Annual Report and

Audited Consolidated

Financial Statements

for the year ended 31 December 2023

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 97

Corporate Information 101

Overview

Financial Highlights

Key Highlights

Year ended

31 December 2023

Year ended

31 December 2022

NAV per Ordinary Share 104.35 p 105.20 p

Share Price 90.4 p 89.0 p

NAV total return

(1) )

6.6%

(2)

7.7%

(3)

Share Price total return

(1)

10.5%

(2)

0.45%

(2)

Total Net Assets £327.3 m £416.1 m

Loans advanced at amortised cost (including accrued income) £264.1 m £432.5 m

Financial assets held at fair value through profit or loss £1.0 m £0.7 m

Cash and Cash Equivalents £63.8 m £3.6 m

Amount drawn under Revolving Credit Facility (excluding ac-

crued interest)

(£0.0 m) (£19.0 m)

Other net liabilities (£1.6 m) (£1.7 m)

Dividends per Ordinary Share

6.0 p

(3)

7.5 p

(4)

Invested Loan Portfolio unlevered annualised total return

(1)

8.2% 7.8%

Ongoing charges percentage

(1)

1.1% 1.1%

Weighted average portfolio LTV to Group first £

(1)

14.7% 13.2%

Weighted average portfolio LTV to Group last £

(1)

61.8% 58.6%

2023 2022

Dividends declared as disclosed by the Company (by the year to which they relate) 6.0 7.5

Dividends paid during the year and included in the Morningstar calculation 7.5 5.5

(1)

Further explanation and definitions of the calculation is contained in the section “Alternative Performance Measures” at the end of this financial report.

(2)

Source: Morningstar. The Morningstar calculations include dividends in the year in which the payments are made to shareholders. This differs to the approach taken by the

Company in this table which is to show dividends in the year in relation to which they are declared (see footnotes (3) and (4) below).

The differences between dividends paid and declared are shown below:

(3)

During 2023 the Company declared a dividend of 1.375 pence per Ordinary Share in relation to each of the first three quarters. The Company also declared a dividend of 1.875

pence per Ordinary Share in January 2024. These four dividends declared all related to income earned in 2023 and are therefore included within the 6.0 pence per Ordinary Share

dividend shown in the table above for the year ended 31 December 2023.

(4)

During 2022 the Company declared a dividend of 1.375 pence per Ordinary Share in relation to each of the first three quarters of 2022 with the fourth quarter dividend

declaration being made in January 2023. The Company then declared a final dividend in March 2023 of 2.0 pence per Ordinary Share which related to income earned in the year

ended 31 December 2022. These five dividends declared all related to income earned in 2022 and are therefore included within the 7.5 pence per Ordinary Share dividend shown

in the table above for the year ended 31 December 2022.

SHARE PRICE PERFORMANCE

As at 31 December 2023, the NAV was 104.35 pence per Ordinary Share

(2022: 105.20 pence) and the share price was 90.4 pence (2022: 89.0 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

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

are set out in the 2021 Annual Report which

can be found on the Company’s website

https://starwoodeuropeanfinance.com.

The Investment Objective applied up to the

date of the approval of the Proposals 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 up to the

date of the approval of the Proposals 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

18 March 2024

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 and its subsidiaries (the “Group”) for the year ended

31 December 2023.

By most measures 2023 was a volatile year for UK and global economies.

The first part of the year was marked by concerns over energy prices, the rising

cost of living, higher interest rates and the Russian invasion of Ukraine. By the

middle of 2023 energy prices and inflation had started to fall while interest

rates continued to rise. The end of 2023 and the beginning of 2024 have seen

inflation stabilise and the expectation is that interest rates may soon fall albeit

this economically positive news is in a backdrop of increasing concerns around

continuing political stability.

Despite these challenging and uncertain economic and political times the Group

demonstrated its unique portfolio resilience through the strength and consistency

of its results. It is significant to note that, once again, all loan contractual interest

and scheduled amortisation payments have continued to be paid in full and

underlying collateral valuations continue to provide reassuring headroom.

Against significant market challenges, during the year the Group returned £85.0

million to shareholders, created a cash reserve to ensure that unfunded loan cash

commitments could be met by the Group and delivered a 6.0 pence per share

dividend to shareholders (against the target of 5.5 pence per share).

Shareholders will be aware that following an Extraordinary General Meeting

(‘EGM’) held on 27 January 2023 the objective of the Group is now to pursue a

strategy of orderly realisation and the return of capital over time to shareholders.

Importantly, 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 time frame. The new strategy, approved by 99 per

cent of shareholders voting at an Extraordinary General Meeting (‘EGM’)

held on 27 January 2023, is being implemented in a manner that seeks 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

(having started at the beginning of 2023) with periodic share redemptions

continuing to be made as loans are repaid and commitments are satisfied.

The last four 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. Whilst market sentiment seems to have

changed and the secure income generation offered by the Group’s operations

has 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.

HIGHLIGHTS FOR 2023

• Asset realisation progress –

during the year:

A total of £166.9 million, 39.2 per cent

of the Group’s 31 December 2022

total funded loan portfolio, has been

repaid, including the full repayment of

eight loans

Proceeds were used during the year to:

(i) repay £19 million of debt

which was outstanding as

at 31 December 2022,

(ii) to create a cash reserve to fund

unfunded loan cash commitments

(which accounted for £36.2 million

of the £63.8 million of cash held

by the Group as at 31 December

2023), and

(iii) to return £85.0 million of capital

to shareholders

• Dividend – on 25 January 2024, the

Directors declared a dividend, to be paid in

February, in respect of the fourth quarter

of 2023 of 1.875 pence per Ordinary

Share – resulting in a dividend of 6.0 pence

per Ordinary Share for the full year – an

increase of 0.5 pence per share compared

to the 2023 target of 5.5 pence per

Ordinary Share. The 2024 dividend target

remains at 5.5 pence per Ordinary Share

• Strong cash generation – going forward

the portfolio is expected to continue to

support annual dividend payments of 5.5

pence per Ordinary Share, paid quarterly

• All assets are constantly monitored for

changes in their risk profile – the current

investment risk classification of the

investments as at 31 December 2023

is listed below:

Seven loan investments equivalent

to 64 per cent of the funded portfolio

were classified in the lowest risk

profile, Stage 1

Four loan investments equivalent to

31 per cent of the funded portfolio were

classified as Stage 2. Since year end

one Stage 2 loan has had a significant

repayment of loan principal made.

One loan equivalent to 5 per cent of the

funded portfolio was classified as Stage 3.

During the year, the Group accounted for

an impairment provision on this loan of

€4 million/£3.5 million, equivalent to 1.3

per cent of the funded portfolio as at 31

December 2023. Since year end this loan

has been repaid and €167,722 of the

provision was released.

• Income stability – all contractual loan

interest and scheduled amortisation

payments paid in full.

• 90.5 per cent of the portfolio is contracted

at floating interest rates (with floors) which

benefits the Group in the current interest

rate environment.

• Portfolio remains robust – the loan book is

performing broadly in line with expectations

with its defensive qualities reflected in

the Group’s continued NAV stability in a

challenging macro environment.

• Borrowers remain adequately capitalised

and are expected to continue to pay loan

interest and capital repayments in line with

contractual obligations.

• The average remaining loan term of the

portfolio is 1.4 years

• Significant equity cushion – the weighted

average Loan to Value for the portfolio is

61.8 per cent.

INVESTMENT MOMENTUM

As the Group is now pursuing a strategy of

orderly realisation no new loans were closed

in 2023.

During the year, the Group funded £7.3 million

in relation to loan commitments made in prior

years which were unfunded.

During the year borrowers, repaid a total of

£166.9 million. As detailed below a total of

eight loans were repaid in full and a further 6

loans made partial repayments against their

outstanding loan obligations.

Details of loans repaid in full in 2023:

- £49.9 million, Hotel & Residential, UK

- £22.9 million, Hotel, Oxford

- £20.5 million, Office, London

- €18.8 million, Office, Madrid, Spain

- €12.7 million, Mixed Use, Dublin

- €8.8 million, Mixed Portfolio, Europe

- £5.5 million, Office and Industrial

Portfolio, UK

- €3.0 million, Logistics Portfolio, Germany

Details of loans where partial repayments

were made in 2023:

- €24.5 million, Hotel, Dublin (scheduled

amortisation and partial repayment

of loan)

- £4.0 million, Life Science, UK (partial

repayment of loan)

- £2.7 million, Hotel and Office, Northern

Ireland (scheduled amortisation)

- €1.3 million, Three Shopping Centres,

Spain (scheduled amortisation)

- €0.8 million, Shopping Centre, Spain

(partial repayment of loan)

- €0.8 million, Office Portfolio, Spain

(partial repayment of loan)

Overview

Chairman’s Statement

As at 31 December 2020 to 2023 the Group had unfunded cash commitments as shown in

the table below.

2020 2021 2022 2023

Funded loans £440.9m £412.0m £425.9m £262.7m

Unfunded Cash Commitments £49.2m £44.5m £49.0m £36.2m

Total £490.13m £456.5m £474.9m £298.9m

Q1 Q2 Q3 Q4 2023

NAV at beginning of the period 105.20 103.82 103.75 104.46 105.20

Movements

Operating Income available to

distribute before impairment

provision

(1)

1.93 1.89 1.83 2.04 7.69

Impairment provision on asset

classified as Stage 3

(2)

0.00 (0.45) 0.00 (0.55) (1.00)

Realised FX gains/(losses) not

distributable

(3)

0.56 0.00 0.07 0.05 0.68

Unrealised FX gains/(losses)

(4)

(0.49) (0.14) 0.19 (0.28) (0.72)

Dividends (3.38) (1.37) (1.38) (1.37) (7.50)

NAV as end of period 103.82 103.75 104.46 104.35 104.35

(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. The Operating Income available to distribute also includes any realised foreign exchange gains or losses upon

settlement of hedges, except those described in note 3.

(2)

In June 2023 and December 2023 a loan classified as Stage 3 had an impairment provision recognised against it.

