credit facility (84,158,141) (75,128,132)

Credit facility interest paid (533,577) (262,221)

Credit facility commitment fees paid (834,495) (647,799)

Net cash outflow from financing activities (25,957,909) (36,427,670)

Net increase / (decrease) in cash and cash equivalents (5,504,568) 2,130,759

Cash and cash equivalents at the start of the year 2,994,357 2,939,408

Net foreign exchange gains/(losses) on cash and cash equivalents 6,086,366 (2,075,810)

Cash and cash equivalents at the end of the year 3,576,155 2,994,357

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

1. GENERAL INFORMATION

Starwood European Real Estate Finance Limited (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 (the “GFSC”) as a

registered closed-ended investment scheme. The registered office

and principal place of business of the Company is 1, Royal Plaza,

Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1 2HL.

On 12 December 2012, the Company announced the results of its

IPO, which raised net proceeds of £223.9 million. The Company’s

Ordinary Shares were admitted to the premium segment of the

UK FCA’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.

On 10 August 2020 the Company announced the appointment of

Jefferies International Limited as buyback agent to effect share

buybacks on behalf of the Company. During the year ended 31

December 2022, the Company had repurchased 13,318,577

(year ended 31 December 2021: 660,000) Ordinary Shares at

an average cost of 92.84 (year ended 31 December 2021: 89.63

pence) per share. These Ordinary Shares are held in treasury.

The consolidated financial statements comprise the financial

statements of the Company, Starfin Public Holdco 1 Limited (the

“Holdco 1”), Starfin Public Holdco 2 Limited (the “Holdco 2”),

Starfin Lux S.à.r.l (“Luxco”), Starfin Lux 3 S.à.r.l (“Luxco 3”) and

Starfin Lux 4 S.à.r.l (“Luxco 4”) (together the “Group”) as at 31

December 2022.

The Company’s investment objective is to conduct an orderly

realisation of the assets of the Group. The assets of the Group will

be realized 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. Further details have been

covered under the Objective and Investment Policy section.

The Company has appointed Starwood European Finance Partners

Limited as the Investment Manager (the “Investment Manager”),

a company incorporated in Guernsey 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 FCA, to provide

investment advice pursuant to an Investment Advisory Agreement.

The administration of the Company is delegated to Apex Fund and

Corporate Services (Guernsey) Limited (the “Administrator”).

2. BASIS OF PREPARATION AND PRINCIPAL

ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of

these financial statements are set out below. These policies

have been consistently applied to the years presented, unless

otherwise stated.

a) Going Concern

Note 17 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, at the time of approving

these Annual Accounts, are required to satisfy themselves

that they have reasonable expectation that the Company has

adequate resources to continue in operational existence for

the foreseeable future. At the EGM of the Company held on 27

January 2023, following a recommendation from the Board as

published in the Circular and EGM Notice dated 28 December

2022, the resolutions for the Proposed Orderly Realisation

received shareholder votes in favour amounting to 99.97% of the

shareholder votes cast, voting for a change to the Company’s

Objective and Investments Policy which would lead to the orderly

realisation of the Company’s assets and a return of capital to

shareholders. The Directors have undertaken a rigorous review of

the Group’s ability to continue as a going concern, reviewing the

ongoing cash flows and the level of cash balances and available

liquidity facilities.

After making enquiries of the Investment Manager and the

Administrator and reviewing the viability model prepared by the

Investment Adviser, the Directors have a reasonable expectation

that the Group has adequate resources to continue in operational

existence for at least one year from the date the consolidated

financial statements were signed. Accordingly, the Directors

continue to adopt a going concern basis in preparing these

consolidated financial statements.

In addition to a going concern statement, the Directors have

undertaken a longer term viability assessment of the Group, the

results of which can be found in the Strategic Report. A range of

scenarios have been evaluated as part of this analysis. The worst

case scenario evaluated was an interest payment default on all

Stage 2 loans, and simultaneously the repayment of the loan

principal is not received until 6 to 12 months after their maturity

dates and that Sonia and Euribor rates fall to 0% from 2024. In

this scenario the Group is still able to meet its liabilities as they fall

due although the dividend might need to be reduced to reflect the

reduced cash received.

b) Statement of compliance

The Company has prepared its consolidated financial

statements in accordance with The Companies (Guernsey)

Law, 2008 (as amended) and International Financial Reporting

Standards (“IFRS”) as adopted by the European Union, which

comprise standards and interpretations approved by the

International Accounting Standards Boards (“IASB”) together

with the interpretations of the IFRS Interpretations Committee

(“IFRIC”) as approved by the International Accounting Standards

Committee (“IASC”) which remain in effect and were adopted

by the European Union. The Directors of the Company have

taken the exemption in Section 244 of The Companies

(Guernsey) Law, 2008 (as amended) and have therefore

elected to only prepare consolidated and not separate financial

statements for the year.

(i) Standards and amendments to existing standards

effective 1 January 2022

Certain new accounting standards and interpretations have

been published that are effective 1 January 2022 and have

not been applied in preparing these consolidated financial

statements. These standards are not expected to have a

material impact on the Group in the current or future reporting

periods and on foreseeable future transactions.

(ii) New standards, amendments and interpretations

effective after 1 January 2022 and have not been

early adopted

A number of new standards, amendments to standards and

interpretations are effective for annual periods beginning after 1

January 2022, and have not been early adopted in preparing the

Group’s consolidated financial statements. None of these are

expected to have a material effect on the consolidated financial

statements of the Group.

c) Basis of preparation

These consolidated financial statements have been prepared on

a going concern basis and under the historical cost convention

as modified by the revaluation of certain assets and liabilities to

fair value.

Critical accounting judgements and key sources of

estimation uncertainty

The preparation of financial statements in conformity with IFRS

requires the use of certain critical accounting estimates. It

also requires the Board of Directors to exercise its judgement

in the process of applying the Group’s accounting policies. The

areas involving a higher degree of judgement or complexity, or

areas where assumptions and estimates are significant to the

consolidated financial statements relate to:

(i) Critical accounting estimates and assumptions

• Models used for loans accounted at amortised cost use

assumptions and estimates regarding the receipt and timing

of scheduled and unscheduled payments of loans advanced.

Changes in these assumptions and estimates could impact

liquidity risk and the interest income (see note 17).

• The measurement of both the initial and ongoing expected

credit loss allowance (“ECL”) for financial assets measured at

amortised cost is an area that requires the use of significant

assumptions about credit behaviour such as likelihood of

borrowers defaulting and the resulting losses (see note 2(h)).

The determination of ECL using the LTV headroom analysis is a

key estimate/judgement.

(ii) Critical accounting judgements

• The functional currency of subsidiary undertakings of the

Company, which is considered by the Directors to be Euro

for Luxco 3; Sterling for all other subsidiaries (see notes 2(e)

and 2(k)).

• The operating segments, of which the Directors are currently of

the opinion that the Company and its subsidiaries are engaged

in a single segment of business, being the provision of a

diversified portfolio of real estate backed loans (see note 2(f)).

• A number of significant judgements are also required in

applying the accounting requirements for measuring ECL,

such as determining the criteria for significant increase in

credit risk, choosing the appropriate model and assumptions

for the measurement of ECL, determining the probabilities of

default and loss given default (see note 2(h)).

Subsidiary

undertakings

Date of

Control

Ownership

Country of

Establishment

Principal

place of

business

Starfin Lux

S.à.r.l

11/30/2012 100 Luxembourg Luxembourg

Starfin Public

Holdco 1

Limited

9/11/2017 100 Guernsey Guernsey

Starfin Public

Holdco 2

Limited

9/11/2017 100 Guernsey Guernsey

Starfin Lux 3

S.à.r.l

9/19/2017 100 Luxembourg Luxembourg

Starfin Lux 4

S.à.r.l

12/11/2017 100 Luxembourg Luxembourg

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

d) Basis of consolidation

The consolidated financial statements incorporate the financial

statements of the Company and entities controlled by the

Company (its subsidiary undertakings) made up to the end of the

reporting period. Control is achieved where the Company has the

power to govern the financial and operating policies of an investee

entity so as to obtain benefits directly from its activities. The

existence and effect of potential voting rights that are currently

exercisable or convertible are considered when assessing whether

the Company controls another entity. The Company also assesses

existence of control where it does not have more than 50 per

cent of the voting power but is able to govern the financial and

operating policies by virtue of de-facto control.

Subsidiary undertakings are fully consolidated from the date

on which control is transferred to the Group. They are de-

consolidated from the date that control ceases.

The Group applies the acquisition method to account for

business combinations.

Acquisition-related costs are expensed as incurred. No

consideration, other than for the par value of any share capital

or capital contributions, has been paid in respect of the

acquisition of subsidiary undertakings. The Company acquired

the subsidiaries at the time of their initial establishment and

hence they had no net assets at the date of the acquisition.

Intercompany transactions, balances, income and expenses

on transactions between Group companies are eliminated on

consolidation. Profits and losses resulting from intercompany

transactions that are recognised in assets are also eliminated.

e) Functional and presentation currency

Items included in the financial statements of each of the Group’s

entities are measured using the currency of the primary economic

environment in which the entity operates (the “functional

currency”). Therefore, the Directors have considered in assessing

the functional currency of each of the Group’s entities:

• the share capital of all members of the Group is denominated in

Sterling except for Luxco 3 share capital which is denominated

in Euro;

• the dividends are paid in Sterling;

• Euro non-investment transactions represent only a small

proportion of transactions in the Luxembourg entities; and

• proportion of non Sterling investments in each portfolio of

Luxembourg entities.

