Annual Report and
Audited Consolidated
Financial Statements
for the year ended 31 December 2024
1
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 17
Governance
Board of Directors 26
Report of the Directors 27
Directors’ Remuneration Report 30
Corporate Governance Statement 31
Report of the Audit Committee 38
Statement of Directors’ Responsibilities 43
Financial Statements
Independent Auditor’s Report 45
Independent Auditor’s Report (US GAAS) 53
Consolidated Statement of Comprehensive Income 55
Consolidated Statement of Financial Position 56
Consolidated Statement of Changes in Equity 57
Consolidated Statement of Cash Flows 58
Notes to the Consolidated Financial Statements 59
Further Information
Alternative Performance Measures 94
Corporate Information 98
2
Overview
Financial Highlights
Key Highlights
Year ended
31 December 2024
Year ended
31 December 2023
NAV per Ordinary Share 100.49 p 104.35 p
Share Price 91.8 p 90.4 p
NAV total return
(1)
2.1%
(2)
6.6%
(2)
Share Price total return
(1)
8.3%
(2)
10.5%
(2)
Total Net Assets £194.9 m £327.3 m
Loans advanced at amortised cost (including accrued income
and net of impairment provision)
£149.5 m £264.1 m
Financial assets held at fair value through profit or loss £1.0 m £1.0 m
Cash and Cash Equivalents £45.7 m £63.8 m
Other net liabilities (£1.3 m) (£1.6 m)
Dividends per Ordinary Share
5.5 p
(3)
6.0 p
(4)
Invested Loan Portfolio unlevered annualised total return
(1)
9.1% 8.2%
Ongoing charges percentage
(1)
1.3% 1.1%
Weighted average portfolio LTV to Group first £
(1)
20.6% 14.7%
Weighted average portfolio LTV to Group last £
(1)
63.5% 61.8%
2024 2023
Dividends declared as disclosed by the Company (by the year to which they relate) 5.5p 6.0p
Dividends paid during the year and included in the Morningstar calculation 6.0p 7.5p
(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 2024 the Company declared a dividend of 1.375 pence per Ordinary Share in relation to each of the first three quarters of 2024 with the fourth quarter dividend of
1.375 pence per Ordinary Share declaration being made in January 2025. These four dividends declared all related to income earned in 2024 and are therefore included within
the 5.5 pence per Ordinary Share dividend shown in the table above for the year ended 31 December 2024.
(4)
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.
3
SHARE PRICE PERFORMANCE
As of 31 December 2024, the NAV was 100.49 pence per Ordinary Share
(2023: 104.35 pence) and the share price was 91.8 pence (2023: 90.4 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 primarily by market conditions and trading flows
rather than a change in the Company’s performance.
Source: Morningstar
PREMIUM / DISCOUNT CUM-FAIR
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
Dec 12
Mar 13
Jun 13
Sep 13
Dec 13
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Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
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Dec 23
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Jun 24
Sep 24
Dec 24
Premium / Discount Cum-Fair
-20%
0%
20%
40%
60%
80%
100%
Dec 12
Mar 13
Jun 13
Sep 13
Dec 13
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Jun 14
Sep 14
Dec 14
Mar 15
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Jun 23
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Dec 23
Mar 24
Jun 24
Sep 24
Dec 24
Cumulative Fair NAV Total Return Index Share price total return Index
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
Dec 12
Mar 13
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
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Dec 21
Mar 21
Jun 21
Mar 22
Jun 22
Sep 22
Dec 22
Mar 23
Jun 23
Sep 23
Dec 23
Mar 24
Jun 24
Sep 24
Dec 24
Premium / Discount Cum-Fair
-20%
0%
20%
40%
60%
80%
100%
Dec 12
Mar 13
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
Dec 15
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Mar 21
Jun 21
Mar 22
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Sep 22
Dec 22
Mar 23
Jun 23
Sep 23
Dec 23
Mar 24
Jun 24
Sep 24
Dec 24
Cumulative Fair NAV Total Return Index Share price total return Index
4
INTRODUCTION
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.
5
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.
6
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
7
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.
Photo: Connie Zhou
8
Overview
Chairman’s Statement
JOHN WHITTLE | Chairman
2 April 2025
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 (the
“Group”) for the year ended 31 December 2024.
The UK’s economic growth in 2024 was slower than initially forecast in part due to the
uncertainty around the scale and composition of tax increases in the Autumn Budget at the
end of October. UK base rates had been forecast to decrease more and quicker in 2024 than
the cumulative 0.5 per cent decrease (in two separate cuts) in the latter part of the year.
The UK’s Monetary Policy Committee has said that the global economy is under strain amid
growing geopolitical tensions and trade policy uncertainty and cautioned that the UK economy
would be impacted if the US government does impose tariffs on imports into the US. The
magnitude and severity of these changes and pressures on the UK and, indeed, on global
economies will depend on a range of factors; the outlook remains uncertain.
The 2024 forecast for the EU projected moderate real GDP growth of 0.9 per cent and the final
number is currently estimated to be broadly in line with the initial projection at 0.8 per cent.
The growth outlook for 2025 is slightly higher, but still modest, circa 1.5 per cent. By the start
of 2024, inflation had fallen significantly from its peak in 2023 and was expected to fall further
in 2024 but it is still above the European Central Bank’s medium-term target of 2 per cent.
With a low growth rate and less inflationary pressure than many other major economies the
European Central Bank was able to make four base rate cuts in 2024 totalling 1.0 per cent,
leaving the EU deposit rate at the end of 2024 at 3.0 per cent with further cuts expected.
Elevated uncertainty, at home and abroad, will continue to weigh on the EU economy in 2025.
Broadly speaking, real estate values stabilised across the spectrum in 2024, with some values
now starting to increase. During late 2022 and 2023, yields had increased as a result of higher
interest rates, but this started to turn during 2024 and almost all asset classes have now seen
the beginning of yield compression. Office yields are a few months behind the other asset
classes but have flattened during 2024 and the outlook is that they too will begin to compress
in 2025. Occupational performance has seen robust income growth in high quality real estate
across all real estate asset classes, including office. Transaction and investment volumes in
2024 were low in comparison to historic standards, and it is unlikely that they will increase
until investors feel they have entered a more stable interest rate environment.