(3)

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. The reconciliation of NAV above includes the reversing of such FX gains (of circa £1.2 million) in 2023 following the

repayment of two such loans. The gains previously separated are now included in the Operating Income available to distribute.

(4)

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). Mismatches 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.

The contractual maturity of the Group’s

portfolio is set out in the Investment

Manager’s report and shows that as at

31 December 2023 46.2 per cent of invested

loan balances held were contracted to

mature in the next twelve months.

IMPAIRMENT

In June 2023, the Group took the step of

reclassifying one of the Spanish retail loan

assets from Stage 2 to Stage 3 and recognise

an impairment provision of €2 million against

it. A further additional €2 million impairment

was recognised on the same loan in

December 2023 as an underlying asset sale

progressed through final due diligence. This

process resulted in the successful sale of the

underlying asset in March 2024 and €167,722

of the €4 million impairment provision

recognised in 2023 was released.

In addition, during early / mid 2023 four

loans were moved from Stage 1 to Stage 2

indicating a change in their credit risk since

origination but with no impairments in value

anticipated. Subsequently, in the fourth

quarter of 2023, one of these Stage 2 loans

was repaid in full and one had a significant

repayment of loan principal made. Despite

the significant repayment decreasing the

risk for this loan the Group continues to

prudently maintain a cautious approach and

the loan remains classified as Stage 2. As at

31 December 2023, there were four loans

classified as Stage 2. In March 2024 another

Stage 2 loan had a significant repayment of

loan principal made.

More information on this is provided in the

Investment Manager’s report.

NAV PERFORMANCE

The table below shows the NAV per share movements over the 12 months to 31 December

2023 by quarter and for the year.

1111

CAPITAL REDEMPTIONS, SHARE PRICE AND SHARES HELD IN TREASURY

During the year, the Company redeemed a total of 81,901,754 shares for a total of

£85.0 million as follows:

Number of shares

redeemed

NAV at which shares

redeemed

Total capital returned

to Shareholders

Jun-23 9,652,350 £1.0363 £10,002,730

Aug-23 29,092,218 £1.0312 £29,999,895

Dec-23 43,157,186 £1.0427 £44,999,998

81,901,754 £85,002,623

The 2023 dividends were covered 1.17

times by 2023 earnings (excluding unrealised

FX gains and losses and FX gains realised

on the roll forward of hedges as a result of

loan extensions).

The Board is also mindful of shareholder

appetite for a regular source of income and

as such continues to target 5.5 pence per

Ordinary Share per annum (payable quarterly)

going forward for as long as feasible during

the orderly realisation.

BOARD COMPOSITION AND

DIVERSITY

The Board believes strongly in the value and

importance of diversity in the boardroom

and we continue to bear in mind 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.

I remain very pleased with the current

composition of the Board both in terms of

experience, skills and diversity which places

us well for the upcoming challenges.

As at 31 December 2023, the Company

met the targets specified in the Listing

Rules 9.8.6R(9)(a)(i) and (ii) with the Board

comprising 50 per cent women, one of whom

is the Senior Independent Director. However,

the Company has not met the target under

Listing Rule 9.8.6R(9)(a)(iii) of having one

Director from a minority ethnic background.

Please refer to the Corporate Governance

Statement for the Board’s diversity statement.

Following the redemption in December 2023,

the Company had 313,690,942 shares in

issue and the total number of voting rights

was 313,690,942. Of the shares in issue

(excluding the shares held in treasury – see

below) as at 31 December 2022, 21 per cent

were redeemed during the year.

Subsequent to year end, in February

2024, the Company redeemed a further

19,402,403 shares at a price of £1.0308 per

share, resulting in an additional £20.0 million

being returned to shareholders. Following this

redemption, the Company has 294,288,539

shares in issue and the total number of voting

rights is 294,288,539.

On 18 March 2024, the Company approved

a further compulsory redemption of shares

amounting to £25.0 million.

During the year, the Company’s share price

has traded in a range of between 85.4

and 92.6 pence. The year end share price

was 90.4 pence reflecting a 13.4 per cent

discount to NAV.

Between August 2020 and October 2022

the Company had bought back an aggregate

amount of 17,626,702 million shares at an

average cost per share of 91.5 pence per

share. These shares were held in treasury as

at 31 December 2022 and were cancelled

in June 2023 before the return of capital to

shareholders commenced.

DIVIDENDS

Total dividends of 6.0 pence per Ordinary

Share were declared in relation to the year

ended 31 December 2023 compared to a

target of 5.5 pence per Ordinary Share.

GOING CONCERN

Under the UK Corporate Governance Code

and applicable regulations, the Directors

are required to satisfy themselves that it is

reasonable to assume that the 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. 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.

Notwithstanding the above, and as disclosed

in these financial statements, the strategy

of orderly realisation and return of capital to

shareholders over time does in the long term

create uncertainty as to the longer term future

of the Company and the Group and its longer

term ability to continue as a going concern. The

financial statements have not been modified in

respect of this matter.

OUTLOOK

The focus of the Group for 2024 will be the

continued robust asset management of the

existing loan portfolio, the orderly realisation of

the Group’s assets and the efficient return of

capital to shareholders over time.

The Board believes it is important to maintain

clear and transparent communications with

you, our shareholders, and we will continue

to inform you of the Group’s progress by way

of the quarterly factsheets. We welcome any

comments you have on our communication

and supply of information to you.

My thanks to all of our service 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

18 March 2024

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;

• 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.

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. In 2023, the Company

returned £85.0 million to shareholders.

Strategic Risk (risk that the strategy is

not achievable)

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 three to four 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,

Spain and the Republic of Ireland 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, and in the Middle East, following the

October 2023 Hamas attacks in Israel also

presents a significant risk to European and

Global economies. While the Group has no

direct or known indirect involvement with

Ukraine, Russia or the Middle East it may

be impacted by the consequences of the

instability caused by the ongoing conflicts and

political instability.

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 conflicts in Ukraine and the Middle East,

towards recession.

In addition there is the impact of the ongoing

volatile inflationary environment to consider

(driven by 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. As a result of the cash held

in reserve by 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

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.

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 changes in non-Sterling investments

(e.g. extensions of non-Sterling loans).

The Company had approximately £110.9

million (€125.11 million) of hedged notional

exposure with Lloyds Bank plc at 31

December 2023 (converted at 31 December

2023 FX rates).

As at 31 December 2023, 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 2023, the Company had sufficient

liquidity and credit available on the revolving

credit facility to meet any cash collateral

requirements.

Four loans within the portfolio are classified

as Stage 2 as at 31 December 2023

(increased risk of default). These loans

account for 30.5 per cent of the portfolio

funded by the Group as at 31 December

2023. No expected credit losses have been

recognised against any of these loans,

because of the strong LTVs across the loan

portfolio and strong contractual agreements

with borrowers, including against these

Stage 2 loans. One of these stage 2 loans

made a significant repayment post year end.

One loan (accounting for 5.4 per cent of

the funded portfolio as at 31 December

2023) is currently classed as Stage 3 (ie the

loan is considered to be credit impaired).

A impairment provision of £3.5 million has

been provided in these accounts for this

loan as at 31 December 2023. Subsequent

to year end the loan was fully repaid utilising

96 per cent of the provision.

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 2023 have

been structured so that 90.5 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 9.5 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 (65.3 per cent as at 31

December 2023) with the remainder being

Euro denominated. The Group is subject

to the risk that the exchange rates move

Strategic and Business Review

Strategic Report

of the portfolio of 61.8 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

realisation 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.

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).

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 (£36.2 million as at

31 December 2023) 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 the Stage 2 loans held default,

resulting in a loss of interest income and

delay in the repayment of capital.

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 remaining Stage 2 loans in the portfolio

(the loan classified as Stage 3 at year end

having been repaid in Q1 2024) 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 per cent from 2025 onwards; 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.

Strategic and Business Review

Strategic Report

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

2026, 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 realisation

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

and healthcare.

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 5,000 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. Please refer to the Corporate

Governance Statement for the Board’s

diversity statement.

The Company has no employees and therefore

has no disclosures to make in this regard.

John Whittle | Chairman

18 March 2024

MARKET SUMMARY AND

INVESTMENT OUTLOOK

The volatility in inflation and interest rates

expectations has been the most important

macro factor affecting real estate markets

over the past two years. Fast movements in

inflation and the resulting speed of central

banks’ responses created uncertainty in

real estate valuation and led to significantly

lower transaction volumes. According to

CBRE research, 2023 had the lowest level of

investment volume since the GFC with volumes

half of the levels of recent years.

Improving inflation data has led to significant

momentum in the expectations for continued

moderation of inflation and a knock-on effect

of decreasing interest rates. US Inflation has

declined from a high of 9.1 per cent in June

2022 to 3.1 per cent in January 2024, UK

inflation from 11.1 per cent in November 2022

to 4.0 per cent in January 2024 and Eurozone

inflation from 10.6 per cent in October 2022

to 2.6 per cent in February 2024. While the

general trajectory is towards more normal

target inflation levels, movement has not all

been one way. February 2024 inflation in the

US ticked up 0.1 per cent versus January 2024

and in the United Kingdom the January 2024

inflation number came in lower than expected

at 4.0 per cent versus expectations of 4.2 per

cent and unchanged since December 2023.

The 4.0 per cent number remains below the

Bank of England forecast of 4.1 per cent. As a

result of the data, traders in the swaps market

are now pricing a quarter-point cut to the Bank

of England benchmark rate in June as a 65 per

cent probability, up from 40 per cent.

As a result of the general trend downward in

inflation, US 10 Year Treasury yields are now

at 4.1 per cent having reached 5.0 per cent in

October 2023, UK 10 Year Gilt rates are 4.0

per cent down from 4.7 per cent in October

of 2023 and German 10 Year yields are 2.3

per cent vs. 3.0 per cent in October of 2023.

Investors continue to compare fixed-income

returns with real estate yields, so as bond yields

decrease, real estate yields are likely to follow.

Real estate is a capital-intensive investment

and the lower interest rate environment

reduces the cost and improves the availability

of debt, boosting levered returns. European

commercial real estate is typically financed

using 3 to 5-year floating rate debt and the

key benchmark for financing cost is the

5-year swap. The GBP and EUR 5-year swaps

currently stand at 3.8 per cent and 2.6 per cent

respectively, having peaked at 5.2 per cent and

3.4 per cent.