The functional and presentation currency of each Group

entity is Sterling, apart from Luxco 3 for which the functional

currency is Euro. Luxco 3 holds loans and investments in Euro

currencies. The Directors have also adopted Sterling as the

Group’s presentation currency (as the Group holds a significant

proportion of its assets in the UK, although this may vary from

time to time, capital was raised in Sterling, Group expenses are

primarily incurred in Sterling and performance is measured in

Sterling) and, therefore, the consolidated financial statements

for the Group are presented in Sterling.

f) Segment reporting

Operating segments are reported in a manner consistent with

the internal reporting provided to the chief operating decision-

maker. The chief operating decision-maker, who is responsible

for allocating resources and assessing performance of the

operating segments, has been identified as the Board, as the

Board makes strategic decisions. The Directors, after having

considered the way in which internal reporting is provided to

them, are of the opinion that the Company and its subsidiaries

are engaged in a single segment of business, being the provision

of a diversified portfolio of real estate backed loans. Equally,

based on the internal reporting provided, the Directors do not

analyse the portfolio based on geographical segments.

g) Financial assets and liabilities

Classification and subsequent measurement

The Group classifies its financial assets into the following

measurement categories: at amortised cost, at fair value

through profit or loss and at fair value through other

comprehensive income. The classification depends on

the purpose for which the financial assets were acquired.

Management determines the classification of its financial assets

at initial recognition.

Financial assets measured at amortised cost

A financial asset is measured at amortised cost if both of the

following conditions are met: (a) the financial asset is held within

a business model whose objective is to hold financial assets in

order to collect contractual cash flows and (b) the contractual

terms of the financial asset give rise on specified dates to

cash flows that are solely payments of principal and interest

on the principal amount outstanding. The carrying amount of

these assets is adjusted by any expected credit loss allowance

recognised and measured as described in note 2(h). Interest

income from these financial assets is included in “Income from

loans advanced” using the effective interest rate method.

Financial assets at fair value through other

comprehensive income

A financial asset is measured at fair value through other

comprehensive income if both of the following conditions are

met: (a) the financial asset is held within a business model whose

objective is achieved by both collecting contractual cash flows

and selling financial assets and (b) the contractual terms of the

financial asset give rise on specified dates to cash flows that are

solely payments of principal and interest on the principal amount

outstanding. Movements in the carrying amount are taken

through other comprehensive income, except for the recognition

of impairment gains and losses, interest revenue and foreign

exchange gains and losses on the instrument’s amortised cost

which are recognised in profit or loss.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial

instruments that (a) either designated in this category upon initial

recognition or subsequently or (b) not classified in any of the other

categories. Financial assets at fair value through profit or loss are

carried in the statement of financial position at fair value with net

changes in fair value recognised in the Consolidated Statement of

Comprehensive Income. This category includes currency forward

contracts. Gains or losses on currency forward contracts are

recognised within “Net foreign exchange gains or losses”.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are

carried in the statement of financial position at fair value

with net changes in fair value recognised in profit or loss.

These comprise currency forward contracts which represent

contractual obligations to purchase domestic currency and sell

foreign currency on a future date.

Financial liabilities measured at amortised cost

Financial liabilities that are not classified through profit or loss,

including bank loans, are measured at amortised cost.

Recognition and measurement

Regular purchases and sales of financial assets are recognised on

the trade date, the date on which the Group commits to purchase

or sell the asset. Financial assets not carried at fair value through

profit or loss are initially recognised at fair value plus transaction

costs. Financial assets carried at fair value through profit or

loss are initially recognised at fair value, and transaction costs

are expensed in the Consolidated Statement of Comprehensive

Income. Financial assets at fair value through profit or loss

and financial assets at fair value through other comprehensive

income are subsequently carried at fair value. Financial assets at

amortised cost are subsequently measured using the effective

interest method and are subject to impairment using the expected

credit loss model. Gains and losses are recognised in profit or loss

when the asset is derecognised, modified or impaired.

Derecognition

Financial assets are derecognised when the rights to receive

cash flows from the investments have expired or have been

transferred and the Group has transferred substantially all risks

and rewards of ownership.

Financial liabilities are derecognised when they are

extinguished, that is, when the obligation specified in the

contract is discharged or cancelled or expires.

Amortised cost and effective interest rate

The amortised cost is the amount at which the financial asset

or financial liability is measured at initial recognition minus the

principal repayments, plus or minus the cumulative amortisation

using the effective interest method of any difference between

that initial amount and the maturity amount and, for financial

assets, adjusted for any loss allowance.

The effective interest rate is the rate that exactly discounts

estimated future cash payments or receipts through the

expected life of financial assets or financial liability to the

gross carrying amount of a financial asset (i.e., its amortised

cost before any loss allowance) or to the amortised cost of a

financial liability. The calculation does not consider expected

credit losses and includes transaction costs and all fees paid or

received that are integral to the effective interest rate.

Fair value estimation

The fair value of financial assets, which comprise derivatives

not designated as hedges, are valued based on the difference

between the agreed price of selling or buying the financial

instruments on a future date and the price quoted on the year

end date for selling or buying the same or similar financial

instruments.

h) Expected credit loss measurement

The following describes the valuation basis that is used in our

calculation. As the vast majority of our portfolio is originated

directly by the Investment Adviser, the Group has discretion

over when and how to instruct valuations. We consider

this to be a strength of our valuation process as we have

control over timing and complete access to the detail of the

valuation process and the output. Where loans are not directly

originated the lender could have a lack of control over the

timing and no input to the process which we prefer to avoid

where possible. Further details on the valuation process are

covered in the Investment Manager’s Report.

The Group follows a three-stage model for impairment

based on changes in credit quality since initial recognition as

summarised below:

• A financial instrument that is not credit-impaired on initial

recognition is classified as Stage 1 and has its credit risk

continuously monitored by the Group. The expected credit loss

(“ECL”) is measured over a 12 month period of time.

• If a significant increase in credit risk since initial recognition is

identified, the financial instrument is moved to Stage 2 but is

not yet deemed to be credit-impaired. The ECL is measured on

a lifetime basis.

• If the financial instrument is credit-impaired it is then moved to

Stage 3. The ECL is measured on a lifetime basis.

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

The Group’s financial assets at amortised cost were all classified

within Stage 1 at inception for the following reasons:

• All loans are the subject of very detailed underwriting,

including the testing of resilience to aggressive downside

scenarios with respect to the loan specifics, the market and

general macro economic changes, and therefore the Group

considers that value of losses given default (“LGD”) currently

have a nil value for all loans;

• Loans have very robust covenants in place which trigger as

an early warning (long before there would be any indicators

of significant increase in credit risk) and this enables the

Investment Adviser to become highly involved in the execution

of business plans to avoid ECL;

• Loans have strong security packages and many are amortising

with relatively short terms which further reduces the risk; and

• All loans have significant loan-to-value headroom which further

mitigates the risk of ECL.

During the year ended 31 December 2022 two loans with a

carrying value of £46,909,623 (31 December 2021: three loans

amounting to £59,031,888) have been classified as Stage 2, no

loss allowance has been recognised on 12-month and lifetime

expected credit losses for Stage 1 and Stage 2 loans advanced

respectively, as based on the information available there is no

reason to believe that there has been any impairment in the value

of the loans held by the Group. For further information, see the

Investment Manager’s report. The paragraph below describes

how the Group determines when a significant increase in credit

risk has occurred, such that a loan would move from Stage 1

to Stage 2. No loans have been moved to Stage 2 or to Stage 3

during 2022.

The Group considers that for prepayments and capitalised cost,

the ECL is by default nil as these are non-monetary items with no

credit risks. For trade and other receivables the Group applies the

simplified approach which requires expected lifetime losses to be

recognised from initial recognition of the receivables.

Significant increase in credit risk - Stage 2

The Group uses both quantitative and qualitative criteria which

is monitored no less than quarterly in order to assess whether

an increase in credit risk has occurred. Increased credit risk

would be considered if, for example, all or a combination of the

following has occurred:

• underlying income performance is at a greater than 10 per cent

variance to the underwritten loan metrics;

• Loan to Value is greater than 75-80 per cent;

• Loan to Value or income covenant test results are at a variance

of greater than 5-10% of loan default covenant level (note that

loan default covenant levels are set tightly to ensure that an

early cure is required by the borrower should they breach which

usually involves decreasing the loan amount until covenant tests

are passed);

• late payments have occurred and not been cured within 3 days;

• loan maturity date is within six months and the borrower has

not presented an achievable refinance or repayment plan;

• covenant and performance milestones criteria under the loan

have required more than two waivers;

• increased credit risk has been identified on tenants representing

greater than 25 per cent of underlying asset

• income rollover / tenant break options exist such that a lease up

of more than 30 per cent of underlying property will be required

within 12 months in order to meet loan covenants and interest

payments; and

• borrower management team quality has adversely changed.

Default and credit-impaired assets - Stage 3

Non-performing financial assets would be classified with Stage

3, which is fully aligned with the definition of credit- impaired,

when one or more of the following has occurred:

• the borrower is in breach of all financial covenants;

• the borrower is in significant financial difficulty; and

• it is becoming probable that the borrower will enter

bankruptcy.