The Group’s results for 2024 were also not quite as forecast. On the positive side all
contractual interest and scheduled amortisation payments have continued to be paid in full
and underlying collateral valuations for most of the portfolio continue to provide reassuring
headroom. However, as you will be aware, in October 2024, the loan sponsor of the Office
Portfolio, Ireland loan provided new operational updates. The Board subsequently evaluated
various business plan scenarios and the associated uncertainties. As a consequence of this
new information, combined with the challenging local office market dynamics, the Board
provisioned for a 50 per cent impairment of the Company’s loan, equivalent to €12.9 million.
The Board, Investment Manager and Investment Adviser consider that there are a wide range
of possible outcomes whereby the loan may have a lesser or greater degree of recovery due
to the ongoing uncertainty related to the various business plan scenarios. The position is being
actively managed to maximise the opportunity for value recovery. Since October 2024, no
material changes to the value of this loan have occurred.
Despite this impairment, during the year the Group returned £125.0 million to shareholders, in
addition to the £85.0 million returned to shareholders in 2023 and delivered the target 5.5 pence
per share dividend to shareholders.
Shareholders will be aware that following an Extraordinary General Meeting (‘EGM’) held on 27
January 2023 the objective of the Group is to pursue a strategy of orderly realisation and the
return of capital over time to shareholders.
9
The orderly realisation strategy will not result
in the liquidation of the Company in the
immediate future or require the Company
to dispose of assets within a defined time
frame. The new strategy was approved
by 99% of Shareholders that voted at the
EGM held on 27 January 2023, and it 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. As such, the
focus of the Board, the Investment Manager
and the Investment Advisor is on achieving
the best possible outcome for shareholders.
Following several loan repayments during
2024 (more details in Divestment Momentum
section below) the portfolio comprised just
seven loan assets as of 31 December 2024.
2024 HIGHLIGHTS
• Asset realisation progress – during
the year:
°
A total of £109 million, 42 per cent of the
Group’s 31 December 2023 total funded
loan portfolio, has been repaid, comprising
the repayment of five loans
°
Proceeds (along with some cash that was
held at the beginning of the year) were
used to return £125 million of cash to
shareholders during the year
•
Dividend
– on 24 January 2025, the Directors
declared a dividend, which was paid in
February,
in respect of the fourth quarter
of 2024 of 1.375 pence per Ordinary Share
– resulting in a dividend of 5.5 pence per
Ordinary Share for the full year. The 2025
dividend target is 5.5 pence per Ordinary
Share
• Strong cash generation – based on
current forecasts, 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 of 31 December 2024 is
listed below:
°
Four loan investments equivalent to 67
per cent of the funded portfolio as of 31
December 2024 were classified in the
lowest risk profile, Stage 1
°
Two loan investments equivalent to 19
per cent of the funded portfolio as of 31
December 2024 were classified as Stage 2
°
One loan equivalent to 14 per cent of
the funded portfolio as of 31 December
2024 was reclassified from Stage 2 to
Stage 3 and an impairment provision of
€12.9 million was made against this loan
investment
• Income stability – all contractual loan
interest and scheduled amortisation
payments paid in full
• Inflation protection – 84 per cent of the
portfolio is contracted at floating interest
rates (with floors)
• Solid portfolio performance – 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-economic
environment (save for the impact of the
impairment provision made in relation to the
Office Portfolio, Ireland loan)
• Borrowers of loans classified as Stage 1
and Stage 2 remain adequately capitalised
and are expected to continue to pay loan
interest and capital repayments in line with
contractual obligations
• 81 per cent – share price total return since
inception in December 2012
• The average remaining loan term of the
portfolio is 1.2 years, with the final loan
being contractually due to repay by the
end of 2026 – as of 31 December 2024
(subject to any permitted extensions which
may be granted in the best interests of the
shareholders)
• Significant equity cushion – the weighted
average Loan to Value for the portfolio as of
31 December 2024 is 64 per cent. With the
exception of the Office Portfolio, Ireland loan,
a significant equity cushion continues to
exist to the Company’s loan basis.
DIVESTMENT MOMENTUM
In line with the strategic direction of the Group
(i.e. the orderly realisation of assets and the
return of capital to shareholders) no new loans
or commitments were made during 2024.
During the year the Group funded £9.9 million
in relation to loan commitments made in prior
years which were unfunded. In addition, the
Group capitalised £1.6 million of interest on
one loan in line with the facility agreement.
Repayments received during the year
amounted to £109.4 million relating to five
loans which were repaid in full as follows:
- £42.6 million, Hotel, Scotland
- €32.8 million, Three Shopping
Centres, Spain
- €22.9 million, Hotel, Dublin
- €12.2 million, Shopping Centre, Spain
- £8.8 million, Hotel and Office,
Northern Ireland
In addition, subsequent to year end, one
£47.3 million loan (Hotels, United Kingdom)
was repaid in full.
10
Overview
Chairman’s Statement
(1)
Operating Income available to distribute comprises loan income recognised in the period less operating costs incurred and before any
impairment is taken into account. It includes realised foreign exchange gains and losses that are available to distribute except where the
realised gains and losses relate to the settlement of hedges that were previously rolled forward and the gain or loss on that roll forward was
classified as unavailable to distribute (see notes 3 and 4 below). These movements are shown separately in the table above.
(2)
In March 2024, a loan against which an impairment had been made against during 2023 was settled in full and part of the impairment provided
for was not utilized and released back as a credit to the income statement. In October 2024 a loan classified as Stage 3 had an impairment
provision made 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 transferred to distributable income
when the rolled hedge matures or is settled due to the loan repayment, and the final net gain or loss on the capital hedges over the life of the
loan can be determined. The reconciliation of NAV above shows the reversing of such an FX gain (or proportion thereof) in Q1 and Q2 following
the repayment and/or the partial repayment of such loans.
(4)
This relates to the transfer of historic realised gains on capital hedges that were rolled (as described under note (3) from undistributable to
distributable income due to the final settlement of capital hedges (or a portion thereof where a loan has only partially repaid) less realised FX
losses during the month on the repayment of loan amounts and the settlement (or portion thereof) of the rolled hedges.