The price of these longer-term interest

rate instruments is determined by market

expectations of future interest rate moves.

Currently, pricing reflects expectations of

significant interest rate cuts over the coming

quarters. For example, in the US, while rates

have not yet been lowered, the guidance from

dot plots provided by the Federal Reserve,

show an expectation of three 25 basis point

cuts in 2024. The market had previously

expected a faster pace of interest rate

reductions with as many as six cuts in 2024

but now is in line with the Fed pricing in just

three rate cuts. The pattern is similar in the

UK and the Eurozone as while central banks

are determined to defeat inflation and have

flagged that they are likely to continue with the

approach being more cautious on the hawkish

side, markets are projecting the

data will allow them to cut earlier.

Generally the stabilised interest rate

environment should lead to a more normalised

volume of real estate transactions, however

there is still risk around the path to stabilisation

of interest rates which could continue to

subdue transaction volumes. In particular,

geo-political events such as the disruption

of Red Sea shipping routes could increase the

cost of moving goods and commodities and

have a significant corresponding impact on

the inflation trajectory.

Nevertheless there is a significant quantity of

capital available focused on investment in the

commercial real estate sector. Currently the

majority of capital is concentrated on value-

add and opportunistic strategies and less on

cheaper, core equity. The Investment Advisor

attended the Commercial Real Estate Finance

Council conference in Miami at the beginning

of the year. At the conference it was clear

that bank sentiment was meaningfully better

than this time last year with a high degree

of confidence in US CMBS bond issuance

from the large US banks. At that time spread

tightening in secondary trading had already

showed a stronger market appetite and the

banks were expecting healthy volumes of

new issuance being cleared efficiently by the

market with further tightening also on the cards

which would further support sentiment for

commercial real estate.

While problem areas (such as low quality office

and distress for thinly capitalised developers)

are still an issue, the sentiment from the

conference has played out as expected with a

very strong start of the year in capital markets.

We have seen this across the board in bond

markets both in and outside of the real estate

space. The Investment Grade and High Yield

markets are off to strong starts and real estate,

specifically the US CMBS market, has seen

USD 12.1 billion of Single Asset Single Borrower

(“SASB”) CMBS issuance in the first two

months of the year versus only USD 5.3 billion

at the same time last year. We have also seen

the predicted spread tightening with the SASB

AAA rated tranches having been issued as

tight as 135 basis points over the benchmark

interest rate versus low 200s at the end of

last year.

While CMBS plays a smaller part of the

European market, the health of the US CMBS

market is a bellwether for real estate finance

sentiment and we are seeing a similar positive

dynamic in the European loan markets. There

are a larger number of active loan requests

in the market and with larger average loan

sizes than we have seen over the last two

years. The market is competitive with prices

tightening and loan to value ratios creeping

higher relative to last year. Many of the more

substantial transactions are in the logistics and

student refinancing sectors but we are also

seeing strong appetite for asset classes across

the board including for the right types of office

with the £280 million refinancing of the Blue Fin

building in London that closed last month being

a good example.

As the year progresses it is likely that healthy

credit market conditions and improving investor

sentiment around interest rates will help start

to lift real estate transaction volumes from the

subdued level we saw in 2023.

Strategic and Business Review

Investment Manager’s Report

PORTFOLIO STATISTICS

As at 31 December 2023, 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 2023 is shown below.

Strategic and Business Review

Investment Manager’s Report

31 December

2023

31 December

2022

Number of investments 12 20

Percentage of invested portfolio in floating rate loans

(1)

90.5% 78.9%

Invested Loan Portfolio unlevered annualised total return

(1)

8.2% 7.8%

Weighted average portfolio LTV – to Group first £

(1)

14.7% 13.2%

Weighted average portfolio LTV – to Group last £

(1)

61.8% 58.6%

Average remaining loan term 1.4 years 1.7 years

Net Asset Value £327.3 m £416.1 m

Amount drawn under Revolving Credit Facility

(including accrued interest)

(£0.0 m) (£19.2 m)

Loans advanced at amortised cost

(including accrued income)

£264.1 m £432.5 m

Cash £63.8 m £3.6 m

Other (liabilities) (including financial assets held at fair

value through profit or loss)

(£0.6 m) (£0.8 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 45.0

Retail 16.2

Office 12.0

Light industrial &

Logistics

10.3

Healthcare 9.5

Life Sciences 5.9

Other 1.1

Country

% of invested

assets

UK 65.3

Spain 19.1

Republic of Ireland 15.6

Remaining years to

contractual maturity

Value of loans

(£m)

% of invested

portfolio

0 to 1 years £121.4 46.2

1 to 2 years £76.7 29.2

2 to 3 years £64.6 24.6

Loan currency

% of invested

assets

Sterling 65.3

Euro 34.7

Loan type

% of invested

assets

Whole loans 74.2

Mezzanine 25.8

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 2023, the Group had 12 investments and commitments of £298.9 million as follows:

Transaction

Sterling

equivalent

balance

(1) (2)

Sterling

equivalent unfunded

commitment

(3)

Sterling Total (Drawn

and Unfunded)

Hospitals, UK £25.0 m £25.0 m

Hotel, Scotland £42.5 m £42.5 m

Hotel, North Berwick £15.0 m £15.0 m

Life Science, UK £15.5 m

£4.0 m

£19.5 m

Hotel and Office, Northern Ireland £8.8 m £8.8 m

Hotels, United Kingdom £37.5 m £13.2 m £50.7 m

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

Total Sterling Loans £171.5 m £36.2 m £207.7 m

Three Shopping Centres, Spain £28.4 m £28.4 m

Shopping Centre, Spain £14.1 m £14.1 m

Hotel, Dublin £19.9 m £19.9 m

Office Portfolio, Spain £7.6 m £7.6 m

Office Portfolio, Ireland £21.2 m £21.2 m

Total Euro Loans £91.2 m £91.2 m

Total Portfolio £262.7 m £36.2 m £298.9 m

(1)

Euro balances translated to Sterling at period end exchange rates.

(2)

Balances shown are funded balances before any impairments.

(3)

Excludes interest of up to circa £3.3 million which may be capitalised

in respect of Office Portfolio, Ireland which, if capitalised, would be

repayable on maturity.

Between 1 January and 31 December 2023,

the following significant investments activity

occurred (included in the table above):

Additional funding by the Group

As the Group is now pursuing a strategy of

orderly realisation no new loans were closed

in 2023.

During the year the Group funded £7.3

million in relation to loan commitments made

in prior years which were unfunded.

Loan Repayment (in full and in part)

During the year borrowers repaid at total of

£166.9 million. As detailed below a total of

eight loans were repaid in full and a further

six loans made partial repayments against

their outstanding loan obligations.

Details of loans repaid in full in 2023:

• £49.9 million, Hotel & Residential, UK

• £22.9 million, Hotel, Oxford

• £20.5 million, Office, London

• €18.8 million, Office, Madrid, Spain

• €12.7 million, Mixed Use, Dublin

• €8.8 million, Mixed Portfolio, Europe

• £5.5 million, Office and Industrial Portfolio, UK

• €3.0 million, Logistics Portfolio, Germany

Details of loans where partial repayments

were made in 2023:

• €24.5 million, Hotel, Dublin (scheduled

amortisation and partial repayment of loan)

• £4.0 million, Life Science, UK (partial

repayment of loan)

• £2.7 million, Hotel and Office, Northern

Ireland (scheduled amortisation)

• €1.3 million, Three Shopping Centres, Spain

(scheduled amortisation)

• €0.8 million, Shopping Centre, Spain (partial

repayment of loan)

• €0.8 million, Office Portfolio, Spain (partial

repayment of loan)

PORTFOLIO OVERVIEW

The Group continues to closely monitor and

manage the credit quality of its loan exposures

and repayments. Despite continued risk

around high interest rates, volatile economic

conditions and lower transaction volumes,

the portfolio has continued to perform well.

Significant loan repayments totaling £166.9

million, equivalent to just over 39 per cent of

the 31 December 2022 total funded portfolio

balance, were received during the year to

31 December 2023. This included the full

repayment of eight loan investments and the

partial repayment of six loan investments.

The Group’s remaining exposure, as at

31 December 2023, was spread across

twelve investments with 99 per cent of the

total funded loan portfolio spread across six

sectors; hospitality (45 per cent), retail (16

per cent), office (12 per cent), light industrial

& logistics (10 per cent), healthcare (10 per

cent) and life sciences (6 per cent).

Hospitality exposure (45 per cent) is diversified

across five loan investments. Two loans

(19 per cent of hospitality exposure) benefit

from State/Government licences in place at

the properties and benefit from significant

amortisation that continues to decrease these

loan exposures. One loan (32 per cent of

hospitality exposure) has two underlying key

UK gateway city hotel assets, both of which

are undergoing comprehensive refurbishment

programmes. The remaining two loans (49 per

cent of hospitality exposure) have both been

recently refurbished. The Group expects its

exposure to hospitality to significantly reduce

during 2024 from a combination of planned

asset sales and refinancings of stabilised,

strong performing assets. The weighted

average loan to value of the hospitality

exposure was 52 per cent.

The retail exposure (16 per cent) is spread

across two remaining investments, with

four underlying shopping centre assets

providing collateral against the two loans.

While investor sentiment and transactional

activity in this sector has been very low for

a prolonged period, operational performance

has recovered strongly post pandemic and

the assets are performing well. The weighted

average loan to value of the retail exposure

was 91 per cent as at 31 December 2023.

Strategic and Business Review

Investment Manager’s Report

As at 31 December 2023, the sponsor of

these loans was in the advanced stages of

selling three of the four assets to a cash buyer

with a proven transaction track record at year

end and these sales were completed during

Q1 2024. The subsequent loan repayments

have reduced the Group’s exposure to

retail significantly with a remaining loan

balance of under £12 million with strong

interest coverage based on current trading

performance. We consider the successful

execution of the sale of these assets in a

difficult market a very positive result. However

as outlined in the credit risk section, in 2023,

an impairment provision was made against the

Shopping Centre, Spain loan of €4 million based

on expected net sales proceeds. €167,722 of

this provision was released following the sale of

the asset and the subsequent repayment of the

related loan.