An instrument is considered to have been cured, that is no

longer in default, when it no longer meets any of the default

criteria for a sufficient period of time.

Write-off policy

The Group writes off financial assets, in whole or in part, when it

has exhausted all practically recovery efforts and has concluded

there is no reasonable expectation of recovery. Indicators that

there is no reasonable expectation of recovery include:

• ceasing enforcement activity; and

• where the Group’s recovery method is foreclosing on collateral

and the value of the collateral is such that there is no

reasonable expectation of recovering in full.

Sensitivity analysis

The most significant period-end assumptions used for the

expected credit loss estimates are the LGD and probability of

default (“PD”) as described above.

The default probabilities are based on initial loan-to-value (“LTV”)

headroom which the Investment Adviser believes to be a good

predictor of the PD, in accordance with recent market studies

of European commercial real estate loans.

In measuring the LGD for this sensitivity analysis, the loans

advanced have been assessed on a collective basis as they

possess similar covenants and security package characteristics.

The selected LGD of 0.30% is based on the aggregate losses

of all AAA rated notes issued in Europe from 1995 to 2020

(totalling €177 billions), according to recent market studies

of European commercial real estate loans. AAA rated notes

are considered the most representative of the Group’s loan

portfolio. The Investment Adviser considers this to be a

reasonable estimate for loss given default parameter.

As explained on Note 2 (b)(i), the year-end ECL are nil. Set out

below is the sensitivity to the ECL as at 31 December 2022

and 31 December 2021 that could result from reasonable

possible changes in the LTV and LGD actual assumptions used

for calculation of ECL as at the respective year-end. On an

individual loan basis, the LTV was increased by 25%, and a new

PD determined, which was multiplied by a constant LGD of

0.30% for all loans and the loan exposure as at each year-end.

All other variables are held constant.

Reasonable

possible shift

(absolute value)

31 December

2022 ECL

31 December

2021 ECL

LTV +25% (2021: +25%)

322,561 264,231

LGD +0.3% (2021: +0.3%)

presented in the Consolidated Statement of Comprehensive

Income within “net foreign exchange losses/(gains)”.

Group companies

The results and financial position of all the Group entities that

have a functional currency different from the presentation

currency of the Group are translated into the presentation

currency of the Group as follows:

i. assets and liabilities for each Statement of Financial Position

presented are translated at the closing rate at the end of the

reporting period;

ii. income and expenses for each Statement of Comprehensive

Income are translated at average exchange rates (unless this

average is not a reasonable approximation of the cumulative

effect of the rates prevailing on the transaction dates, in

which case income and expenses are translated at the rate

on the dates of the transactions);

iii. share capital is translated at historical cost (translated using

the exchange rates at the transaction date); and

iv. all resulting exchange differences are recognised in other

comprehensive income.

The cumulative amount of translation exchange differences is

presented in a separate component of equity until disposal of

the entity.

Luxco 3 has Euro as its functional currency.

l) Interest income

Interest income on financial assets within Stage 1 and 2 is

recognised by applying the effective interest rate to the gross

carrying amount of financial assets. For financial assets that

are classified within Stage 3, interest revenue is calculated by

applying the effective interest rate to their amortised cost (that

is net of expected credit loss provision). Interest income on non-

performing financial assets at amortised cost is recognised to

the extent the Group expects to recover the interest receivable.

Interest on cash and cash equivalents is recognised at

amortised cost basis.

m) Origination, exit and loan arrangement fees

Origination fees paid to the Investment Manager and exit and

direct loan arrangement fees received will be recognised using the

effective interest rate method under loans advanced and amortised

over the lifetime of the related financial asset through income from

loans advanced in the Consolidated Statement of Comprehensive

Income. Syndication costs are recognised in the Consolidated

Statement of Comprehensive Income when incurred.

Change in ECL allowance (+)

i) Cash and cash equivalents

In the Consolidated Statement of Cash Flows, cash and cash

equivalents includes cash in hand, deposits held at call with

banks and other short-term highly liquid investments with

original maturities of three months or less.

j) Share capital

Ordinary Shares are classified as equity. Incremental costs

directly attributable to the issue of new Ordinary Shares are

shown in equity as a deduction, net of tax, from the proceeds.

k) Foreign currency translation

Transactions and balances

Foreign currency transactions are translated into the functional

currency using the exchange rates prevailing at the dates of the

transactions or valuation where items are re-measured. Foreign

exchange gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange

rates of monetary assets and liabilities denominated in foreign

currencies are recognised in the Consolidated Statement of

Comprehensive Income. Foreign exchange gains and losses

that relate to loans advanced, borrowings and cash and cash

equivalents and all other foreign exchange gains and losses are

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

n) Expenses

All other expenses are included in the Consolidated Statement

of Comprehensive Income on an accruals basis.

o) Taxation

The Company is a tax-exempt Guernsey limited liability company

as it is domiciled and registered for taxation purposes in

Guernsey where it pays an annual exempt status fee under The

Income Tax (Exempt Bodies) (Guernsey) Ordinances1989 (as

amended). Accordingly, no provision for Guernsey tax is made.

The Holdcos are exempted for Guernsey tax purposes, and

therefore no provision for taxes has been made.

The Luxcos are subject to the applicable general tax regulations

in Luxembourg and taxation is provided based on the results for

the year (see note 20).

p) Other receivables

Trade and other receivables are amounts due in the ordinary

course of business. They are classified as assets. Trade and

other receivables are recognised initially at fair value and

subsequently measured at amortised cost using the effective

interest method, less allowance for ECL.

q) Other payables

Trade and other payables are obligations to pay for services that

have been acquired in the ordinary course of business. They are

classified as liabilities. Trade and other payables are recognised

initially at fair value and subsequently measured at amortised

cost using the effective interest rate method.

r) Dividend distributions

Dividend distributions to the Company’s shareholders are recognised

as a liability in the Company’s financial statements in the period in

which the dividends are declared by the Board of Directors.

s) Offsetting financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported

on the Consolidated Statement of Financial Position when there is a

legally enforceable right to offset the recognised amounts and there

is an intention to settle on a net basis or realise the asset and settle

the liability simultaneously.

t) Financial liabilities at amortised cost

Financial liabilities at amortised cost, including bank loans are

initially recognised at fair value and subsequently measured at

amortised cost using the effective interest method. Financial

liabilities are derecognised when the contractual obligation is

discharged, cancelled or expires.

u) Capitalised expenses on credit facilities

Expenses in connection with the process of originating,

prolongation, or restructuring of a credit facility, such as

application and underwriting fees, are capitalised and

subsequently amortised over the period of the relevant credit

facility in the Consolidated Statement of Comprehensive Income

within “credit facility interest”.

3. MATERIAL AGREEMENTS

a) Investment management agreement

The Company and the Investment Manager have entered into an

investment management agreement, dated 28 November 2012

(the “Investment Management Agreement”), (which was amended

on 7 March 2014, 14 May 2014, 7 September 2015 and 6 October

2017) pursuant to which the Investment Manager has been given

overall responsibility for the discretionary management of the

Company’s assets in accordance with the Company’s investment

objectives and policy.

The Investment Manager is entitled to a management fee which

is calculated and accrued monthly at a rate equivalent to 0.75

per cent per annum of NAV. In calculating such fee, there shall

be excluded from the NAV attributable to the Ordinary Shares

the uninvested portion of the cash proceeds of any new issue of

Shares (or C Shares) until at least 90 per cent of such proceeds

are invested in accordance with the Company’s investment policy

(or deployed to repay borrowings under any credit facility of

the Group or other liabilities of the Group) for the first time. The

management fee is payable quarterly in arrears.

In addition, the Investment Manager is entitled to an asset

origination fee of 0.75 per cent of the value of all new loan

investments made or acquired by the Group (see note 22). The

asset origination fee to be paid by the Group is expected to be paid

upon receipt by the Group of loan arrangement fees received on

the deployment of the Group’s funds.

The Investment Management Agreement is terminable by either

the Investment Manager or the Company giving to the other not

less than 12 months’ written notice. The Company is also able to

terminate the appointment of the Investment Manager in the event

of a change of control of the Investment Manager. A change of

control shall be deemed to occur where a person acquires a direct

or indirect interest in the Investment Manager, which is calculated

by reference to 15 per cent or more of the voting rights. In addition

the Investment Management Agreement can be terminated by

the Company for any failure to act in good faith with the due skill,

care and diligence which would reasonably be expected from an

experienced manager in the sector and to exercise appropriate

prudence in the management of the Group’s portfolio.

Pursuant to the Investment Management Agreement’s provisions,

a performance fee would apply from 1 January 2018. The amount

of such Performance Fee is 20 per cent of the excess (if any) of

the returns generated by the Group over the Hurdle Total Return

(described below). The measurement period over which the

Performance Fee is calculated is two years, with the payment of

any performance fee earned being made at the end of each such

two year period.

The Hurdle Total Return will be achieved when the NAV of the

Company at the end of the two year period, plus the total of all

dividends declared and paid to Ordinary Shareholders in that two

year period, is equal to the NAV of the Company at the start of

each two year measurement period, as increased by 8 per cent

per annum, on a simple interest basis (but excluding performance

fees accrued and deemed as a creditor on the balance sheet at

the start of the two year measurement period). No performance

fee will be payable in relation to performance that recoups previous

losses (if any).