(5)
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.
As of 31 December 2021 to 2024 the Group had cash commitments as shown in the table below.
The contractual maturity of the Group’s portfolio is set out in the Investment Manager’s report
and shows that as of 31 December 2024, 53 per cent of invested loan balances held were
expected to mature in 2025 and we look forward to reporting on the progress of repayments
over the coming year.
NAV PERFORMANCE
The table below shows the NAV per share movements over the 12 months to 31 December
2024 by quarter and for the year.
Q1 Q2 Q3 Q4 2024
NAV at beginning of the period 104.35 104.45 104.92 105.61 104.35
Operating income available to
distribute
(1)
1.82 2.32 2.09 1.88 8.11
Impairment provision released/
(made) on assets classified as
Stage 3
(2)
0.05 0.00 0.00 (5.59) (5.54)
R
eclassification of realised FX gains
from not distributable to distributable
income following loan repayments
(3)
(1.72) (0.64) 0.00 0.25 (2.11)
Realised FX hedging gains reclassified
as available to distribute following
loan repayments
(4)
1.56 0.40 0.00 0.00 1.96
Unrealised FX gains/(losses)
(5)
0.27 (0.23) (0.03) (0.29) (0.28)
Dividends declared (1.88) (1.38) (1.37) (1.37) (6.00)
NAV as end of period 104.45 104.92 105.61 100.49 100.49
2021 2022 2023 2024
Funded loans (before impairments) £412.0m £425.9m £262.7m £159.1m
Unfunded Cash Commitments £44.5m £49.0m £36.2m £23.0m
Total £456.5m £474.9m £298.9m £182.1m
1111
Number of shares
redeemed
Price at which shares
redeemed
Total capital returned
to Shareholders
Feb-24 19,402,403 £1.0308 £19,999,996
Mar-24 24,110,333 £1.0369 £25,000,003
Jul-24 76,248,573 £1.0492 £80,000,002
2024 119,761,309 £125,000,001
Following the redemption in July 2024 and
as of 31 December 2024 the Company had
193,929,633 shares in issue and the total
number of voting rights was 193,929,633.
Subsequent to year end, in February 2025,
the Company redeemed a further 45,889,830
shares at a price of £ 1.0024 per share,
resulting in an additional £ 46.0 million being
returned to shareholders. Following this
redemption, the Company has 148,039,803
shares in issue and the total number of
voting rights is 148,039,803. This followed
the repayment of one loan (Hotels, United
Kingdom) subsequent to year end which I
referred to above.
During the year the Company’s share price
has traded in a range of between 97.8 and
89.0 pence per share. The year end share
price was 91.8 pence reflecting a 8.6 per cent
discount to NAV.
DIVIDENDS
Total dividends of 5.5 pence per Ordinary
Share were declared in relation to the year
ended 31 December 2024 in line with the
target of 5.5 pence per Ordinary Share. These
2024 financial statements show modest
income reserves which are lower than the
announced dividends of 1.375 pence per
share in respect of the fourth quarter of 2024.
However, given the current level of cash flow
generated by the portfolio, the Board decided
to maintain its annual dividend target of 5.5
pence per share. Dividend payments can
continue to be made by the Company (as a
Guernsey registered limited company) as long
as it passes the solvency test (i.e. it is able to
pay its debts as they come due).
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.
CAPITAL REDEMPTIONS AND SHARE PRICE
During the year, the Company redeemed a total of 119,761,309 shares for a total of £125.0
million as follows:.
BOARD COMPOSITION AND
DIVERSITY
The Board believes strongly in the value and
importance of diversity in the boardroom and
we continue to consider the recommendations
of the Davies, Hampton Alexander and Parker
Reports and these recommendations will be
taken into account should the appointment of a
new director be required.
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 2024, 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.
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 may result in some
material 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
Economic pressures and geopolitical tensions
are forecast to continue into 2025.
The focus of the Group for 2025 will be the
continued orderly realisation of the Group’s
assets and the return of cash to shareholders
over time.
The Board believes it is important to have
clear messaging to you, our shareholders,
and we will continue to inform you of the
Group’s progress through our quarterly
updates. We welcome any comments you
have on our communication and supply of
information to you.
My thanks to all of our services providers for
their continued support over the period.
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
2 April 2025
12
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.
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.
13
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 2024, the Company
returned £125.0 million to shareholders (2023
- £85.0 million).
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
over a four to five year period from the
beginning of 2023.
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,
the Republic of Ireland and Spain 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 economic backdrop created by the
Covid-19 pandemic, the situation in Ukraine,
and in the Middle East, the recent US elections
and the resultant unstable global political
and economic environment in which the
Company is operating all present 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 in a period of
lower growth, and potentially, alongside
the economic impact of Covid-19, the
destabilising impact of the conflicts in
Ukraine and the Middle East and the recent
US elections moving towards recession.
In addition there is the impact of the ongoing,
albeit dampened, 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 positive
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
14
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 £18.9 million
(€22.8 million) of hedged notional exposure
with Lloyds Bank plc at 31 December 2024
(converted at 31 December 2024 FX rates).
As at 31 December 2024, 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 2024, the Company had
sufficient liquidity to meet foreseeable cash
collateral requirements.
Two loans within the portfolio are classified
a
s Stage 2 as at 31 December 2024
(increased risk of default). These loans
account for 19 per cent of the portfolio
funded by the Group as at 31 December
2024. 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 loan (accounting for 14 per cent of the
funded portfolio as at 31 December 2024)
is currently classed as Stage 3 (ie the loan
is considered to be credit impaired). An
impairment provision of £10.8 million has
been provided in these accounts for this
loan as at 31 December 2024.
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 2024 have
been structured so that 84 per cent of the
funded portfolio 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 16 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 (82 per cent of the
funded portfolio as at 31 December 2024)
with the remainder of the funded portfolio
being Euro denominated. The Group is subject
to the risk that the exchange rates move
unfavourably and that a) foreign exchange
Strategic and Business Review
Strategic Report
of the portfolio of 64 per cent. Therefore,
the portfolio should be able to withstand
a significant level of deterioration before
additional 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.