The office exposure (12 per cent) was spread

across three loan investments. The weighted

average loan to value of loans with office

exposure was 77 per cent. The average age

of these independently instructed valuation

reports was less than one year at year end

and hence there continues to be sufficient

headroom to the Group’s loan basis on

these loans.

Light industrial & logistics and healthcare

exposure comprise 10 per cent each, totalling

20 per cent of the total funded portfolio

(across two investments) and provide good

diversification into sectors that continue to

have very strong occupational and investor

demand. The weighted average loan to value

of these exposures was 57 per cent.

On a portfolio level we continue to benefit

from material headroom in underlying

collateral value against the loan basis, with

a current weighted average loan to value of

62 per cent as at 31 December 2023. These

metrics are based on independent third party

appraisals (with the exception of two loans

that were marked against a sale process bid

level). These appraisals are typically updated

annually for income producing assets. The

weighted average age of valuations was seven

months as at 31 December 2023.

LIQUIDITY AND HEDGING

The Group had no debt outstanding at year

end (31 December 2022 - net debt of

£15.3 million) and has significant liquidity

available with cash held of £63.8 million as at

31 December 2023 and undrawn revolving

credit facilities of £25 million (see note 17(c)

and note 23 for further information) to fund

existing unfunded loan cash commitments

(totaling £36.2 million as at 31 December

2023), working capital and collateral calls on

its hedging arrangements.

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 £15 million out of the

money. The mark to market of the hedges at

31 December 2023 was £1.0 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;

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).

• 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;

• 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.

The Group closely monitors all loans in

the portfolio for any deterioration in credit

risk. As at 31 December 2023, assigned

classifications are:

• Stage 1 loans – seven loan investments

equivalent to 64 per cent of the funded

portfolio are classified in the lowest risk

profile, Stage 1.

• Stage 2 loans – four loan investments

equivalent to 31 per cent of the funded

portfolio are classified as Stage 2. The

average loan to value of these exposures

was 73 per cent. The average age of

valuation report dates used in the loan to

value calculation was eight months old.

While these loans are considered to be

higher risk than at initial recognition, no loss

has been recognised on a twelve-month

and lifetime expected credit losses basis.

Therefore, no impairment in the value of

these loans has been recognised. The drivers

for classifying these deals as Stage 2 are

typically either one or a combination of the

below factors:

lower underlying property values following

receipt of updated formal appraisals by

independent valuers or agreed and in

exclusivity sale values;

sponsor business plans progressing

more slowly than originally underwritten

meaning that trading performance has

lagged expectation and operating financial

covenants under the facility agreements

have breached; and

additional equity support is required to

cover interest or operating shortfalls as

a result of slower lease up or operations

taking longer to ramp up.

The Stage 2 loans continue to benefit from

headroom to the Group’s investment basis.

The Group has a strategy for each of these

deals which targets full loan repayment over a

defined period of time. Timing of repayment will

vary depending on the level of equity support

from sponsors. Typically, where sponsors are

willing to inject additional equity to partially pay

down the loans and support their business

plan execution, then the Group will grant some

temporary financial covenant headroom.

Otherwise, sponsors are running sale

processes to sell assets and repay their loans.

• Stage 3 loan – one loan equivalent to 5 per

cent of the funded portfolio is classified

as Stage 3. This investment had a loan to

value of 110 per cent at year end. This value

was based on the projected net proceeds

which were expected to be available for loan

repayment upon sale of the underlying loan

collateral.

During 2023, based on an ongoing sale

process and agreed sale price level, the Group

recognised an impairment of £3.5 million

against this loan, equivalent to 1.3 per cent

of the funded portfolio as at 31 December

2023. In Q1 2024 the asset was sold and the

loan repaid. 96 per cent of the £3.5 million

impairment provision made against this loan

was utilised. Despite the impairment, this

loan investment has achieved local currency

returns of 1.3 times the Group’s capital

invested.

The assessments regarding these loan

classifications were made based on

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.

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 9.1 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 9.1 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

7.1% £271,608,883 102.8

7.6% £269,688,100 102.1

8.1% £267,796,133 101.4

8.6% £265,932,387 100.7

9.1% £264,096,238 100.0

9.6% £262,287,256 99.3

10.1% £260,504,756 98.6

10.6% £258,748,246 98.0

11.1% £257,017,205 97.3

• 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.

• 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.

On the basis of the methodology outlined,

at 31 December 2023 the Group had an

average last LTV of 61.8 per cent (2022:

58.6 per cent).

The table on the following page 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

The Company has paid dividends of 6.0

pence per Ordinary Share in respect of the

year ended 31 December 2023 (2022: 7.5

pence per Ordinary Share) compared to a

target dividend rate of 5.5 pence per share.

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 target

annual dividend for 2024 is 5.5 pence per

Ordinary Share paid quarterly.

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 Office

Light

Industrial &

Logistics

Other Total

-15% 60.5% 107.1% 90.3% 75.5% 57.4% 72.7%

-10% 57.2% 101.1% 85.3% 71.3% 54.2% 68.6%

-5% 54.2% 95.8% 80.8% 67.6% 51.3% 65.0%

0% 51.5% 91.0% 76.8% 64.2% 48.8% 61.8%

5% 49.0% 86.7% 73.1% 61.1% 46.5% 58.8%

10% 46.8% 82.8% 69.8% 58.3% 44.3% 56.2%

15% 44.8% 79.2% 66.8% 55.8% 42.4% 53.7%

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.

For the year ended December 2023 6.0 pence

per share has been paid out in dividends

which to date was covered 1.17x by earnings

(excluding unrealised FX gains and losses and

realised FX gains on hedges relating to loans

that have been extended).

EVENTS AFTER THE

REPORTING PERIOD

The following amounts have been drawn

under existing commitments, up to

18 March 2024:

• Hotels, United Kingdom £3,314,576

The following loan amortisation (both

scheduled and unscheduled) has been

received since the year-end up to

18 March 2024:

• Hotel, Dublin €8,455,000

• Hotel and Office, Northern Ireland £600,000

• Three Shopping Centres, Spain €19,165,883

Starwood European Finance

Partners Limited | Investment Manager

18 March 2024

The following loans have been repaid since

year end up to 18 March 2024:

• Shopping Centre, Spain €12,392,071

On 25 January 2024 the Directors declared

a dividend in respect of the fourth quarter

of 2023 of 1.875 pence per Ordinary Share

payable on 23 February 2024 to shareholders

on the register at 2 February 2024.

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 has recently returned to Prague and became

Managing Director of West Bohemia Developments a.s, in August 2023, leading a major development opportunity

on the D5 Highway adjacent to the German border. Gary currently remains 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 nearly twenty years and is currently a Non-

Executive Director of various entities including the GP boards of Private Equity groups Cinven and Hitec, the voting

company for Pershing Square Holdings 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 per cent 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 per cent 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 paid dividends of 1.375 pence

per Ordinary Share for the first three calendar

quarters of 2023 and 1.875 pence per Ordinary

Share for the fourth quarter of 2023. To date,

the Company has paid a total of £21,534,446

in respect of 2023 (6.0 pence per Ordinary

Share) (2022: £30,019,454.92: 7.5 pence per

Ordinary share including special dividend paid

in respect of 2022).

CAPITAL ISSUED

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

Number of shares

redeemed

Price at which shares

redeemed

Total Capital returned

to Shareholders

Jun-23 9,652,350 £1.0363 £10,002,730

Aug-23 29,092,218 £1.0312 £29,999,895

Dec-23 43,157,186 £1.0427 £44,999,998

81,901,754 £85,002,623

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

Between August 2020 and October 2022

the Company had bought back an aggregate

amount of 17,626,702 million shares at an

average cost per share of 91.5 pence per

share. These shares were held in treasury as

at 31 December 2022 and were cancelled

in June 2023 before the return of capital to

shareholders commenced.

Following these redemptions 2023, the

Company has 313,690,942 shares in

issue and the total number of voting rights

is 313,690,942. Of the shares in issue

(excluding the shares held in treasury –

see below) as at 31 December 2022,

21 per cent were redeemed during the year.

During the year the Company’s share price

has traded in a range of between 85.4

and 92.6 pence. The year end share price

was 90.4 pence reflecting a 13.4 per cent

discount to NAV.

CAPITAL REDEEMED

During the year, the Company’s redeemed a total of 81,901,754 shares for a total of

£85.0 million as follows:

Official List and to trading on the Main Market

of the London Stock Exchange.

The following issues have been made since

the IPO:

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 2023

and as at the date of this report.

Name

% holding of Ordinary

Shares at 31 December

2023

% holding of Ordinary

Shares at 4 March 2024

(the latest available)

BlackRock 18.16 18.16

Waverton Investment

Management

7.75 7.71

Close Brothers Asset

Management

7.59 7.62

Schroder Investment

Management

7.11 6.89

City of London 4.97 5.32

Investment Management

Almitas Capital

4.17 4.37

Premier Miton Investors 3.99 3.99

Staude Capital 3.66 3.66

SG Private Banking 2.86 2.67

UBS Wealth Management 2.53 2.54

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 on the table opposite. Changes

in directors shareholding between 2022

and 2023 are as a result of the compulsory

share redemptions which took place

during the year.

Name

Ordinary Shares at

31 December 2023

Ordinary Shares at

31 December 2022

John Whittle 26,857 33,866

Shelagh Mason 89,461 112,819

Charlotte Denton 35,244 44,444

Gary Yardley - -

Governance

Report of the Directors

BUSINESS REVIEW

The Group’s performance during the year

to 31 December 2023, 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.

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

in the Summer of 2022 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 cash 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

2021 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.

During the year the Company redeemed

81,901,754 shares for an aggregate of

£85.0 million. As at 31 December 2023 the

Company had 313,690,942 shares in issue

and the total number of voting rights

is 313,690,942.