To the extent that the Company makes further issues of Ordinary

Shares and/or repurchases or redeems Ordinary Shares, the

Hurdle Total Return will be adjusted accordingly, by reference to

the issue proceeds of such further issues and dividends declared

subsequent to such issues. Other corporate actions will also be

reflected as appropriate in the calculation of the Hurdle

Total Return.

The Investment Manager has appointed Starwood Capital Europe

Advisers, LLP (the “Investment Adviser”), an English limited liability

partnership authorised and regulated by the FCA, to provide

investment advice pursuant to an Investment Advisory Agreement.

b) Administration agreement

The Company has engaged the services of Apex Fund and

Corporate Services (Guernsey) Limited (the “Administrator”)

to act as Administrator and Company Secretary. Under the

terms of the service agreement dated 25 September 2018,

the Administrator is entitled to a fee of no less than £225,000

per annum for Guernsey registered companies of the Group,

€96,000 for Luxembourg registered subsidiaries and further

amounts as may be agreed in relation to any additional services

provided by the Administrator. The Administrator is, in addition,

entitled to recover third party expenses and disbursements.

c) Registrar’s agreement

The Company and Computershare Investor Services (Guernsey)

Limited (the “Registrar”) entered into a Registrar agreement

dated 28 November 2012, pursuant to which the Company

appointed the Registrar to act as Registrar of the Company for

a minimum annual fee payable by the Company of £7,500 in

respect of basic registration.

d) Brokerage agreement

On 19 June 2020 Jefferies Group LLC (“Jefferies”) was

appointed to act as Broker. Jefferies is entitled to receive a fee

of £50,000 per annum plus expenses. The previous brokerage

agreement with Stifel Nicolaus Europe Limited was terminated

on the same date.

e) Licence agreement

The Company and Starwood Capital Group Management,

LLC (the “Licensor”) have entered into a trade mark

licence agreement dated 28 November 2012 (the “Licence

Agreement”), pursuant to which the Licensor has agreed to

grant to the Company a royalty-free, non-exclusive worldwide

licence for the use of the “Starwood” name for the purposes of

the Company’s business.

Under the terms of the Licence Agreement, it may be

terminated by the Licensor; (i) if the Investment Management

Agreement or any other similar agreement between the

Company and the Investment Manager (or either of their

respective affiliates) is terminated for any reason whatsoever

or expires; (ii) if the Company suffers an insolvency event or

breaches any court order relating to the Licence Agreement; or

(iii) upon two months’ written notice without cause.

f) Hedging agreements

The Company and Lloyds Bank plc entered into an international

forward exchange master agreement dated 5 April 2013 and on

7 February 2014 the Company entered into a Professional Client

Agreement with Goldman Sachs, pursuant to which the parties

can enter into foreign exchange transactions with the intention

of hedging against fluctuations in the exchange rate between

Sterling and other currencies. Both agreements are governed by

the laws of England and Wales.

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

31 December

2022

31 December

2021

Directors’ emoluments 197,000 190,212

Other expenses 6,373 5,198

203,373 195,410

4. DIRECTORS’ FEES

g) Revolving credit facility

Under its investment policy, the Company is limited to

borrowing an amount equivalent to a maximum of 30 per cent

of its NAV at the time of drawdown, of which a maximum of

20 per cent can be longer term borrowings. In calculating the

Company’s borrowings for this purpose, any liabilities incurred

under the Company’s foreign exchange hedging arrangements

shall be disregarded.

On 4 December 2014, the Company entered into a £50 million

revolving credit facility with Lloyds Bank plc (the “Lloyds

Facility”) which is intended for short-term liquidity. This facility

was amended and extended on 7 January 2022. The current

maturity date is 5 May 2023. Subsequent to year end the

facility was extended for a further year from May 2023 to

May 2024, albeit at a lower facility amount of £25.0 million.

The facility is secured by a pledge over the bank accounts of

the Company, its interests in Holdco 1 and the intercompany

funding provided by the Company to Holdco 1. Holdco 1 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.

On 18 December 2017, the Group entered into a separate £64

million secured borrowing facility with Morgan Stanley (the

“MS Facility”). This facility was amended and extended on 14

November 2019. The current maturity date is 14 November

2024 and the borrowing facility was increased to £76 million.

The debt can be drawn in respect of underlying loans which are

eligible under the facility. Certain loans will not be eligible, for

example mezzanine loans and loans above 75 per cent loan to

value. It is secured by a customary security package of bank

account pledges, intercompany receivables security, share

security over the two borrower entities (Luxco 3 and Luxco

4) and their shares. The MS Facility does not have recourse

to the Company. The undertakings and events of default are

customary for a facility of this nature.

The following table discloses the audit and non audit fees paid to the auditors for audit and non-audit services and their associated network

firms for non-audit services, where and as applicable.

5. AUDIT AND NON-AUDIT FEES

31 December 2022

31 December 2021

Audit and non-audit fees expensed in the Consolidated Statement

of Comprehensive Income

Audit of company 140,563 120,800

Audit of subsidiaries 68,215 84,756

Total audit 208,778 205,556

Audit related assurance services (Interim review) 24,995 23,831

Total assurance services 24,995 23,831

Non-audit services not covered above - -

Total non-audit services 24,995 23,831

Total fees expensed 233,773 229,387

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

6. NET FOREIGN EXCHANGE GAINS / (LOSSES)

31 December 2022

31 December 2021

Loans advanced gains - realised 511,596 153,504

Loans advanced losses - realised (996,010) (1,929,067)

Forward contracts gains - realised 6,507,544 1,998,286

Forward contracts losses - realised (428,644) (330,105)

Other gains - realised 110,951 328,245

Other losses - realised (38,684) (49,430)

5,666,753 171,433

Loans advanced gains - unrealised 9,987,926 -

Loans advanced losses - unrealised (23,578) (15,588,146)

Forward contracts gains - unrealised 2,337,351 13,707,768

Forward contracts losses - unrealised (14,922,288) (1,334,429)

(2,620,589) (3,214,807)

3,046,164 (3,043,374)

On occasion, the Group may realise a gain or loss on the roll forward of a hedge if it

becomes necessary to extend a capital hedge beyond the initial anticipated loan term.

If this situation arises the Group will separate the realised FX gain or loss from other

realised FX gains or losses and not consider it available to distribute (or as a reduction

in distributable profits). The FX gain or loss will only be considered part of distributable

reserves when the rolled hedge matures or is settled and the final net gain or loss on the

capital hedges can be determined.

7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE

The calculation of basic earnings per Ordinary Share is based on the operating profit of

£29,358,606 (2021: £19,292,919) and on the weighted average number of Ordinary

Shares in issue during the year of 404,881,933 (2021: 408,939,505) Ordinary Shares.

The calculation of NAV per Ordinary Share is based on a NAV of £416,147,764 (2021:

£421,556,600) and the actual number of Ordinary Shares in issue at 31 December 2022

of 395,592,696 (2021: 408,911,273).

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

9. OTHER RECEIVABLES AND PREPAYMENTS

31 December 2022

31 December 2021

Prepayments 26,792 37,439

Investment proceeds receivable - 213

26,792 37,652

8. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise the following:

31 December 2022

31 December 2021

Cash at bank 3,576,155 2,994,357

3,576,155 2,994,357

Cash and cash equivalents comprises cash held by the Group 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. For further information and the associated risks

refer to note 17.

10. LOANS ADVANCED

The Group’s accounting policy on the measurement of financial assets is discussed in note 2(g).

31 December 2022

31 December 2021

Hotel & Residential, UK 49,876,920 49,922,112

Hotel, Scotland 43,109,284 42,390,350

Hotels, United Kingdom 32,134,282 30,016,910

Industrial Estate, UK 27,435,196 -

Hospitals, UK 25,367,475 25,364,814

Hotel, Oxford 23,181,461 21,579,756

Life Science, UK 19,955,081 19,620,908

Office, London 19,336,450 14,156,850

Hotel, North Berwick 15,211,739 14,123,338

Hotel and Office, Northern Ireland 11,947,821 12,719,727

Office and Industrial Portfolio, UK 5,594,291 -

Office, Scotland - 5,121,199

Ireland

Hotel, Dublin 42,752,233 50,842,327

Office Portfolio, Ireland 21,950,119 26,570,048

Mixed Use, Dublin 11,469,547 5,108,054

Spain

Three Shopping Centres, Spain 31,023,568 30,171,573

Office, Madrid, Spain 16,510,039 15,595,042

Shopping Centre, Spain 15,886,055 14,736,977

Office Portfolio, Spain 9,027,980 9,845,168

Germany

Logistics Portfolio 2,744,282 4,958,050

Europe

Mixed Portfolio 7,946,143 21,789,309

432,459,966 414,632,512

No element of loans advanced are past due or impaired. For further information and the

associated risks see the Investment Manager’s Report.