15
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 commercially 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, considered 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 considered 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 (£23.0 million as at
31 December 2024) 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:
• Market deterioration risk; specifically, the
risk that the loans classified as Stage 3 & 2
default, resulting in a loss of interest income,
a loss of the repayment of principal for the
loan classified as Stage 3 and a delay in the
repayment of principal for loans classified as
Stage 2;
• Interest rate risk; specifically, that Sonia and
Euribor rates fall to zero per cent from 2026;
• Foreign exchange risk; specifically, that the
value of Sterling vis a vis Euro decreased
significantly resulting in the mark to market
value of the forward foreign exchange
contracts reducing.
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 Stage 3 loan does not repay both the
principal and the interest due on it, that the
Group stopped receiving interest on the Stage
2 loans in the portfolio from their current
maturity dates and that the outstanding
principal on these loans was not received until
12 months after the loan maturity date plus
Sonia and Euribor rates falling to zero per cent
from 2026 onwards; and
• A deterioration in the valuation of the forward
foreign exchange contracts because of a
12.5% reduction in the value of Sterling
compared to Euros.
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 or
reduction in the value of Sterling compared to
Euro over the period of the financial forecasts
albeit that less cash will be returned to
Shareholders (and may be returned later than
currently anticipated) and that the regular
quarterly dividend may need to be reduced
(compared to the target) to reflect the reduced
cash available.
16
Strategic and Business Review
Strategic Report
VIABILITY STATEMENT
All seven of the loan assets held as of
31 December 2024 are contractually due
to repay by the end of 2026 based on the
current loan maturity profile (subject to any
permitted extensions which may be granted
in the best interests of the shareholders).
However, the Board have considered
the Group’s possible working capital
requirements, assuming no further income
or loan repayment receipts after 2026.
Cashflow projections are prepared regularly.
The Board intends to continue to pay its
target dividends of 5.5 pence per share and
return surplus cash to shareholders following
each loan repayment, whilst it remains
prudent to do so and taking into account
the commitments, liabilities and expected
duration of the Group at the time.
Having conducted a robust analysis on this
basis, the Directors remain satisfied that
the Group can meet its liabilities as they fall
due over the period under consideration to
December 2027, if the Group continues in
operation up to that date. The Group is likely
to operate a cashflow deficit in 2027 if all the
loans have repaid by then. Cash reserves will
be held to cover this and will be reassessed
at each loan repayment prior to cash being
returned to shareholders.
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.
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
2 April 2025
17
MARKET SUMMARY AND
INVESTMENT OUTLOOK
Our commentary has often started on the
topic of the interest rate environment given its
importance in commercial real estate. A notable
deviation in this area from the beginning of last
year to the end of 2024 is that expectations
for interest rate decreases have been missed
and current bond yields are actually now higher
in the United States (“US”) and the United
Kingdom (“UK”) than at the beginning of 2024.
In addition, current expectations of the pace of
future interest rate cuts over the next year are
slower than at the beginning of 2024.
Key relevant central bank policy rates at the
beginning of 2024 had hit peak levels with a
range of 5.50 per cent to 5.25 per cent for the
US Federal Funds rate and at 5.25 per cent for
the Bank of England base rate. The European
Central Bank Deposit Facility Rate was 4.0 per
cent. These levels are post Global Financial
Crisis highs which have not been seen since
2008 for the UK and Europe and not since
2001 for the US. The higher interest rate
environment has been driven by inflation levels
which had risen sharply in the face of global
supply chain challenges and energy price
volatility which were caused by a combination
of the stresses of the recovery, inactivity post
COVID and global geopolitical events. Inflation
had risen in 2022 to the highest levels since
the early 1980s.
By the beginning of 2024 the aggressive
central bank rate hikes had appeared to have
done their job and inflation had materially
decreased towards more normal levels and it
was clear the direction in interest rates would
be down. The market predicted base rate
decreases of 1.5 per cent or more for both the
UK and US. While inflation had largely been
tempered throughout 2024, central banks in
the US and the UK in particular continued to
be hawkish on managing inflation and in the
end the Bank of England only reduced the
base rate by 0.50 per cent to 4.75 per cent
and the Federal Reserve by 1.0 per cent to a
range of 4.50 percent to 4.25 per cent. With a
low growth rate and less inflationary pressure
the European Central Bank has been able to
maintain a lower level and has made four rate
cuts totalling a 1.0 per cent decrease and
leaving the deposit rate at 3.0 per cent.
There is also now a slower expectation of
future rate cuts and the bond market is also
concerned by current political uncertainties
including the transition to a new Trump
presidency and the implementation of the
economic policies of the new UK government.
As a result, UK and US bond rates were higher
at the beginning of 2025 than they were this
time last year. US 10 Year Treasury and UK
Gilt yields started the year at 4.6 and 4.6 per
cent respectively versus 3.9 and 3.6 per cent
at the beginning of last year. Looking at the key
benchmark for the base rate used for financing
real estate there is a more mixed picture with
Sterling rates higher at the beginning of this
year compared to last year but Euro rates
lower. The Sterling and Euro 5-year swaps
started the year at 4.0 per cent and 2.2 per
cent versus 3.4 per cent and 2.3 per cent at
the beginning of last year.
The market had anticipated that a stabilised
interest rate environment would lead to more
stability in real estate valuations and a pickup
of real estate transactions volumes in 2024
versus 2023 which was a trough year. After a
period of yield expansion in 2022 and 2023 we
saw a turn in direction early in 2024 to yield
compression in most asset classes outside of
Office. The more stable environment supported
a pick up in transaction volumes of 20 per
cent in the UK with similar trends around
European markets. We saw some significantly
larger transactions go through in 2024. These
larger transactions were mostly for portfolios
and there has been very limited volume in
high value single asset transactions. As such,
it is not surprising that despite the increase,
volumes for the UK are still 22 per cent lower
than the 10 year average.