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 2024. While the Directors do not

currently intend to buyback any shares

as redemptions are more equitable to

shareholders, the Directors intend to seek

annual renewal of this buyback authority

from Shareholders each year at the

Company’s AGM.

John Whittle | Chairman

18 March 2024

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

Fees and

Expenses

2023

Fees and

Expenses

2022

John Whittle

Chairman with effect from

1 January 2022

60,000 60,000

Shelagh Mason

Management Engagement

Committee Chairman and Senior

Independent Director

45,000 45,000

Charlotte Denton

Audit Committee Chairman with

effect from 1 January 2022

50,000 50,000

Gary Yardley

Non-Executive Director with effect

from 6 September 2021

42,000 42,000

Aggregate fees 197,000 197,000

Aggregate expenses 7,739 6,373

Total fees and expenses 204,739 203,373

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

18 March 2024

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 revised UK Corporate

Governance Code dated 22 January 2024 (“UK

Code”), and will comply with the principles of

the Revised UK Code dated 22 January 2024,

which comes into effect from financial years

beginning 1 January 2025.

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 2023, 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, June 2021 and July 2023.

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 was 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 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 below. 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.

Statement in accordance with Listing Rule

9.8.6R on Board Diversity

As at 31 December 2023, the Company

met the targets specified in the Listing

Rules 9.8.6R(9)(a)(i) and ii) with the Board

comprising 50 per cent women, one of whom

is the Senior Independent Director.

The Board has not met the target under Listing

Rule 9.8.6R(9)(a)(iii) of having one Director

from a minority ethnic background. All Board

appointments are based on merit and objective

criteria, taking into account the benefits of

diversity. It is the Board’s intention to meet the

target specified in Listing Rule 9.8.6R(9)(a)(iii)

as the board is refreshed over time. However,

given that the Company is pursuing a strategy

of orderly realisation and return of capital to

shareholders, it maybe that the Company is

dissolved before this intention is realised.

We set out below the diversity data

required by the new Listing Rules disclosure

requirements.

Governance

Corporate Governance Statement

Gender: as at 31 December 2023

Number of

Board mem-

bers

Percentage of

the Board

Number of Senior

Positions on Board

(Chair, SID)

(1)

Men 2 50% 1

Women 2 50% 1

Not specified/

prefer not to say

- 0% -

(1)

As the Company does not have a CEO, CFO, executives or employees the above tables do not include this information.

Approach to data collection

Each Board member is requested to provide

the information above on a strictly confidential

and voluntary basis through which the

individual self-reports their ethnicity and

gender identity.

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.

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 twelfth year in 2024

and the Board is mindful of the current strategy

of orderly realisation and return of capital to

the shareholders. During 2019, the Directors

devised a Succession Planning Memorandum

which has been implemented.

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 new appointments, with the

approval of the Orderly Realisation and Return

of Capital and the previously announced

succession plan being implemented, 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.

Ethnic Background: as at 31 December 2023

Number of

Board

members

Percentage of

the Board

Number of Senior

Positions on Board

(Chair, SID)

(1)

White British or other

white (including

minority-white groups)

4 100% 2

Mixed/multiple ethnic

groups

- 0% -

Asian/Asian British - 0% -

Black/African/

Caribbean/Black British

- 0% -

Other ethnic group,

including Arab

- 0% -

Not specified/prefer

not to say

- 0% -

(1)

As the Company does not have a CEO, CFO, executives or employees the above tables do not include this information.

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

2023 (2022: four 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

(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 7 4 2

Gary Yardley 4 7 4 2

Total Meetings

for year

4 4 4 2

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

Governance

Corporate Governance Statement

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 2023 (2022: twice) 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.

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’

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

2023 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 2023.

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 2023.

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”).

Governance

Corporate Governance Statement

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 100 jurisdictions, including all 38

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.

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 2024, 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, offer 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 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.

Following meetings with multiple large

shareholders in October 2022, the

Company’s Proposed Orderly Realisation was

progressed and approved at the EGM on 27

January 2023, following which the Company

is seeking to return cash to Shareholders in

an orderly manner as soon as reasonably

practicable following the repayment of loans,

while retaining sufficient working capital for

ongoing operations.

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

18 March 2024

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. Prior to the change in strategy and the adoption of the strategy of orderly realisation and, as a result, no

new loans being advanced to borrowers, for all new loans advanced, the Investment Manager presented, 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 2023 were assessed so as to ensure compliance with IFRS 9. As

disclosed in note 2 and in the Investment Manager’s report, at 31 December 2023, one loan (accounting for 5.4

per cent of the funded portfolio as at 31 December 2023), was classified as Stage 3, four loans were classified as

Stage 2 and the remaining loans were classified as Stage 1. An impairment provision of €4 million has been provided

in these accounts for the loan classified as Stage 3 as at 31 December 2023. Subsequent to year end the loan was

fully repaid utilising 96 per cent of the provision and €167,722 of the impairment provision was released. No further

expected credit loss provision have been made in respect of the loans classified as Stage 2 and Stage 1.

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.

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 served his fifth year of five as

engagement partner and a new audit partner,

Adrian Peacegood, is in place for the 31

December 2023 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 2023, 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 the external auditor be re-appointed

for the 2024 year end annual report.

Charlotte Denton | Audit Committee

Chairman

18 March 2024

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 , Corporate

Governance Report and Report of the

Audit Committee 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 2-11 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 2023, 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 2023, 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

18 March 2024

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 2023, 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 2023;

• 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, comprising material accounting

policy information 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 financial statements 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. Along with

the Investment Manager, we also interacted

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

(ECL) and impairment of loans advanced

• Risk of fraud in income from loans advanced

MATERIALITY

• Overall group materiality: £6.5 million

(2022: £8.3 million) based on 2 per cent

of consolidated net assets.

• Performance materiality: £4.9 million

(2022: £6.2 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.

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 (ECL) and impairment of

loans advanced

Loans advanced at the year-end of £264.1 million (note 10) 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 amortised cost carrying amount, expected credit losses

(“ECL”), ongoing recoverability, and impairment is subject to

judgement and estimation.

The judgements exercised in determining the potential for ECL 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 2c 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

preparing impairment/ECL 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 and impairment//ECL 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, the Investment Manager, 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 the level of impairment

(if any) required on the loans advanced, either at inception, or on an

ongoing basis, using the amortised cost model and ECL calculation.

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:

• Substantive testing over the amortised cost models used by

management to value the loans at amortised cost using the effective

interest rate method;

• Testing a sample of the assumptions and inputs into the amortised

cost models by 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 of and evaluating the assumptions and judgements

made by the Investment Adviser in respect of the ECL for each loan

advanced included;

obtaining the Investment Adviser’s impairment papers and assessing

the ECL methodology, focussing on the estimation of probability

of default, exposure at default and loss given default, and how

forward-looking information was considered in this regard;

evaluating 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 a sample of key 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 management’s

assessment of the Loan-To-Value ratio headroom for each of the

loans;

inspecting the Investment Adviser’s application of its impairment/

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.

Based on the audit work described above we have nothing to report to

those charged with corporate governance.

This is not a complete list of all risks identified by our audit.

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 £31.9 million

(Note 10) and was measured in accordance with the accounting

policies as described in note 2l 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 it is considered to be an area of focus

for the members of the company.

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.

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.

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 interest income from

loans had been accounted for in accordance with the stated

accounting policy.

We held discussions with the Investment Manager, the Investment

Adviser and the Administrator to understand and evaluate the

processes in place for recognising interest income and to understand

the estimates made.

Our procedures included:

• Detailed testing over the amortised cost models used by manage-

ment 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 2022,

comparing the estimated future cash flows in the amortised cost

models as at 31 December 2023 and evaluating the rationale behind

any significant changes from the estimated cash flows in the 31

December 2022 models.

Based on the audit work described above 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

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.

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, the Investment

Manager, and at the Investment Adviser, and

based on our professional judgement have

The transactions relating to the company

and the subsidiaries are maintained by the

Administrator and its related group entities

and therefore we were not required to engage

with component auditors. 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 £6.5 million (2022: £8.3 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 per

cent (2022:75 per cent) of overall materiality,

amounting to £4.9 million (2022: £6.2 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 end of our normal range was

appropriate.

We agreed with the Audit Committee that

we would report to them misstatements

identified during our audit above £0.3 million

(2022: £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 Director’s 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

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 MATTER

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.

Adrian Peacegood

For and on behalf of PricewaterhouseCoopers

CI LLP

Chartered Accountants and

Recognised Auditor

Guernsey, Channel Islands

18 March 2024

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 2023 and

31 December 2022 and the related

consolidated statements of comprehensive

income, consolidated changes in equity and

consolidated cash flows for the years then

ended 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

2023 and 31 December 2022, and the

results of its operations, changes in its

equity and its 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

Auditor’s 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 Guernsey law and 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 and 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)

To the Directors of Starwood European Real Estate Finance Limited

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.