31 December 2022

31 December 2021

Loans advanced at the start of the year 414,632,512 442,659,649

Loans advanced 61,420,419 91,935,602

Income from loans advanced 33,356,702 28,382,742

Foreign exchange gains/(losses) 9,478,582 (17,363,712)

Origination fees received for the year 872,020 300,456

Exit fees paid (501,062) (527,953)

Commitment fees paid (710,782) (586,841)

Arrangement fees paid (820,118) (1,125,342)

Interest payments received (28,373,979) (25,567,309)

Loan repayments (56,894,392) (103,474,780)

Loans advanced at the end of the year 432,459,966 414,632,512

Loans advanced at fair value 453,301,433 431,658,356

Discount Rate

Value calculated £ 31 December 2022

Value increase / (decrease) £

6.0% (fair value) 453,301,433 20,841,467

6.9% 446,378,688 13,918,722

7.4% 442,812,482 10,352,516

7.9% 439,304,831 6,844,865

8.4% 435,854,418 3,394,452

8.9% (Carrying value) 432,459,966 -

9.4% 429,120,227 (3,339,739)

9.9% 425,833,994 (6,625,972)

10.4% 422,600,089 (9,859,877)

10.9% 419,417,368 (13,042,598)

IFRS 7 requires the disclosure of the fair value of financial instruments not measured at fair

value for comparison to their carrying amounts. The fair value of loans advanced has been

determined by discounting the expected cash flows at a market rate of interest using the

discounted cash flow model. For the avoidance of doubt, the Group carries its loans advanced

at amortised cost in the consolidated financial statements, consistent with the requirement of

IFRS 9 as the Group’s intention and business model is to collect both interest and the capital

repayments thereof.

The following table sets out the sensitivity to the above reported fair value to a change in the

discount rate used in the discounted cash flow model (see the Investment Manager’s report on

page 18 for more information):

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

10. LOANS ADVANCED (CONTINUED)

The table below reconciles the movement of the carrying value of loans advanced in the year:

Discount Rate

Value calculated £ 31 December 2021

Value increase / (decrease) £

4.9% 432,710,809 18,078,297

5.1% (fair value) 431,658,356 17,025,843

5.4% 428,059,002 13,426,490

5.9% 423,496,872 8,864,360

6.4% 419,002,118 4,389,606

6.9% (Carrying value) 414,632,512 -

7.4% 410,325,896 (4,306,616)

7.9% 406,100,176 (8,532,336)

8.4% 401,953,326 (12,679,186)

8.9% 397,883,380 (16,749,132)

(1)

Euro amounts are translated at the year end exchange rate

(1)

Euro amounts are translated at the year end exchange rate

Notional contract

amount

(1)

Fair values

Total

31 December 2022

Assets

Liabilities

Foreign exchange derivatives

Currency forwards:

Lloyds Bank plc 309,280,796 4,697,637 (3,990,976) 706,661

Total 309,280,796 4,697,637 (3,990,976) 706,661

Notional contract

amount

(1)

Fair values

Total

31 December 2021

Assets

Liabilities

Foreign exchange derivatives

Currency forwards:

Lloyds Bank plc 305,663,797 14,394,963 (1,103,365) 13,291,598

Total 305,663,797 14,394,963 (1,103,365) 13,291,598

11. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT

OR LOSS

Financial assets at fair value through profit or 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 of currency forwards 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 foreign exchange

derivatives are subject to offsetting, enforceable master netting agreements for each counterparty.

The fair value of financial assets and liabilities at fair value through profit or loss are set out below:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

12. CREDIT FACILITIES

Under its investment policy, the Group is limited to borrowing an amount equivalent to

a maximum of 30 per cent of its NAV at the time of drawdown, of which a maximum

of 20 per cent can be longer term borrowings. In calculating the Group’s borrowings

for this purpose, any liabilities incurred under the Group’s foreign exchange hedging

arrangements shall be disregarded. The Group has two credit facilities as described in

note 3(g) of these financial statements.

As at 31 December 2022 an amount of £19,000,000 (2021: £8,500,000) was drawn

and interest of £181,907 (2021: £7,997) was payable.

The revolving credit facility capitalised costs are directly attributable costs incurred in

relation to the establishment of the credit loan facilities and an amount of £319,675

(2021: £593,004) was netted off against the loan facilities outstanding.

The changes in liabilities arising from financing activities are shown in the table below.

31 December 2022

31 December 2021

Borrowings at the start of the year 7,914,993 18,626,837

Proceeds during the year 94,223,490 63,800,000

Repayments during the year (84,158,141) (75,128,132)

Interest expenses recognised for

the year

707,171 236,071

Interest paid during the year (533,577) (262,221)

Credit facility amortisation of fees 373,328 563,496

Foreign exchange and translation

difference

335,940 78,942

Borrowings at the end of the year 18,863,204 7,914,993

31 December 2022

31 December 2021

Investment management fees payable 777,556 791,344

Audit fees payable 289,457 98,896

Accrued expenses 273,183 103,470

Administration fees payable 203,420 87,815

Commitment fees payable 164,855 169,746

Tax provision 25,727 19,742

Loan amounts payable 24,408 212,953

Directors' expense payable - 560

1,758,606 1,484,526

13. TRADE AND OTHER PAYABLES

14. COMMITMENTS

As at 31 December 2022, the Group had outstanding commitments in respect of loans

not fully drawn of £49,063,014 (2021: £44,543,155).

As at 31 December 2022, the Group has entered into forward contracts under

the Hedging Master Agreement with Lloyds Bank plc to sell €309,280,796 (2021:

€219,050,014) to receive Sterling. At the end of the reporting period, these forward

contracts have a fair value of £706,661 asset (2021: £13,291,598 asset).

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

15. SHARE CAPITAL

The authorised share capital of the Company consists of an unlimited number of

redeemable Ordinary Shares of no par value which upon issue the Directors may classify

into such classes as they may determine. The Ordinary Shares are redeemable at the

discretion of the Board.

At the year end, the Company had issued and fully paid up share capital as follows:

Rights attached to shares

The Company’s share capital is denominated in Sterling. At any general meeting of the

Company each Ordinary Share carries one vote. The Ordinary Shares also carry the right to

receive all income of the Company attributable to the Ordinary Shares, and to participate in

any distribution of such income made by the Company, such income shall be divided pari

passu among the holders of Ordinary Shares in proportion to the number of Ordinary Shares

held by them.

Significant share movements

1 January 2022 to 31 December 2022:

31 December 2022

Number of shares

31 December 2021

Number of shares

Ordinary Shares of no par value

Issued and fully paid

413,219,398 413,219,398

Shares held in treasury (17,626,702) (4,308,125)

Total Ordinary Shares, excluding

those in treasury

395,592,696 408,911,273

Ordinary Shares Number £

Balance at the start of the year 408,911,273 415,730,000

Shares bought back in 2022 (13,318,577) (12,364,455)

Balance at the end of the year

Issue costs since inception

395,592,696 403,365,545

(8,289,989)

Net proceeds 395,075,556

Ordinary Shares Number £

Balance at the start of the year 409,571,273 416,321,533

Shares bought back in 2021 (660,000) (591,533)

Balance at the end of the year

Issue costs since inception

408,911,273 415,730,000

(8,289,989)

Net proceeds 407,440,011

1 January 2021 to 31 December 2021:

Period to:

Dividend rate per

Share (pence)

Net dividend

paid (£)

Payment date

31 March 2022 1.375 5,622,530 27 May 2022

30 June 2022 1.375 5,606,271 26 August 2022

30 September 2022 1.375 5,439,400 25 November 2022

31 December 2022

(1)

1.375 5,439,400 24 February 2023

Period to:

Dividend rate per

Share (pence)

Net dividend

paid (£)

Payment date

31 March 2021 1.375 5,622,530 4 June 2021

30 June 2021 1.375 5,622,530 3 September 2021

30 September 2021 1.375 5,622,530 3 December 2021

31 December 2021

(1)

1.375 5,622,530 24 February 2022

16. 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 Group passed the solvency test for each dividend paid.

Subject to market conditions, the financial position of the Group and the investment

outlook, it is the Directors’ intention to pay quarterly dividends to shareholders (for more

information see Chairman’s Statement).

The Group paid the following dividends in respect of the year to 31 December 2022:

(1)

Declared after year end and to be paid on 24 February 2023 to shareholders on the register as at 3 February 2023.

This was declared after year end hence was not accrued at year end.

(1)

Declared after year end and were paid on 25 February 2022 to shareholders on the register as at 4 February 2022.

In addition, on 23 March 2023, the Company declared a special dividend of 2 pence per

Ordinary Share in respect of the year ending 31 December 2022 to be paid on 21 April

2023 to shareholders on the register as at 31 March 2023. As this special dividend was

declared after year end it was not accrued for at year end.

The Group paid the following dividends in respect of the year to 31 December 2021:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

17. 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.

It is the role of the Board to review and manage all risks associated with the Group,

mitigating these either directly or through the delegation of certain responsibilities to the

Audit Committee, Investment Manager and Investment Adviser.

The Board of Directors has established procedures for monitoring and controlling risk. The

Group has investment guidelines that set out its overall business strategies, its tolerance for

risk and its general risk management philosophy.

In addition, the Investment Manager monitors and measures the overall risk bearing capacity

in relation to the aggregate risk exposure across all risk types and activities. Further details

regarding these policies are set out below:

a) Market risk

Market risk includes market price risk, currency risk and interest rate risk.

i) Market price 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.

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 ongoing basis.

ii) 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 ongoing basis and is reported to the Board accordingly.

The Group and Lloyds Bank plc entered into an international forward exchange master

agreement dated 5 April 2013 and on 7 February 2014 the Group entered into a Professional

Client Agreement with Goldman Sachs, pursuant to which the parties can enter into foreign

exchange transactions with the intention of hedging against fluctuations in the exchange rate

between Sterling and other currencies. The Group does not trade in derivatives but holds

them to hedge specific exposures and have maturities designed to match the exposures

they are hedging. The derivatives are held at fair value which represents the replacement

cost of the instruments at the reporting date and movements in the fair value are included in

the Consolidated Statement of Comprehensive Income under net foreign exchange losses/

(gains). The Group does not adopt hedge accounting in the financial statements. At the end

of the reporting period the Group had 109 (2021: 134) open forward contracts.