We commented at the beginning of last
year that bank sentiment was meaningfully
better with a high degree of confidence in
US Commercial Mortgage Backed Securities
(“CMBS”) bond issuance (which acts as a
bellwether for real estate finance sentiment
globally). The predictions of a high volume
of transactions and significant tightening in
spreads did play out in that market. The 2024
US CMBS transaction volume was in excess of
$100 billion which was the third highest year
since the Great Financial Crisis (“GFC”) and
over double the 2023 level. Hotel, Industrial
and Multi-family residential were the largest
contributions to the volumes with a very low
proportion of Office. The spread on the highest
rated “AAA” bonds for floating rate single
asset, single borrower CMBS declined from
over 200 basis points in late 2023 to mid-100s
during 2024.
After a difficult couple of years for Office
there is now some data illustrating improving
sentiment coming through into the transaction
market particularly for the best quality product.
2024 was a low year for Office CMBS but
2025 started strongly for office financing with
a jumbo Manhattan office CMBS for Tishman
Speyer and Harry Crown’s Spiral building at
Hudson Yards that closed in early January. The
deal had a highly successful execution with
pricing consistent with the best CMBS in the
market and a significant over-subscription in
spite of the notably large size of the deal which,
at $2.65 billion, is one of the largest CMBS
across all asset classes in recent years. There
are indications that a number of further Office
CMBS are in the pipeline for early 2025 both in
the US and the UK.
On the transaction side we have already
seen this sentiment coming through with
two very substantial sovereign wealth fund
investments into London offices with Norges
paying £305.7 million for a 25 per cent interest
in a predominantly office and retail portfolio in
Mayfair and Broadgate REIT announcing the
formation of a new Joint Venture with Modon
Holding to deliver 2 Finsbury Avenue which
is a 750,000 square foot world-class office
development at Broadgate. CBRE reported £1
billion of London office transactions in January
alone which compares to £5 billion of total
volume for 2024. According to Knight Frank
core deals accounted for just £1 billion of a total
of London investment transactions in 2024 but
they expect higher volumes with a total of £5
billion that has been set aside by 80 investors
from all over the world to invest in core London
offices. Underpinning this appetite is a strong
occupational market. An example of this is the
number of leases signed above the £100 per
square foot barrier in the City office market.
The Financial Times recently reported that there
have been a record 17 leases signed above that
level in 2024 which is a larger number than in
all previous history.
Banks have had a strong year globally. The
STOXX Banks index which includes the largest
European banks is up 23.3 per cent in the
year and US banks were up more than 30 per
cent. Higher rates have helped banks increase
net interest margins and contributed to the
highest average return on equity since the
GFC. Higher for longer rates and structural
hedging by banks will help net interest margins
hold up and the outlook for mergers and
acquisitions is healthy following a number of
slower years so 2025 is likely to be another
good year for banks. Within commercial real
estate lending many banks saw faster than
expected repayment rates and lower volumes
of available transactions and so they adjusted
their approach to new lending opportunities
to maintain or grow their lending books with
lower pricing and increased loan sizes.
We saw strength of demand and a price
tightening across all sources of real estate
lending during the course of the year. In
addition to the healthy bank and CMBS lending
covered earlier, the corporate bond market
recovered in both issuance volumes and pricing
and is now fully reopened after a couple of
difficult years. There is also good appetite from
insurance lenders and other alternative lenders.
Overall, the credit side of the real estate market
starts the year in great shape and will provide a
support for real estate transactions in 2025.
Strategic and Business Review
Investment Manager’s Report
18
Strategic and Business Review
Investment Manager’s Report
PORTFOLIO STATISTICS
As at 31 December 2024, 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 2024 is shown below.
31 December
2024
31 December
2023
Number of investments 7 12
Percentage of funded portfolio in floating rate loans
(1)
84.3% 90.5%
Funded Loan Portfolio unlevered annualised total return
(1)
9.1% 8.2%
Weighted average portfolio LTV – to Group first £
(1)
20.6% 14.7%
Weighted average portfolio LTV – to Group last £
(1)
63.5% 61.8%
Average remaining loan term 1.2 years 1.4 years
Net Asset Value £194.9 m £327.3 m
Loans advanced at amortised cost (including accrued
income and net of impairment provisions)
£149.5 m £264.1 m
Cash £45.7 m £63.8 m
Other liabilities (including financial assets held at fair
value through profit or loss)
(£0.3 m) (£0.6 m)
(1)
Alternative Performance Measure – refer to page 94 for definitions and methodology.
*
excludes any permitted extensions. Note that borrowers may
elect to repay loans before contractual maturity.
Remaining years to
contractual maturity
*
Value of funded
portfolio
(£m)
% of funded
portfolio
0 to 1 years £84.6 m 53.2%
1 to 2 years £74.5 m 46.8%
Sector
% of funded
portfolio
Hospitality 39.2%
Office 17.6%
Light industrial 17.1%
Healthcare 15.7%
Life Sciences 9.7%
Residential 0.7%
Country
% of funded
portfolio
UK 81.7%
Republic of Ireland 13.7%
Spain 4.6%
Loan currency
% of funded
portfolio
*
Sterling 81.7%
Euro 18.3%
Loan type
% of funded
portfolio
Whole loans 66.0%
Junior & Mezzanine 34.0%
PORTFOLIO DIVERSIFICATION
The Group continues to achieve good portfolio
diversification as shown in the tables below:
*
The currency split refers to the underlying loan currency; however,
the capital and interest during protected periods on all non-Sterling
exposure is hedged back to Sterling.
19
INVESTMENT DEPLOYMENT
As at 31 December 2024, the Group had seven investments and commitments of £182.1 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, North Berwick £15.0 m £15.0 m
Life Science, UK £15.5 m
£4.0 m
£19.5 m
Hotels, United Kingdom £47.3 m £47.3 m
Industrial Estate, UK £27.2 m £19.0 m £46.2 m
Total Sterling Loans £130.0 m £23.0 m £153.0 m
Office Portfolio, Spain £7.3 m £7.3 m
Office Portfolio, Ireland £21.8 m £21.8 m
Total Euro Loans £29.1 m £29.1 m
Total Portfolio £159.1 m £23.0 m £182.1 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 £0.8 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 2024,
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 2024.
During the year the Group funded £9.9 million
in relation to loan commitments made in prior
years which were unfunded. In addition, the
Group capitalised £1.6 million of interest on
one loan in line with the facility agreement.