• 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 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

18 March 2024

Financial Statements

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2023

Notes

		1 January 2023 to	1 January 2022 to
		31 December 2023	31 December 2022
		£	£
Income
Income from loans advanced	10	31,923,037	33,356,702
Short term deposits interest income		1,222,122	-
Net foreign exchange gains	6	1,809,952	3,046,164
Total income		34,955,111	36,402,866
Expenses
Impairment loss on loans advanced	10	3,476,360	-
Investment management fees	3(a), 22	2,910,524	3,122,755
Credit facility commitment fees		604,878	828,876
Credit facility interest and amortisation of fees		514,651	1,080,499
Other expenses		442,863	432,649
Administration fees	3(b)	353,610	354,426
Audit and non-audit fees	5	290,376	233,773
Legal and professional fees		248,936	437,622
Directors' fees and expenses	4, 22	204,739	203,373
Broker's fees	3(d)	50,000	50,000
Professional fees for the Orderly Realisation proposals		-	210,000
Total operating expenses		9,096,937	6,953,973
Operating profit for the year before tax		25,858,174	29,448,893
Taxation	20	607,193	90,287
Operating profit for the year		25,250,981	29,358,606
Other comprehensive loss
Items that may be reclassified to profit or loss	2(k)	(60,422)	(112,256)
Exchange differences on translation of foreign operations
Other comprehensive loss for the year		(60,422)	(112,256)
Total comprehensive income for the year		25,190,559	29,246,350
Weighted average number of shares in issue	7	378,184,423	404,881,933
Basic and diluted earnings per Ordinary Share (pence)	7	6.66	7.25

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

Notes

		As at	As at
		31 December 2023	31 December 2022
		£	£
Assets
Cash and cash equivalents	8	63,837,644	3,576,155
Other receivables and prepayments	9	24,225	26,792
Revolving credit facility capitalised cost	12	8,333	-
Financial assets at fair value through profit or loss	11	993,204	706,661
Loans advanced	10	264,096,284	432,459,966
Total assets		328,959,690	436,769,574
Liabilities
Credit facility	12	-	18,863,204
Trade and other payables	13	1,627,985	1,758,606
Total liabilities		1,627,985	20,621,810
Net assets		327,331,705	416,147,764
Capital and reserves
Share capital	15	313,280,868	395,075,556
Retained earnings		14,257,318	21,218,267
Translation reserve		(206,481)	(146,059)
Total equity		327,331,705	416,147,764
Number of Ordinary Shares in issue	15	313,690,942	395,592,696
Net asset value per Ordinary Share (pence)		104.35	105.20

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

Financial Statements

Consolidated Statement of Financial Position

as at 31 December 2023

These consolidated financial statements were approved and authorised for issue by the Board of Directors on 18 March 2024, and

signed on its behalf by:

Chairman Director

Year ended 31 December 2023
	Share capital	Retained	Translation	Total Equity
	£	earnings	reserves	£
		£	£
Balance at 1 January 2023	395,075,556	21,218,267	(146,059)	416,147,764
Shares redeemed	(81,794,688)	(3,207,935)	-	(85,002,623)
Dividends paid	-	(29,003,995)	-	(29,003,995)
Operating profit for the year	-	25,250,981	-	25,250,981
Other comprehensive loss for the year	-	-	(60,422)	(60,422)
Balance at 31 December 2023	313,280,868	14,257,318	(206,481)	327,331,705
Year ended 31 December 2022	Share capital	Retained	Translation	Total Equity
	£	earnings	reserves	£
		£	£
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 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 2023

Financial Statements

Consolidated Statement of Cash Flows

for the year ended 31 December 2023

(1)

Net of arrangement fees of £Nil (2022: £820,118) withheld.

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

	1 January 2023 to	1 January 2022 to
	31 December 2023	31 December 2022
	£	£
Operating activities:
Operating profit for the year before tax	25,858,174	29,448,893
Adjustments:
Impairment loss on loans	3,476,360	-
Income from loans advanced	(31,923,037)	(33,356,702)
Short term deposits interest income	(1,222,122)	-
Decrease in receivables and prepayments	2,567	10,860
Decrease/(increase) in trade and other payables	(312,832)	458,661
Net unrealised losses / (gains) on foreign exchange derivatives	(286,543)	12,584,938
Net foreign exchange losses / (gains)	(1,523,409)	(15,292,556)
Net foreign exchange gains on foreign exchange derivatives	4,988,870	5,618,298
Credit facility commitment fees	604,878	828,876
Credit facility interest and amortisation of fees	514,651	1,080,499
Currency translation difference	1,969,811	(5,663,501)
Corporate taxes paid	(290,396)	(84,274)
	1,856,972	(4,366,008)
Loan repayments and amortisation	166,897,162	56,894,392
Interest income received	32,199,782	28,373,979
Commitment and exit fee income from loans advanced	1,345,427	1,211,844
Loans advanced	(7,338,190)	(60,788,846)
Origination fees paid	-	(872,020)
Net cash inflow from operating activities	194,961,153	20,453,341
Cash flows from investing activities
Short term deposits interest income	1,222,122	-
Net cash inflow from investing activities	1,222,122	-
Cash flows from financing activities
Shares redemptions	(85,002,623)	-
Dividends paid	(29,003,995)	(22,290,731)
Repayments under credit facility	(19,000,000)	(84,158,141)
Credit facility commitment fees paid	(715,131)	(834,495)
Credit facility interest and amortisation paid	(377,796)	(533,577)
Shares buy backs	-	(12,364,455)
Proceeds under credit facility	-	94,223,490
Net cash outflow from financing activities	(134,099,545)	(25,957,909)
Net increase / (decrease) in cash and cash equivalents	62,083,730	(5,504,568)
Cash and cash equivalents at the start of the year	3,576,155	2,994,357
Net foreign exchange gains/(losses) on cash and cash equivalents	(1,822,241)	6,086,366
Cash and cash equivalents at the end of the year	63,837,644	3,576,155

(1)

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 buy-back agent to effect share buy backs on behalf of

the Company. As at 31 December 2023, the Company had

repurchased 17,626,702 ordinary shares (the same number they

subsequently canceled) at an average price of 91.5 pences per

share. As at 31 December 2023, the Company had redeemed a

total of 81,901,754 shares for a total of £85,002,623.

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 2023.

Following the Company’s Extraordinary General Meeting (“EGM”)

on 27 January 2023, the Company’s objective is to conduct an

orderly realisation of the assets of the Group and the return of

capital to Shareholders. In line with this objective the Board will

endeavour to realise all of the Group’s investments in a manner

that achieves a balance between maximising the net value

received from those investments and making timely returns

to Shareholders. This has resulted in a total redemption of

81,901,754 shares for an aggregate of £85,002,623 in 2023.

As at 31 December 2023 the Company had 313,690,942

shares in issue. Further details and background is covered in

the Corporate Summary section of this report.

Current investments are all debt obligations of corporate

entities domiciled or with significant operations in the UK and

the European’s internal market. As the Group is now pursuing a

strategy of orderly realisation no new investments were made

in 2023.

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 per cent 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 months after their maturity dates

and that Sonia and Euribor rates fall to 0 per cent from 2025. 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 2023

Certain new accounting standards and interpretations have been

published that are effective 1 January 2023 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 2023 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 2023, 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 Loan to value 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)).

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	Date of	Ownership	Country of	Principal
undertakings	Control	%	Establishment	place of
				business
Starfin Lux	11/30/2012	100	Luxembourg	Luxembourg
S.à.r.l
Starfin Public
Holdco 1	9/11/2017	100	Guernsey	Guernsey
Limited
Starfin Public
Holdco 2	9/11/2017	100	Guernsey	Guernsey
Limited
Starfin Lux 3	9/19/2017	100	Luxembourg	Luxembourg
S.à.r.l
Starfin Lux 4	12/11/2017	100	Luxembourg	Luxembourg
S.à.r.l

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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.

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;

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

• 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.

As at 31 December 2023, one loan, with a value of £11,189,028

(net of impairment provision of £3,476,360), was classified as

Stage 3 (31 December 2022: none); four loans, with a value of

£81,869,634, were classified as Stage 2 (31 December 2022:

two loans with a value of £46,909,623) and the remaining

loans are classified as Stage 1. An impairment provision of

£3,476,360 million has been recognised against the loan

classified as Stage 3 but no expected credit loss has been

recognised at 31 December 2023 (2022: £nil) against the loans

classified as Stage 2 as although the credit risk has increased

for these loans, the Group does not anticipate realising a loss

in the event of a default. For further information, see the

Investment Manager’s report. The paragraph below describes

how the Group determines when a significant change in credit

risk has occurred, such that a loan would be reclassified to

Stage 1, Stage 2 or Stage 3.

The Group considers that for prepayments 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 per cent 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;

• 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 per cent is based on the aggregate

losses of all AAA rated notes issued in Europe from 1995

to 2020 (totalling €177 billion), 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 above, an impairment provision of £3,476,360

was provided against an asset classified as Stage 3 as at 31

December 2023. This was an asset specific impairment which

arose due to a unique set of market and geographical sector

circumstances. Each other loan asset has been individually

reviewed and based on the level of the collateral over the current

and reasonably expected property values over the remaining life

of the loans, and after taking account of any relevant adjustments

such as forced sale discounts no further losses are expected

hence no allowance has been made for an ECL. Set out below

is the sensitivity to the ECL as at 31 December 2023 and 31

December 2022 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 per cent, and a new PD

determined, which was multiplied by a constant LGD of 0.30 per

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

All other variables are held constant.

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.

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) Ordinances 1989 (as

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

	Reasonable		31 December		31 December
	possible shift	2023	ECL	2022	ECL
	(absolute value)		£		£
LTV	+25% (2022: +25%)		172,755		322,561
LGD	+0.3% (2022: +0.3%)

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

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:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 £9,996 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.

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 2023

	31 December	31 December
	2023	2022
	£	£
Directors’ emoluments	197,000	197,000
Other expenses	7,739	6,373
	204,739	203,373

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. The facility

available was amended to £25 million and the term extended

in January 2023. The current maturity date is 5 May 2024.

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 and canceled in August 2023.

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 2023	31 December 2022
	£	£
Audit and non-audit fees expensed in the Consolidated Statement
of Comprehensive Income
Audit of company	135,000	140,563
Audit of subsidiaries	128,376	68,215
Total audit	263,376	208,778
Audit related assurance services (Interim review)	27,000	24,995
Total assurance services	27,000	24,995
Total fees expensed	290,376	233,773

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

6. NET FOREIGN EXCHANGE GAINS / (LOSSES)

	31 December 2023	31 December 2022
	£	£
Loans advanced gains - realised	221,192	511,596
Loans advanced losses - realised	(724,358)	(996,010)
Forward contracts gains - realised	5,218,375	6,507,544
Forward contracts losses - realised	(334,112)	(428,644)
Other gains - realised	320,918	110,951
Other losses - realised	-	(38,684)
	4,702,015	5,666,753
Loans advanced gains - unrealised	57,994	9,987,926
Loans advanced losses - unrealised	(3,236,599)	(23,578)
Forward contracts gains - unrealised	7,319,116	2,337,351
Forward contracts losses - unrealised	(7,032,573)	(14,922,288)
	(2,892,062)	(2,620,589)
	1,809,952	3,046,164

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

£25,250,981 (2022: £29,358,606) and on the weighted average number of Ordinary

Shares in issue during the year of 378,184,423 (2022: 404,881,933) Ordinary Shares.