31 December 2022

Danish Krone

Sterling

Euro

Total

Assets

Loans advanced - 273,150,000 159,309,966 432,459,966

Financial assets at fair value through - 706,661 - 706,661

Other receivables and prepayments - 16,792 10,000 26,792

Cash and cash equivalents 49 3,496,721 79,385 3,576,155

Liabilities

Revolving credit facility - (18,863,204) - (18,863,204)

Trade and other payables - (1,462,729) (295,877) (1,758,606)

Net currency exposure 49 257,044,241 159,103,474 416,147,764

31 December 2021

Danish Krone

Sterling

Euro

Total

Assets

Loans advanced - 192,279,327 222,353,185 414,632,512

Financial assets at fair value through - 13,291,598 - 13,291,598

Other receivables and prepayments - 17,094 20,558 37,652

Cash and cash equivalents 101 2,858,545 135,711 2,994,357

Liabilities

Revolving credit facility - (7,914,993) - (7,914,993)

Trade and other payables - (1,375,329) (109,197) (1,484,526)

Net currency exposure 101 199,156,242 222,400,257 421,556,600

As at 31 December 2022 the Group had the following currency exposure:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

Currency sensitivity analysis

Should the exchange rate of the Euro against Sterling increase or decrease by 10 per cent

with all other variables held constant, the net assets of the Group at 31 December 2022

would increase or decrease by £15,910,347 (2021: £22,240,026). Should the exchange

rate of the Danish Krone against Sterling increase or decrease by 10 per cent with all

other variables held constant, the net assets of the Group at 31 December 2022 would

increase or decrease by £5 (2021: £10). These percentages have been determined based

on potential volatility and deemed reasonable by the Directors. This does not include the

impact of hedges in place which would be expected to reduce the impact.

In accordance with the Group’s policy, the Investment Manager monitors the Group’s

currency position, and the Board of Directors reviews this risk on a regular basis.

iii) 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 at amortised cost, credit

linked notes, 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 and 78.6% (2021: 76.8%) of investments designed as loans advanced at

31 December 2022 have a floating interbank interest rate. The interest rate risk is

mitigated by the inclusion of interbank rate floors on floating rate loans, preventing

interest rates from falling below certain levels.

The following table shows the portfolio profile of the financial assets at 31 December 2022:

31 December 2022

31 December 2021

Floating rate

Loans advanced

(1)

340,705,532 318,642,491

Cash and cash equivalents 3,576,155 2,994,357

Fixed rate

Loans advanced 91,754,434 95,990,021

Total financial assets subject

to interest rate risk

436,036,121 417,626,869

(1)

Loans advanced at floating rates include loans with interbank rate floors.

31 December 2022

31 December 2021

Floating rate

Increase of 50 basis points

(1)

1,721,408 1,608,184

Decrease of 50 basis points (1,721,408) (1,608,184)

(1)

Loans advanced at floating rates include loans with interbank rate floors.

At 31 December 2022, if interest rates had changed by 50 basis points, with all other variables

remaining constant, the effect on the net profit and equity would have been as shown in the

table below:

These percentages have been determined based on potential volatility and deemed reasonable

by the Directors.

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

b) 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 investment portfolio, shown as loans advanced

at amortised cost, 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 31 December 2022 due to several

loans being advanced since origination. 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 classified as financial assets through profit or loss which is diversified between

hedge providers in order to spread credit risk to which the Group is exposed. At year-end the

derivative exposures were with one counterparty.

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 31 December 2022, the maximum credit risk exposure was £436,742,782

(2021: £430,918,680).

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 ongoing basis. After the advancing of a loan a dedicated debt asset

manager employed by the Investment Adviser monitors ongoing 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.

The Group measures credit risk and ECL using probability of default, exposure at default

and loss given default. The Directors consider both historical analysis and forward looking

information in determining any ECL. The Directors consider the loss given default to be close

to zero as all loans are the subject of very detailed underwriting, including the testing of

resilience to aggressive downside scenarios with respect to the loan specifics, the market

and general macro changes. In addition to this, all loans have very robust covenants in

place, strong security packages and significant loan- to-value headroom. During the year

ended 31 December 2022, two loans with a value of £46,909,623 (31 December 2021: the

three loans with a value of £59,031,888) remain classified as Stage 2 and the remaining

loans are classified as Stage 1. The main reason for moving the loans to Stage 2 in the

second quarter of 2020 was expected income covenant breaches due to the disruption

from Covid-19. Following loan amendments agreed with borrowers, no income breaches

have occurred. Since origination these loans have been classified as Stage 2 loans, no

expected credit loss has been recognised at 31 December 2022 (2021: £nil) as although

the credit risk has increased for these loans, the Group does not anticipate realising a loss in

the event of a default.

The Group uses both quantitative and qualitative criteria for monitoring the loan

portfolio as described in note 2(h). The gross carrying amount of loan portfolio is

presented in the table below and also represents the Group’s maximum exposure to

credit risks on these assets.

A reconciliation of changes in the loss allowance was not presented as the allowance

recognised at the end of the reporting period was £nil (2021: £nil).

The Group maintains its cash and cash equivalents across various different banks to

diversify credit risk which have been all rated A1 or higher by Moody’s and this is subject

to the Group’s credit risk monitoring policies as mentioned above.

The carrying amount of cash and cash equivalents approximates their fair value.

Total as at

31 December 2022

Total as at

31 December 2021

Barclays Bank plc 2,276,081 2,980,544

ING Luxembourg, SA 1,299,092 12,743

Lloyds Bank plc 698 778

HSBC Bank plc 154 227

Royal Bank of Scotland International 130 65

Total cash and cash equivalents 3,576,155 2,994,357

Stage 1

Stage 2

Stage 3

Total as at

31 December 2022

Total as at

31 December 2021

Loans advanced 385,550,343 46,909,623 - 432,459,966 414,632,512

Gross carrying amount 385,550,343 46,909,623 - 432,459,966 414,632,512

Carrying amount 385,550,343 46,909,623 - 432,459,966 414,632,512

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

c) 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 30 per cent of NAV and has entered into revolving credit facilities of total of £126,000,000

(2021: £126,000,000) of which £19,000,000 (2021: £85,00,000) was drawn at the end of the

reporting period.

The table below shows the maturity of the Group’s non-derivative financial assets and

liabilities arising from the advancement of loans by remaining contractual maturities

at the end of the reporting date. The amounts disclosed under assets are contractual,

undiscounted cash flows and may differ from the actual cash flows received in the forecast

future as a result of early repayments and interest rate changes:

(1)

Loan commitments are estimated forecasted drawdowns at year end.

(1)

Loan commitments are estimated forecasted drawdowns at year end.

31 December 2022

Up to 3 months

Between 3 and

12 months

Over 12 months

Total

Assets

Loans advanced 42,752,233 145,719,555 243,988,178 432,459,966

Liabilities and commitments

Loan commitments

(1)

(3,258,958) (20,660,608) (25,143,447) (49,063,014)

Credit facilities (182,879) (19,000,000) - (19,182,879)

Trade and other payables (1,758,606) - - (1,758,606)

37,551,790 106,058,947 218,844,731 362,455,467

31 December 2021

Up to 3 months

Between 3 and

12 months

Over 12 months

Total

Assets

Loans advanced 14,736,977 90,989,466 308,906,069 414,632,512

Liabilities and commitments

Loan commitments

(1)

(8,324,454) (15,850,277) (19,186,697) (43,361,428)

Credit facilities (7,997) (8,500,000) - (8,507,997)

Trade and other payables (1,484,526) - - (1,484,526)

4,920,000 66,639,189 289,719,372 361,278,561

The table below analyses the Group’s derivative financial instruments that will be settled on

a gross basis into relevant maturity groupings based on the remaining period at the end of

the reporting date. The amounts disclosed are the contractual undiscounted cash flows:

31 December 2022

Derivatives

Up to 3 months

Between 3 and

12 months

Over

12 months

Total as at

31 December 2022

Lloyds Bank plc:

Foreign exchange derivatives

Outflow

(1)

(45,083,803) (44,996,439) (72,650,196) (162,730,438)

Inflow 45,342,288 45,603,942 74,248,795 165,195,025

31 December 2021

Derivatives

Up to 3 months

Between 3 and

12 months

Over

12 months

Total as at

31 December 2021

Lloyds Bank plc:

Foreign exchange derivatives

Outflow

(1)

(3,104,840) (51,449,438) (129,195,826) (183,750,104)

Inflow 3,115,540 52,103,985 132,586,030 187,805,555

(1)

Euro amounts translated at year end exchange rate.

(1)

Euro amounts translated at year end exchange rate.

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

Capital management policies and procedures

The Group’s capital management objectives are:

• To ensure that the Group will be able to continue as a going concern; and

• To maximise the income and capital return to equity shareholders through an

appropriate balance of equity capital and long-term debt.

The capital of the Company is represented by the net assets attributable to the holders

of the Company’s shares.

In accordance with the Group’s investment policy, the Group’s principal use of cash

(including the proceeds of the IPO and subsequent tap issues and placings) has

been to fund investments in the form of loans sourced by the Investment Adviser

and the Investment Manager, as well as initial expenses related to the issue, ongoing

operational expenses and payment of dividends and other distributions to shareholders in

accordance with the Company’s dividend policy.