Loan Repayments
During the year borrowers repaid at total of
£109.4 million. As detailed below a total of
five loans were repaid.
Details of loans repaid in 2024:
• €12.2 million, Shopping Centre, Spain
• €32.8 million, Three Shopping
Centres, Spain
• £8.8 million, Hotel and Office,
Northern Ireland
• €22.9 million, Hotel, Dublin
• £42.6 million, Hotel, Scotland
20
PORTFOLIO OVERVIEW
The Group continues to closely monitor
and manage the credit quality of its loan
exposures and repayments.
The Group’s exposure is spread across seven
investments. 99 per cent of the total funded
loan portfolio as of 31 December 2024 is
spread across five asset classes; Hospitality
(39 per cent), Office (17 per cent), Light
Industrial (17 per cent), Healthcare (16 per
cent) and Life Sciences (10 per cent).
Hospitality exposure (39 per cent) comprises
two loan investments. One loan (76 per
cent of hospitality exposure) had two
underlying key UK gateway city hotel assets,
both of which completed comprehensive
refurbishment programmes during 2024.
In line with the underwritten business
plan, the sponsor of this loan successfully
refinanced the loan post year end in January
2025, repaying the Company’s loan in full.
The second hospitality loan (24 per cent of
hospitality exposure) comprises one hotel,
which has also been recently refurbished.
Trading performance improved during 2024
following the refurbishment project. This loan
sponsor is also preparing to refinance the
Company’s loan during 2025. The weighted
average Loan to Value of the hospitality
exposure as of 31 December 2024 was 57
per cent.
The Group’s office exposure (17 per cent)
comprises two loan investments. The
weighted average Loan to Value of loans
with office exposure is 95 per cent. The
value used to calculate the Loan to Value
for the Stage 1 office loan uses the latest
independent lender instructed valuation. The
value used for the Stage 3 office loan (which
was downgraded from a Stage 2 asset in
October 2024) is the marked down value
as per the loan impairment recognised in
October 2024. No material valuation changes
are considered to have occurred since that
time. The higher Loan to Value of this sector
exposure reflects the wider decrease in
market sentiment driven by post pandemic
trends and higher interest rates. These
factors have resulted in reduced investor
appetite for office exposure and a decline
in both transaction volumes and values.
Strategic and Business Review
Investment Manager’s Report
We note however, there has been a more
positive recent outlook for real estate given
interest rates have begun to reduce.
The largest office investment is a mezzanine
loan which represents 74 per cent of this
exposure and is classified as a Stage 3 risk
rated loan. As outlined in previous factsheets,
the underlying assets comprise seven well
located European city centre CBD buildings
and have historically been well tenanted, albeit
certain assets are expected to require capital
expenditure to upgrade to Grade-A quality
to retain existing tenants upon future lease
expiry events. A 50 per cent loan impairment
provision related to this asset was announced
on 21 October 2024 as a result of new
operational information received from the
borrower. Following an analysis of potential
future scenarios and outcomes, the Board
decided to make this provision. As noted in the
announcement, the potential outcomes could
recover a greater or lesser amount of the loan.
The Investment Adviser continues to actively
advise on this position to maximise recovery.
No material changes to the value of this loan
are considered to have occurred since October
2024 and therefore the loan risk classification
and impairment provision remain unchanged.
This remains under frequent review and the
Company will provide updates as appropriate.
Light Industrial and Healthcare exposures
comprise 17 per cent and 16 per cent,
respectively, totalling 33 per cent of the total
funded portfolio (across two investments)
and provide good diversification into asset
classes that continue to have very strong
occupational and investor demand. The
weighted average Loan to Value of these
exposures is 59 per cent.
LIQUIDITY AND HEDGING
The Group had no debt outstanding or debt
facilities at year end and has significant
liquidity available with cash held of £45.7
million as at 31 December 2024 to fund
existing unfunded loan cash commitments
(totaling £23.0 million as at 31 December
2024), working capital and collateral calls on
its hedging arrangements.
The Group has, in certain circumstances,
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
2024 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
later of the maturity date or expected final
repayment date of the loan. 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.
21
EXPECTED CREDIT LOSSES (IMPAIRMENT)
All loans within the portfolio are classified and measured at amortised cost less impairment.
Under IFRS 9 a three stage approach for recognition of impairment was introduced, based on
whether there has been a significant deterioration in the credit risk of a financial asset since initial
recognition. These three stages then determine the amount of impairment provision recognised.
For the purposes of classifying between
stages 1 to 3 after initial recognition, the
Group considers a change in credit risk based
on a combination of the following factors:
• Underlying income performance is at a
greater than 10 per cent variance to the
underwritten loan metrics;
• Loan to Value is greater than 75-80 per cent;
• Loan to Value or income covenant test
results are at a variance of greater than
5-10 per cent of loan default covenant level;
• Late payments have occurred and not
been cured;
• Loan maturity date is within six months
and the borrower has not presented an
achievable refinance or repayment plan;
At Initial Recognition
Recognise a loss allowance equal to 12 months expected
credit losses resulting from default events that are possible
within 12 months.
After initial recognition:
Stage 1
Credit risk has not increased significantly since initial recognition.
Recognise 12 months expected credit losses.
Stage 2
Credit risk has increased significantly since initial recognition.
Recognise lifetime expected losses.
Interest revenue recognised on a gross basis.
Stage 3
Credit impaired financial asset.
Recognise lifetime expected losses.
Interest revenue recognised on a net basis (i.e., losses are
“above the line” and impact P&L and NAV).
• Covenant and performance milestones
criteria under the loan have required more
than two waivers;
• Increased credit risk has been identified on
tenants representing greater than 25 per
cent of underlying asset income;
• Income rollover / tenant break options exist
such that a lease up of more than 30 per
cent of underlying property will be required
within 12 months in order to meet loan
covenants and interest payments; and
• Borrower management team quality has
adversely changed.
22
The Group closely monitors all loans in
the portfolio for any deterioration in credit
risk. As at 31 December 2024, assigned
classifications are:
• Stage 1 loans – four loan investments
equivalent to 67 per cent of the funded
portfolio are classified in the lowest risk
profile, Stage 1.