The calculation of NAV per Ordinary Share is based on a NAV of £327,331,705 as at

31 December 2023 (2022: £416,147,764) and the actual number of Ordinary Shares in

issue at 31 December 2023 of 313,690,942 (2022: 395,592,696).

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

9. OTHER RECEIVABLES AND PREPAYMENTS

	31 December 2023	31 December 2022
	£	£
Prepayments	24,225	26,792
	24,225	26,792

8. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise the following:

	31 December 2023	31 December 2022
	£	£
Cash at bank	20,673,973	3,576,155
Short term deposit	43,163,671	-
	63,837,644	3,576,155

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 2023	31 December 2022
	£	£
UK
Hotel, Scotland	43,232,893	43,109,284
Hotels, United Kingdom	37,355,613	32,134,282
Industrial Estate, UK	27,410,670	27,435,196
Hospitals, UK	25,370,368	25,367,475
Life Science, UK	15,923,105	19,955,081
Hotel, North Berwick	15,241,403	15,211,739
Hotel and Office, Northern Ireland	9,099,325	11,947,821
Hotel & Residential, UK	-	49,876,920
Office, London	-	19,336,450
Hotel, Oxford	-	23,181,461
Office and Industrial Portfolio, UK	-	5,594,291
Ireland
Office Portfolio, Ireland	21,428,669	21,950,119
Hotel, Dublin	20,332,167	42,752,233
Mixed Use, Dublin	-	11,469,547
Spain
Three Shopping Centres, Spain	29,276,457	31,023,568
Shopping Centre, Spain	11,189,028	15,886,055
Office Portfolio, Spain	8,236,586	9,027,980
Office, Madrid, Spain	-	16,510,039
Germany
Logistics Portfolio , Germany	-	2,744,282
Europe
Mixed Portfolio, Europe	-	7,946,143
	264,096,284	432,459,966

The Group accounted for an impairment provision on loans to Shopping Centre, Spain of

£3,476,360 as at 31 December 2023. The amount above is shown net of this provision.

	31 December 2023	31 December 2022
	£	£
Loans advanced at the start of the year	432,459,966	414,632,512
Income from loans advanced	31,923,037	33,356,702
Loans advanced	7,338,190	61,420,419
Exit fees received	(499,300)	(501,062)
Commitment fees received	(846,127)	(710,782)
Impairment loss on loans advanced	(3,476,360)	-
Foreign exchange (losses)/gains	(3,681,770)	9,478,582
Interest payments received	(32,199,782)	(28,373,979)
Loan repayments	(166,921,570)	(56,894,392)
Origination fees paid for the year	-	872,020
Arrangement fees received	-	(820,118)
Loans advanced at the end of the year	264,096,284	432,459,966
Loans advanced at fair value	275,556,353	453,301,433

Discount Rate	Value calculated £	31 December 2023
		Value increase / (decrease) £
6.1% (fair value)	275,556,353	11,460,070
7.1%	271,608,883	7,512,600
7.6%	269,688,100	5,591,817
8.1%	267,796,133	3,699,850
8.6%	265,932,387	1,836,104
9.1% (Carrying value)	264,096,283	-
9.6%	262,287,256	(1,809,027)
10.1%	260,504,756	(3,591,527)
10.6%	258,748,246	(5,348,037)
11.1%	257,017,205	(7,079,078)

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:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 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)

(1)

Euro amounts are translated at the year end exchange rate

(1)

Euro amounts are translated at the year end exchange rate

	Notional contract	Fair values
31 December 2023	amount	Assets	Liabilities	Total
	£	£	£	£
Foreign exchange derivatives
Currency forwards:
Lloyds Bank plc	329,276,074	3,826,628	(2,833,424)	993,204
Total	329,276,074	3,826,628	(2,833,424)	993,204

(1)

	Notional contract	Fair values
31 December 2022	amount	Assets	Liabilities	Total
	£	£	£	£
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

(1)

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 on

the tables below and more information is provided in Note 17.

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:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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. As at 31 December 2023,the Group has one £25

million credit facility (which is due to expire in May 2024) as described in note 3(g) of

these financial statements.

As at 31 December 2023 an amount of £nil (2022: £19,000,000) was drawn and

interest of £nil (2022: £181,907) was payable.

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

relation to the establishment of the credit loan facilities which are amortised over the

term of the facility. As at 31 December 2023 an amount of £8,333 relating such costs

is shown on the face of the balance sheet (2022: £319,675 was netted off against the

loan facilities outstanding).

The Group has maintained sufficient headroom against the measures under, and is full

compliance with, all loan covenants

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

	31 December 2023	31 December 2022
	£	£
Borrowings at the start of the year	18,863,204	7,914,993
Repayments during the year	(19,000,000)	(84,158,141)
Interest paid during the year	(327,796)	(533,577)
Credit facility amortisation of fees	311,342	373,328
Interest expenses recognised for the year	153,250	707,171
Foreign exchange and translation	-	335,940
difference
Drawdowns during the year	-	94,223,490
Borrowings at the end of the year	-	18,863,204

	31 December 2023	31 December 2022
	£	£
Investment management fees payable	672,075	777,556
Tax provision	342,547	25,727
Accrued expenses	256,530	273,183
Audit fees payable	206,866	289,457
Administration fees payable	82,556	203,420
Commitment fees payable	54,654	164,855
Directors' fees and expenses payable	12,757	-
Loan amounts payable	-	24,408
	1,627,985	1,758,606

13. TRADE AND OTHER PAYABLES

14. COMMITMENTS

As at 31 December 2023, the Group had outstanding unfunded loan cash commitments

in respect of loans not fully drawn of £36,252,255 (2022: £49,063,014). As at 31

December 2023 the Group has cash reserves sufficient to fund these commitments.

As at 31 December 2023, the Group has entered into forward contracts under

the Hedging Master Agreement with Lloyds Bank plc to sell €329,276,074 (2022:

€309,280,796) to receive Sterling. At the end of the reporting period, these forward

contracts were in the money with a fair value of £993,204 (2022: £706,661).

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 2023 to 31 December 2023:

	31 December 2023	31 December 2022
	Number of shares	Number of shares
Ordinary Shares of no par value	313,690,942	413,219,398
Issued and fully paid
Shares held in treasury	-	(17,626,702)
Total Ordinary Shares, excluding	313,690,942	395,592,696
those in treasury

Ordinary Shares	Number	£
Balance at the start of the year	395,592,696	403,365,545
Shares redeemed to date 2023	(81,901,754)	(81,794,688)
Balance at the end of the year	313,690,942	321,570,857
Issue costs since inception	-	(8,289,989)
Net proceeds		313,280,868

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	395,592,696	403,365,545
Issue costs since inception		(8,289,989)
Net proceeds	395,592,696	395,075,556

1 January 2022 to 31 December 2022:

On 13 June 2023, the Board of the Company announced the cancellation of 17,626,702 shares

that were held in treasury.

16. DIVIDENDS

Dividends will be declared by the Directors and paid in compliance with the solvency

test prescribed by Companies (Guernsey) law, 2008. 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 2023:

Period to:	Dividend rate per	Net dividend	Payment date
	Share (pence)	paid (£)
31 March 2023	1.375	5,439,400	23 May 2023
30 June 2023	1.375	5,306,680	28 August 2023
30 September 2023	1.375	4,906,662	25 November 2023
31 December 2023	1.875	5,881,705	23 February 2024

(1)

Declared on 25 January 2024 and to be paid on 23 February 2024 to shareholders on the register as at 2 February 2024.

As this was declared after year end it was not accrued at year end.

Period to:	Dividend rate per	Net dividend	Payment date
	Share (pence)	paid (£)
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	1.375	5,439,400	24 February 2023
31 December 2022	2.000	7,911,854	18 May 2023
Additional distribution

(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.

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 and paid on 18 May 2023 to

shareholders on the register as at 31 March 2023.

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

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 gains.

The Group does not adopt hedge accounting in the financial statements. At the end of the

reporting period the Group had 84 (2022: 109) 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 2023

	Danish Krone	Sterling	Euro	Total
	£	£	£	£
Assets
Loans advanced	-	173,633,377	90,462,907	264,096,284
Financial assets at fair value through	-	993,204	-	993,204
Other receivables and prepayments	-	24,225	-	24,225
Cash and cash equivalents	(45)	47,350,920	16,486,769	63,837,644
Liabilities
Revolving credit facility	-	-	-	-
Trade and other payables	-	(1,233,776)	(394,209)	(1,627,985)
Net currency exposure	(45)	220,767,950	106,555,467	327,323,372

As at 31 December 2023 the Group had the following currency exposure:

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 2023

would increase or decrease by £10,655,547 (2022: £15,910,347). 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 2023 would

increase or decrease by £5 (2022: £5). 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,

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 90.5 per cent (2022: 78.6 per cent) of investments designed as loans

advanced at 31 December 2023 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 of the financial assets at 31 December.

As at 31 December 2023, there were no interest bearing financial liabilities (2022:

£18,863,204 fixed/floating rate).

	31 December 2023	31 December 2022
	£	£
Floating rate
Loans advanced	238,725,916	340,705,532
Cash and cash equivalents	63,837,644	3,576,155
Fixed rate
Loans advanced	25,370,368	91,754,434
Total financial assets subject	327,933,928	436,036,121
to interest rate risk

(1)

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

	31 December 2023	31 December 2022
	£	£
Floating rate
Increase of 100 basis points	3,025,636	3,442,817
Decrease of 100 basis points	(3,025,636)	(3,442,817)

(1)

Loans advanced at floating rates include loans interbank rate floors.

At 31 December 2023, if interest rates had changed by 100 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 2023

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 2023 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.

Credit risk is managed on a group basis. For banks and financial institutions, only

independently rated parties with a minimum rating of ‘A’ are accepted. 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 2023, the maximum credit risk exposure was

£328,927,132 (2022: £436,742,782).