The Board, with the assistance of the Investment Manager, monitors and reviews the

broad structure of the Company’s capital on an ongoing basis. The Company has no

imposed capital requirements.

The Company’s capital at the end of the reporting period comprises:

31 December 2022

31 December 2021

Equity

Equity share capital 395,075,556 407,440,011

Retained earnings and translation

reserve

21,072,208 14,116,589

Total capital 416,147,764 421,556,600

18. FAIR VALUE MEASUREMENT

IFRS 13 requires the Group 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:

a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

b) 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 rates, credit risks

and default rates) or other market corroborated inputs (level 2).

c) 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:

31 December 2022

Level 1

Level 2

Level 3

Total

Assets

Derivative assets - 706,661 - 706,661

Total - 706,661 - 706,661

31 December 2021

Level 1

Level 2

Level 3

Total

Assets

Derivative assets - 13,291,598 - 13,291,598

Total - 13,291,598 - 13,291,598

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

There have been no transfers between levels for the year ended 31 December 2022

(2021: nil).

The Directors were responsible for considering the methodology and assumptions used

by the Investment Adviser and for approving the fair values reported at the financial

period end.

The following table summarises within the fair value hierarchy the Group’s assets and

liabilities (by class) not measured at fair value at 31 December 2022 but for which fair

value is disclosed:

31 December 2022

Level 1

Level 2

Level 3

Total fair

values

Total carrying

amount

Assets

Loans advanced - - 453,301,433 453,301,433 432,459,966

Total - - 453,301,433 453,301,433 432,459,966

Liabilities

Credit facility - 18,863,204 - 18,863,204 18,863,204

Total - 18,863,204 - 18,863,204 18,863,204

For cash and cash equivalents, other receivables and prepayments, trade and other

payables and credit facilities the carrying amount is a reasonable approximation of the

fair value. The Group carries its loans advanced at amortised cost in the consolidated

financial statements. Refer to note 10 for further information.

The carrying amounts of the revolving credit facilities included in the above tables are

considered to approximate its fair values. The fair value of loans advanced have been

determined by discounting the expected cash flows using a discounted cash flow

model based on the variable interest rates. For avoidance of doubt the Group carries

its loans advanced at amortised cost in the financial statements. Refer to note 10 for

further information.

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. Credit

facilities and trade and other payables represent the contractual amounts and obligations

due by the Group for contractual payments

31 December 2021

Level 1

Level 2

Level 3

Total fair

values

Total carrying

amount

Assets

Loans advanced - - 431,658,356 431,658,356 414,632,512

Total - - 431,658,356 431,658,356 414,632,512

Liabilities

Credit facility - 7,914,993 - 7,914,993 7,914,993

Total - 7,914,993 - 7,914,993 7,914,993

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

19. CONTROLLING PARTY

In the opinion of the Directors, on the basis of shareholdings advised to them, the

Company has no immediate or ultimate controlling party.

20. 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 £1,200.

The Luxembourg indirect subsidiaries of the Company are subject to the applicable

tax regulations in Luxembourg. The table below analyses the tax charges incurred at

Luxembourg level:

Luxco had no operating gains on ordinary activities before taxation and was therefore for

the year ended 31 December 2022 subject to the Luxembourg minimum corporate income

taxation at €4,815 (2021: €4,815). Luxco 3 and Luxco 4 are subject to Corporate Income

Tax and Municipal Business Tax based on a margin calculated on an arm’s-length principle.

The effective tax rate in Luxembourg during the reporting period was 24.94% (2021:

24.94%).

31 December 2022

31 December 2021

Current tax

Tax expenses on profit of the reporting period 90,287 100,452

Total current tax 90,287 100,452

21. RECONCILIATION OF IFRS TO US GAAP

To meet the requirements of Rule 206(4)-2 under the Investment Advisors Act 1940 (the

“Custody Rule”) the consolidated financial statements of the Group have also been audited

in accordance with Generally Accepted Auditing Standards applicable in the United States

(“US GAAS”). As such two independent Auditor’s reports are included on pages 47-56, one

under International Standards on Auditing as required by the Crown Dependencies Audit

Rules and the other under US GAAS. Compliance with the Custody Rule also requires a

reconciliation of the operating profit and net assets under IFRS to US GAAP.

The principal differences between IFRS and US GAAP relate to accounting for financial

assets that are carried at amortised cost. Under US GAAP the calculation of the effective

interest rate is based on contractual cash flows over the asset’s contractual life, however,

under the IFRS basis, the effective interest rate calculation is based on the estimated cash

flows over the expected life of the asset.

The Directors have assessed the operating profit and NAV of the Group under both

IFRS and US GAAP and have concluded that no material differences were identified and

therefore no reconciliation has been presented in these consolidated financial statements.

22. 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. Details on the Investment Manager and other related party transactions are

included in note 3 to the consolidated financial statements.

The following tables summarise the transactions occurred with related parties during the

reporting period and outstanding at 31 December 2022 and 31 December 2021:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

2022

Fees, expenses and other payments

Outstanding at

31 December 2022

For the year ended

31 December 2022

Directors’ fees and expenses paid

John Whittle - 60,000

Shelagh Mason - 45,000

Charlotte Denton - 50,000

Gary Yardley - 42,000

Expenses paid - 6,373

Investment Manager

Investment management fees 777,556 3,122,755

Origination fees - 501,936

Expenses - 120,099

2021

Fees, expenses and other payments

Outstanding at

31 December 2021

For the year ended

31 December 2021

Directors’ fees and expenses paid

Stephen Smith

(resigned 31 December 2021)

- 50,000

John Whittle - 45,000

Shelagh Mason - 42,500

Charlotte Denton

(appointed 1 January 2021)

- 40,000

Gary Yardley

(appointed 6 September 2021)

- 12,712

Expenses paid 560 5,198

Investment Manager

Investment management fees 791,344 3,147,075

Origination fees 380,000 300,456

Expenses - 68,107

The following tables summarise the transactions occurred with related parties during the

reporting period and outstanding at 31 December 2022 and 31 December 2021:

The following tables summarise the dividends paid to related parties during the reporting

period and number of Company’s shares held by related parties at 31 December 2022

and 31 December 2021:

2022

Shareholdings and

dividends paid

Dividends paid during

the year ended

31 December 2022

As at

31 December 2022

Number of shares

Starwood Property Trust Inc. 502,700 9,140,000

SCG Starfin Investor LP 125,675 2,285,000

John Whittle 1,725 33,866

Charlotte Denton 1,833 44,444

Shelagh Mason 6,205 112,819

Duncan MacPherson

8,333 133,333

Lorcain Egan

3,818 61,093

2021

Shareholdings and

dividends paid

Dividends paid during

the year ended

31 December 2021

As at

31 December 2021

Number of shares

Starwood Property Trust Inc. 525,550 9,140,000

SCG Starfin Investor LP 131,388 2,285,000

Stephen Smith

(resigned 31 December 2021)

4,538 78,929

John Whittle 1,372 23,866

Shelagh Mason 6,487 112,819

Duncan MacPherson

7,667 133,333

Lorcain Egan

3,513 61,093

Employees at the Investment Adviser

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2022

Loan Related party co-lenders

Hotel and Residential, UK STWD

Hotels, United Kingdom STWD

Mixed Portfolio, Europe STWD

Office Portfolio, Spain STWD

Office Portfolio, Ireland STWD

2 Hotels, UK SEREDF I

Other

The Group continues to participate in a number of loans in which Starwood Property

Trust, Inc. (“STWD”) acted as a co‐lender. The details of these loans are shown in the

table below. The Group also acted as co-lender with Starwood European Real Estate

Debt Finance I LP (“SEREDF I”) an affiliate entity.

23. EVENTS AFTER THE REPORTING PERIOD

Subsequent to 31 December 2022, the following amounts have been drawn under

existing commitments, up to 23 March 2023:

Local currency

Mixed Use, Dublin €109,357

Local currency

Hotel, Dublin €2,449,200

Hotel and Office, Northern Ireland £1,000,000

Mixed Portfolio, Europe

€1,516,035

Three Shopping Centres, Spain

€359,732

Local currency

Hotel, Oxford

£22,950,000

Office and Industrial Portfolio, UK

£5,500,000

Subsequent to 31 December 2022, the following loan amortisation (both scheduled

and unscheduled) has been received up to 23 March 2023:

Subsequent to 31 December 2022, the following loans have been repaid in full up to

23 March 2023:

During January and February 2023, a total amount of £19,000,000 was paid to Morgan

Stanley as repayment of amounts owed as at 31 December 2022 under the credit facility

held with them.

On 21 January 2023, the Directors declared a dividend in respect of the fourth quarter

of 1.375 pence per Ordinary Share payable on 24 February 2023 to shareholders on

the register at 3 February 2023.

In addition, on 23 March 2023, the Company declared a special dividend of 2 pence per

Ordinary Share in respect of the year ending 31 December 2022 to be paid on 21 April

2023 to shareholders on the register as at 31 March 2023.

Subsequent to year end the Lloyds credit facility agreement was extended to May 2024

with a reduced facility amount of £25.0 million.