• Stage 2 loans – two loan investments
equivalent to 19 per cent of the funded
portfolio are classified as Stage 2. The
average loan to value of these exposures
was 54% per cent. The average age of
valuation report dates used in the loan to
value calculation was 16 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 14 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 is
based on the marked down value of the loan
following the October 2024 announcement
regarding the reclassification of this loan as a
Stage 3 loan and impairment of the asset.
Since announcing the £10.8 million (€12.9
million) impairment provision against this loan in
October 2024 no material changes to the value
of this loan are considered to have occurred.
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
23
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 9.4 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 9.4 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 loans.
Discount Rate Fair Value % of Book Value
7.4% £152,935,395 102.3%
7.9% £152,062,018 101.7%
8.4% £151,199,872 101.1%
8.9% £150,348,755 100.6%
9.4% £149,508,470 100.0%
9.9% £148,678,820 99.4%
10.4% £147,859,619 98.9%
10.9% £147,050,682 98.4%
11.4% £146,251,829 97.8%
24
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.
• 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.
• For the Stage 3 asset held as at 31
December 2024, the marked down value per
the loan impairment is used.
On the basis of the methodology outlined,
at 31 December 2024 the Group had an
average last LTV of 63.5 per cent (2023:
61.8 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.
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 for loans classified as Stage
1 and State 2 and marked down value per
the loan impairment for the loan classified
as Stage 3
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.
Strategic and Business Review
Investment Manager’s Report
25
Dividend Policy
The Company has paid dividends of 5.5
pence per Ordinary Share in respect of the
year ended 31 December 2024 (2023: 6.0
pence per Ordinary Share) in line with the
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 2025 is 5.5 pence per
Ordinary Share paid quarterly.
The Company may pay dividends 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.
EVENTS AFTER THE
REPORTING PERIOD
The following loan amortisation (both
scheduled and unscheduled) has been
received since the year-end up to
2 April 2025:
• Life Science, UK £1,430,000
Starwood European Finance
Partners Limited | Investment Manager
2 April 2025
The following loans have been repaid since
year end up to 2 April 2025:
• Hotels, United Kingdom £47,334,280
On 24 January 2025 the Directors declared
a dividend in respect of the fourth quarter
of 2024 of 1.375 pence per Ordinary Share
payable on 28 February 2025 to shareholders
on the register at 7 February 2025.
In February 2025, the £4,036,499
unfunded commitment on Life Sciences,
UK was cancelled.
Change in
Valuation
Hospitality Office
Light
Industrial &
Healthcare
Other Total
-15% 67.0% 111.9% 69.1% 58.3% 74.7%
-10% 63.3% 105.7% 65.2% 55.1% 70.5%
-5% 59.9% 100.2% 61.8% 52.2% 66.8%
0% 56.9% 95.1% 58.7% 49.6% 63.5%
5% 54.2% 90.6% 55.9% 47.2% 60.4%
10% 51.8% 86.5% 53.4% 45.1% 57.7%
15% 49.5% 82.7% 51.0% 43.1% 55.2%
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 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 now resides in the Czech Republic.
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, 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,
and the Investment Manager for NextEnergy. She is also on the board of Pershing Square Holdings Limited, a FTSE
100 company and is the non-executive chairman of Achilles Investment Company Limited, which is listed on the
Specialist Fund Segment of the Main Market of the London Stock Exchange. Charlotte is a resident of Guernsey.
26
27
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 and are traded on the Main Market of
the London Stock Exchange.
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
In 2024 the Company paid dividends of 1.875
pence per Ordinary Share for the fourth quarter
of 2023 and 1.375 pence per Ordinary Share
for the first three calendar quarters of 2024.
To date, the Company has paid a total of
£11,714,548 in respect of 2024 (5.5 pence
per Ordinary Share) (2023: £21,534,446, 6.0
pence per Ordinary Share).
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
Feb 24 19,402,403 £1.0308 £19,999,996
Mar 24 24,110,333 £1.0369 £25,000,003
Jul 24 76,248,573 £1.0492 £80,000,002
119,761,309 £125,000,001
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
During the year the Company’s share price
has traded in a range of between 97.8 and
89.0 pence. The year end share price was
91.8 pence reflecting a 8.6 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.
Following these redemptions in 2024 and
as at 31 December 2024, the Company had
193,929,633 shares in issue and the total
number of voting rights was 193,929,633. Of
the shares in issue as at 31 December 2023,
38 per cent were redeemed during the year.
Subsequent to year end, in February
2025, the Company redeemed a further
45,889,830 shares at a price of £1.0024 per
share, resulting in an additional £46.0 million
being returned to shareholders. Following this
redemption, the Company has 148,039,803
shares in issue and the total number of voting
rights is 148,039,803.
CAPITAL REDEEMED
The capital redemptions announced and implemented in 2023 resulted in a total redemption of
81,901,754 shares for an aggregate of £85,002,623 in 2023.
During the year, the Company’s redeemed a total of 119,761,309 shares for a total of
£125.0 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:
28
SUBSTANTIAL INTERESTS
Information provided to the Company by major
shareholders pursuant to the FCA’s Disclosure
Guidance and Transparency Rules ("DGTR") 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 DGTR of the following holdings of voting
rights in its shares as at 31 December 2024
and as at the date of this report.
Name
% holding of Ordinary
Shares at 31 December
2024
% holding of Ordinary
Shares at 3 March 2025
BlackRock 19.53 19.66
City of London 8.34 8.39
Close Brothers Asset
Management
8.14 8.14
Waverton Investment
Management
7.15 7.12
Shroder Investment
Management
6.64 6.64
Almitas Capital 4.67 4.67
Premier Miton Investors 3.99 3.99
Staude Capital 3.67 3.67
Nomura International as
principal
2.55 2.68
UBS Wealth 2.49 2.49
The Directors have adopted a code of
Directors’ dealings in Ordinary Shares, which
is based on EU Market Abuse Regulation
and was subsequently adapted to reflect
the standards of the UK Market Abuse
Regulation ("MAR"), which came into effect
on 1 January 2021, following the European
Union (Withdrawal) Act 2018. 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 interests of the Directors (and their
connected persons) in the Company's shares
are shown in the table opposite. Changes
in directors shareholding between 2023
and 2024 are as a result of the compulsory
share redemptions which took place
during the year.