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 for all loans, with the exception of Shopping Centre, Spain, a Stage 3 loan,

referred to below, 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 2023, one loan moved from Stage 2 to Stage 3

with a value (net of impairment provision) of £11,189,028; four loans are classified as

Stage 2 with a value of £81,869,634 (31 December 2022: the two loans with a value of

£46,909,623) and the remaining loans are classified as Stage 1. The Group accounted

for an impairment provision on its loan to Shopping Centre, Spain of £3,476,360 as at

31 December 2023.

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.

The Group accounted for an impairment provision on loans to Shopping Centre, Spain

of £3,476,360 as at 31 December 2023. This impairment provision was arrived at as at

31 December 2023 based on an ongoing sale process and agreed sale price level. In Q1

2024 the asset was sold and the loan repaid. 96 per cent of the impairment provision

made was utilised.

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 Standard & Poor’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	Total as at
	31 December 2023	31 December 2022
	£	£
Barclays Bank plc (rated: A1)	20,654,384	2,276,081
ING Luxembourg, SA (rated: A1)	18,321	1,299,092
Lloyds Bank plc (rated: A1)	698	698
HSBC Bank plc (rated: A1)	374	154
Royal Bank of Scotland International	196	130
(rated: A1)
BlackRock Inc - Money Market Fund	31,109,262	-
(rated A1+)
Deutsche Bank - Money Market Fund	12,054,409	-
(rated A1)
Total cash and cash equivalents	63,837,644	3,576,155

	Stage 1	Stage 2	Stage 3	Total as at	Total as at
	£	£	£	31 December 2023	31 December 2022
				£	£
Loans advanced	171,037,622	81,869,634	11,189,028	264,096,284	432,459,966
Gross carrying amount	171,037,622	81,869,634	11,189,028	264,096,284	432,459,966
Carrying amount	171,037,622	81,869,634	11,189,028	264,096,284	432,459,966

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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. The Group holds cash reserves sufficient to cover all

unfunded cash loan commitments. Ongoing costs are covered by interest receipts. Dividends

are paid from available cash. In addition, the Company is permitted to borrow up to 30 per cent

of NAV and has revolving credit facilities available to it of £25,000,000 (2022: £126,000,000) of

which £nil (2022: £19,000,000) was drawn at the end of the reporting period.

In January 2023, one facility of £50 million was reduced to £25 million and in August 2023,

the revolving credit facilities of £76.0 million were canceled, leaving £25.0 million still available.

The term of the £25 million facility expires in May 2024 and the Company does not intend to

renew it.

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 future

as a result of early repayments and interest rate changes:

(1)

Loan commitments are estimated forecasted cash drawdowns at year end.

31 December 2023

	Up to 3 months	Between 3 and	Over 12 months	Total
		12 months
	£	£	£	£
Assets
Loans advanced	11,189,028	80,136,618	172,770,638	264,096,284
Cash and cash equivalents	63,837,644	-	-	63,837,644
Liabilities and commitments
Loan commitments	(1,809,314)	(18,429,070)	(16,013,871)	(36,252,255)
Credit facilities	-	-	-	-
Trade and other payables	(1,627,985)	-	-	(1,627,985)
	71,589,373	61,707,548	156,756,767	290,053,688

(1)

Loan commitments are estimated forecasted cash drawdowns at year end.

31 December 2022

	Up to 3 months	Between 3 and	Over 12 months	Total
		12 months
	£	£	£	£
Assets
Loans advanced	42,752,233	145,719,555	243,988,178	432,459,966
Cash and cash equivalents	3,576,155	-	-	3,576,155
Liabilities and commitments
Loan commitments	(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)
	41,127,945	106,058,947	218,844,731	366,031,622

(1)

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	Over	Total as at
		12 months	12 months	31 December 2022
	£	£	£	£
Lloyds Bank plc:
Foreign exchange derivatives
Outflow	(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

(1)

31 December 2023

Derivatives

	Up to 3 months	Between 3 and	Over	Total as at
		12 months	12 months	31 December 2023
	£	£	£	£
Lloyds Bank plc:
Foreign exchange derivatives
Outflow	(16,783,019)	(66,362,828)	(25,555,814)	(108,701,661)
Inflow	16,747,137	66,588,688	26,198,164	109,533,989

(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 2023

(iv) 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.

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. It should be noted however that as at 31 December 2023 there

were no amounts drawn on the Group’s credit facilities, the remaining £25 million facility

available to the Group is due to expire in May 2024 and the Group has no intention of

drawing on the facility in 2024 or extending the facility beyond May 2024.

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 cash reserves.

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 current investment policy, the Group’s principal use of

cash is to fund unfunded loan cash commitments, ongoing operational expenses and

payment of dividends in accordance with the Company’s dividend policy and the return

of capital to shareholders.

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 2023	31 December 2022
	£	£
Equity
Equity share capital	313,280,868	395,075,556
Retained earnings and translation	14,050,837	21,072,208
reserve
Total capital	327,331,705	416,147,764

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 2023

	Level 1	Level 2	Level 3	Total
	£	£	£	£
Assets
Derivative assets	-	993,204	-	993,204
Total	-	993,204	-	993,204

31 December 2022

	Level 1	Level 2	Level 3	Total
	£	£	£	£
Assets
Derivative assets	-	706,661	-	706,661
Total	-	706,661	-	706,661

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

There have been no transfers between levels for the year ended 31 December 2023

(2022: 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 2023 but for which fair

value is disclosed:

31 December 2023

				Total fair	Total carrying
	Level 1	Level 2	Level 3	values	amount
	£	£	£	£	£
Assets
Loans advanced	-	-	275,556,353	275,556,353	264,096,284
Total	-	-	275,556,353	275,556,353	264,096,284

For cash and cash equivalents, other receivables, 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 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 2022

				Total fair	Total carrying
	Level 1	Level 2	Level 3	values	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

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

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 £1,600.

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:

The Luxco had no operating gains on ordinary activities before taxation and were

therefore for the year ended 31 December 2023 subject to the Luxembourg minimum

corporate income taxation at €4,815 (2022: €4,815). The 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 for Corporate Income

Tax and Municipal Business Tax in Luxembourg during the reporting period was

24.94 per cent (2022: 24.94 per cent).

	31 December 2023	31 December 2022
	£	£
Operating profit before tax (Luxco, Luxco 3 and Luxco 4 only)	643,358	612,648
Corporate Income Tax and Municipal Business Tax	158,403	150,775
Net Wealth Tax	40,282	35,004
Withholding Tax	130,814	58,029
Underprovisions related to prior years	277,693	(153,520)
Taxation per Consolidated Statement of Comprehensive Income	607,193	90,287

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 to 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 Company and 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 agreements with the Investment Manager and other parties are

included in note 3 to these consolidated financial statements.

The following tables summarise the transactions that occurred with related parties during

the reporting period and outstanding at 31 December 2023 and 31 December 2022:

2023

Fees, expenses and other payments

	Outstanding at	For the year ended
	31 December 2023	31 December 2023
	£	£
Directors’ fees and expenses
John Whittle	-	60,000
Shelagh Mason	11,250	45,000
Charlotte Denton	-	50,000
Gary Yardley	-	42,000
Expenses	1,500	7,739
Investment Manager
Investment management fees	672,075	2,910,524
Expenses	-	90,813

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

2022

Fees, expenses and other payments

	Outstanding at	For the year ended
	31 December 2022	31 December 2022
	£	£
Directors’ fees and expenses
John Whittle	-	60,000
Shelagh Mason	-	45,000
Charlotte Denton	-	50,000
Gary Yardley	-	42,000
Expenses	-	6,373
Investment Manager
Investment management fees	777,556	3,122,755
Origination fees	-	501,936
Expenses	-	120,099

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 2023

and 31 December 2022:

2023

Shareholdings and

dividends paid

	Dividends paid during	As at
	the year ended	31 December 2023
	31 December 2023
	£	Number of shares
Starwood Property Trust Inc.	670,125	7,247,687
SCG Starfin Investor LP	167,531	1,811,923
John Whittle	2,483	26,857
Charlotte Denton	3,259	35,244
Shelagh Mason	8,272	89,461
Duncan MacPherson *	18,329	198,239
Lorcain Egan *	6,135	66,353

2022

Shareholdings and

dividends paid

	Dividends paid during	As at
	the year ended	31 December 2022
	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 *	13,750	250,000
Lorcain Egan *	4,602	83,678

Employees at the Investment Adviser

Financial Statements

Notes to the Consolidated Financial Statements

for the year ended 31 December 2023

	Loan Related party co-lenders
Hotels, United Kingdom	SEREDFI
Office Portfolio, Spain	STWD
Office Portfolio, Ireland	STWD

Other

The Group continues to participate in a number of loans in which Starwood Property

Trust, Inc. (“STWD”) acted as a co‐lender. The Group also acted as co-lender with

Starwood European Real Estate Debt Finance I LP (“SEREDF I”) an affiliate entity.

The details of these loans are shown in the table below.

23. EVENTS AFTER THE REPORTING PERIOD

Subsequent to 31 December 2023, the following amounts have been drawn under

existing commitments, up to 18 March 2024:

	Local currency
Hotels, United Kingdom	£3,314,576

	Local currency
Hotel, Dublin	€8,455,000
Hotel and Office, Northern Ireland	£600,000
Three Shopping Centres, Spain	€19,165,883

	Local currency
Shopping Centre, Spain	€12,392,071

Subsequent to 31 December 2023, the following partial repayments have been received

up to 18 March 2024:

Subsequent to 31 December 2023, the following loans have been repaid in full up to

18 March 2024:

On 20 February 2024, the Company announced a compulsory redemption of 19,402,403

Ordinary shares at a price of £1.0308 per share.

On 25 January 2024, the Directors declared a dividend in respect of the fourth quarter of

2023 of 1.875 pence per Ordinary share payable on 23 February 2024 to shareholders on

the register at 2 February 2024.

On 18 March 2024, the Company approved a further compulsory redemption of shares

amounting to £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

1 Berkeley Street

London

W1J 8DJ

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

St Julian’s Court

St Julian’s Avenue

St Peter Port

Guernsey

GY1 1WA

Website:

www.starwoodeuropeanfinance.com

101