Further Information

Alternative Performance Measures

In accordance with ESMA Guidelines on Alternative Performance Measures (“APMs”) the

Board has considered what APMs are included in the Annual Financial Report and Audited

Consolidated Financial Statements which require further clarification. An APM is defined as

a financial measure of historical or future financial performance , financial position, or cash

flows, other than a financial measure defined or specified in the applicable financial reporting

framework. APMs included in the financial statements, which are unaudited and outside the

scope of IFRS, are deemed to be as follows:

NAV PER ORDINARY SHARE

The NAV per Ordinary Share represents the net assets attributable to equity shareholders

divided by the number of Ordinary Shares in issue, excluding any shares held in treasury. The

NAV per Ordinary Share is published monthly. This APM relates to past performance and is

used as a comparison to the share price per Ordinary Share to assess performance. There are

no reconciling items between this calculation and the Net Asset Value shown on the balance

sheet (other than to calculate by Ordinary Share).

NAV TOTAL RETURN

The NAV total return measures the combined effect of any dividends paid, together with the

rise or fall in the NAV per Ordinary Share. This APM relates to past performance and takes into

account both capital returns and dividends paid to shareholders. Any dividends received by a

shareholder are assumed to have been reinvested in the assets of the Company at its NAV per

Ordinary Share.

SHARE PRICE TOTAL RETURN

The share price total return measures the combined effects of any dividends paid, together

with the rise or fall in the share price. This APM relates to past performance and assesses the

impact of movements in the share price on total returns to investors. Any dividends received

by a shareholder are assumed to have been reinvested in additional shares of the Company at

the time the shares were quoted ex-dividend.

NAV TO MARKET PRICE DISCOUNT / PREMIUM

The discount / premium is the amount by which the share price of the Company is lower

(discount) or higher (premium) than the NAV per Ordinary Share at the date of reporting and

relates to past performance. The discount or premium is normally expressed as a percentage

of the NAV per Ordinary Share.

INVESTED LOAN PORTFOLIO UNLEVERED ANNUALISED TOTAL RETURN

The unlevered annualised return is a calculation at the quarterly reporting date of the estimated

annual return on the portfolio at that point in time. It is calculated individually for each loan

by summing the one-off fees earned (such as up-front arrangement or exit fees charged on

repayment) and dividing these over the full contractual term of the loan, and adding this to the

annual returns. Where a loan is floating rate (partially or in whole or with floors), the returns

are based on an assumed profile for future interbank rates, but the actual rate received may be

higher or lower. The return is calculated only on amounts funded at the quarterly reporting date

and excludes committed but undrawn loans and excludes cash uninvested. The calculation also

excludes origination fees paid to the Investment Manager, which are accounted for within the

interest line in the financial statements.

An average, weighted by loan amount, is then calculated for the portfolio.

This APM gives an indication of the future performance of the portfolio (as constituted at

the reporting date). The calculation, if the portfolio remained unchanged, could be used to

estimate “income from loans advanced” in the Consolidated Statement of Comprehensive

Income if adjusted for the origination fee of 0.75 basis points amortised over the average life of

the loan. As discussed earlier in this report the figure actually realised may be different due to

the following reasons:

• In the quoted return, we amortise all one-off fees (such as arrangement and exit fees) over

the contractual life of the loan, which is currently four years for the portfolio . However, it

has been our experience that loans tend to repay after approximately 2.5 years and as such,

these fees are actually amortised over a shorter period.

• Many loans benefit from prepayment provisions, which means that if they are repaid before

the end of the protected period, additional interest or fees become due. As we quote the

return based on the contractual life of the loan these returns cannot be forecast in the return.

• The quoted return excludes the benefit of any foreign exchange gains on Euro loans. We do

not forecast this as the loans are often repaid early and the gain may be lower than this once

hedge positions are settled.

Generally speaking, the actual annualised total return is likely to be higher than the reported

return for these reasons, but this is not incorporated in the reported figure, as the benefit of

these items cannot be assumed.

PORTFOLIO LEVERED ANNUALISED TOTAL RETURN

The levered annualised total return is calculated on the same basis as the unlevered annual

return but takes into account the amount of leverage in the Group and the cost of that leverage

at current SONIA rates.

ONGOING CHARGES PERCENTAGE

Ongoing charges represents the management fee and all other operating expenses excluding

finance costs and transactions costs, expressed as a percentage of the average monthly net

asset values during the year and allows users to assess the running costs of the Group. This

is calculated in accordance with AIC guidance and relates to past performance. The charges

include the following lines items within the Consolidated Statement of Comprehensive Income:

• Investment management fees

• Administration fees

• Audit and non-audit fees

• Other expenses

• Legal and professional fees

• Directors’ fees and expenses

• Broker’s fees and expenses

• Agency fees

The calculation adds back any expenses unlikely to occur absent any loan originations or

repayments and as such, the costs associated with hedging Euro loans back to sterling have

been added back. The calculation does not include origination fees paid to the Investment

Manager; these are recognised through “Income from loans advanced”.

Further Information

Alternative Performance Measures

WEIGHTED AVERAGE PORTFOLIO LTV TO GROUP FIRST AND LAST £

These are calculations made as at the quarterly reporting date of the loan to value (“LTV”) on

each loan at the lowest and highest point in the capital stack in which the Group participates.

LTV to “Group last £” means the percentage which the total loan commitment less any

amortisation received to date (when aggregated with any other indebtedness ranking alongside

and/or senior to it) bears to the market value determined by the last formal lender valuation

received by the quarterly reporting date. LTV to “first Group £” means the starting point of the

loan to value range of the loan commitments (when aggregated with any other indebtedness

ranking senior to it). For development projects, the calculation includes the total facility

available and is calculated against the assumed market value on completion of the project.

An average, weighted by the loan amount, is then calculated for the portfolio.

This APM provides an assessment of future credit risk within the portfolio and does not directly

relate to any financial statement line items.

PERCENTAGE OF INVESTED PORTFOLIO IN FLOATING RATE LOANS

This is a calculation made as at the quarterly reporting date, which calculates the value of

loans, which has an element of floating rate in part, in whole and including loans with floors, as

a percentage of the total value of loans. This APM provides an assessment of potential future

volatility of the income on loans, as a large percentage of floating rate loans would mean that

income would move up or down with changes in SONIA.

AVERAGE LOAN TERM AND AVERAGE REMAINING LOAN TERM

The average loan term is calculated at the quarterly reporting date by calculating the average

length of each loan from initial advance to the contractual termination date. An average,

weighted by the loan amount, is then calculated for the portfolio.

The average remaining loan term is calculated at the quarterly reporting date by calculating the

average length of each loan from the quarterly reporting date to the contractual termination

date. An average, weighted by the loan amount, is then calculated for the portfolio.

This APM provides an assessment of the likely level of repayments occurring in future years

(absent any early repayments) which will need to be reinvested. In the past, the actual term

of loans has been shorter than the average contractual loan term due to early repayments

and so the level of repayments is likely to be higher than this APM would suggest. However,

this shorter actual loan term cannot be assumed as it may not occur and therefore it is not

reported as part of this APM.

100

NET CASH

Net cash is the result of the Group’s total cash and cash equivalents minus total credit facility

utilised as reported on its consolidated financial statements.

UNUSED LIQUID FACILITIES

Unused liquid facilities is the result of the Group’s total cash and cash equivalents plus the

available balance to withdraw under existing credit facilities at the reporting date.

PORTFOLIO DIVERSIFICATION

The portfolio diversification statistics are calculated by allocating each loan to the relevant

sectors and countries based on the value of the underlying assets. This is then summed for the

entire portfolio and a percentage calculated for each sector / country.

This APM provides an assessment of future risk within the portfolio due to exposure to specific

sectors or countries and does not directly relate to any financial statement line items.

Further Information

Alternative Performance Measures

Further Information

Corporate Information

Directors

John Whittle (Non-executive Director)

Shelagh Mason (Non-executive Director)

Charlotte Denton (Non-executive Director)

Gary Yardley (Non-executive Director)

(all care of the registered office)

Investment Manager

Starwood European Finance

Partners Limited

1 Royal Plaza

Royal Avenue

St Peter Port

Guernsey

GY1 2HL

Solicitors to the Company

(as to English law and U.S.

securities law)

Norton Rose Fullbright LLP

3 More London Riverside

London

SE1 2AQ

United Kingdom

Registrar

Computershare Investor Services

(Guernsey) Limited

1st Floor

Tudor House

Le Bordage

St Peter Port

Guernsey

GY1 1DB

Broker

Jefferies Group LLC

100 Bishopsgate

London, EC2N 4JL

United Kingdom

Administrator, Designated Manager

and Company Secretary

Apex Fund and Corporate Services

(Guernsey) Limited

1 Royal Plaza

Royal Avenue

St Peter Port

Guernsey

GY1 2HL

Registered Office

1 Royal Plaza

Royal Avenue

St Peter Port

Guernsey

GY1 2HL

Investment Adviser

Starwood Capital Europe Advisers, LLP

2nd Floor

One Eagle Place

St. James`s

London

SW1Y 6AF

United Kingdom

Advocates to the Company

(as to Guernsey law)

Carey Olsen

PO Box 98

Carey House, Les Banques

St Peter Port

Guernsey

GY1 4HP

Independent Auditor

PricewaterhouseCoopers CI LLP

Royal Bank Place

1 Glategny Esplanade

St Peter Port

Guernsey

GY1 4ND

Principal Bankers

Barclays Private Clients International Limited

PO Box 41

Le Marchant House

St Peter Port

Guernsey

GY1 3BE

Website:

www.starwoodeuropeanfinance.com

101