Name
Ordinary Shares at
31 December 2024
Ordinary Shares at
31 December 2023
John Whittle 16,602 26,857
Shelagh Mason 55,305 89,461
Charlotte Denton 21,788 35,244
Gary Yardley - -
Governance
Report of the Directors
BUSINESS REVIEW
The Group’s performance during the year
to 31 December 2024, 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.
29
INDEPENDENT AUDITOR
As previously communicated in the 2023
Annual Report, 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 had 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 company secretarial, fund accounting and
administration services for both the Company
and Investment Manager were 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
119,761,309 shares for an aggregate of
£125.0 million. As at 31 December 2024 the
Company had 193,929,633 shares in issue
and the total number of voting rights
was 193,929,633.
Subsequent to year end, in February 2025,
the Company redeemed a further 45,889,830
shares at a price of £1.0024 per share,
resulting in an additional £46.0 million being
returned to shareholders. Following this
redemption, the Company has 148,039,803
shares in issue and the total number of voting
rights is 148,039,803.
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 13 June 2024 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
2025. 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.
2 April 2025
30
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
2024
£
Fees and
Expenses
2023
£
John Whittle
Chairman with effect from
1 January 2022
60,000 60,000
Shelagh Mason
Management Engagement
Committee Chairman and Senior
Independent Director with effect from
1 September 2020
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 2,279 7,739
Total fees and expenses 199,279 204,739
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. No Directors
waived their entitlement to director's fees
during the year.
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
2 April 2025
31
Governance
Corporate Governance Statement
JOHN WHITTLE | Chairman
The Company is a member of the Association
of Investment Companies (the “AIC”). The
Board has considered the Principles and
Provisions of the AIC Code of Corporate
Governance dated February 2019 (the “AIC
Code”). The AIC Code addresses the Principles
and Provisions set out in the UK Corporate
Governance Code (July 2018) (the “UK Code”)
effective for accounting periods commencing
on or after 1 January 2019, as well as setting
out additional Provisions on issues that are
of specific relevance to the Company. The
Board considers that reporting against the
Principles and Provisions of the AIC Code,
which has been endorsed by the Financial
Reporting Council (the “FRC”) and the
Guernsey Financial Services Commission (the
“GFSC”) provides more relevant information
to shareholders. Except as disclosed within
the report, the Board is of the view that
throughout the year ended 31 December
2024 the Company has complied with the
Principles and Provisions of the AIC Code.
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation
of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them
relevant for investment companies.
By complying with the AIC Code, the
Company is deemed to comply with both the
UK Code issued by the FRC and the Code of
Corporate Governance issued by the GFSC
(the “GFSC Code”).
The Company also intends to comply with
the majority of principles of the Revised UK
Code dated 22 January 2024, which comes
into effect from financial years beginning 1
January 2025.
The AIC Code has been endorsed by the FRC
as ensuring investment company boards fully
meet their obligations to the UK Code and
UKLR 6.6.6 of the UK Listing Rules as applicable
for overseas closed ended investment funds.
Except as disclosed within the report, the Board
is of the view that throughout the year ended
31 December 2024, 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 UKLR 6.6.1R.
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. The Company
accepts that it is not adhering to Provision
19 of the UK Code, and will not adhere to
the same under the Revised UK Code, as the
Chairman has been appointed since inception
and intends to act until the completion of the
Company's orderly realisation.
Provisions 32, 33, and 35 through to 41 of
the UK Code have also not been adhered to
as the Board do not believe that the Company
is of sufficient size or scale to warrant a
Remuneration Committee. The Company will
not adhere to the same under the Revised UK
Code when this becomes effective.
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 26.
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.
32
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 on 1 September 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 26. 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 each 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
The Directors believe that the Board is
well-balanced, with a wide array of skills,
experience and knowledge that ensures
it functions effectively and that no single
Director may dominate the Board’s decision
making process.
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
UK LR 6.6.6. (R) (9) on Board Diversity
As at 31 December 2024, the Company met
the targets specified in the UK LR 6.6.6. (R)
(9) (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
UK LR 6.6.6. (R) (9) (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 UK LR 6.6.6.
(R) (9) (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 Listing Rules disclosure requirements.
Governance
Corporate Governance Statement
Gender: as at 31 December 2024
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.
33
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 Nomination 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 Director 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 meets the future leadership needs of
the Company. Currently there is no gap that
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
sourcing a candidate with the relevant skills
and experience.
Succession Planning
The Company enters its thirteenth year in
2025 and the Board is mindful of the current
strategy of orderly realisation and return of
capital to the shareholders.
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
acting from outside of Guernsey is effective
and meets the current and expected future
leadership needs of the Company. 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 2024
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.
34
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 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 three times during
2024 (2023: 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 every director to attend such meetings.
Scheduled
Board
Ad hoc
Board
(1)
Audit
Committee
Management
Engagement
Committee
John Whittle 4 9 3 2
Shelagh Mason 4 8 3 2
Charlotte Denton 4 6 3 2
Gary Yardley 4 9 3 2
Total Meetings
for year
4 9 3 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.
The audit committee is intended to assist the
Board in discharging its responsibilities for the
integrity of the Group’s consolidated financial
statements, as well as aiding the assessment
of the Group’s internal control effectiveness
and objectivity of the external Auditors.
Further information on the audit committee’s
responsibilities is given in the Report of the
Audit Committee.
Formal terms of reference for the audit
committee are available at the registered
office and on the Company’s website and are
reviewed on a regular basis.
Management Engagement Committee
The Company has established a Management
Engagement Committee which comprises
all the Directors, with Shelagh Mason as the
Chairman of the committee. The Management
Engagement Committee’s main function is
to review and make recommendations on
any proposed amendment to the Investment
Management Agreement and keep under
review the performance of the Investment
Manager; and undertake an assessment
of the Investment Manager’s scope and
responsibilities as outlined in the service
agreement and prospectus on a formal basis
every year. Discussions on the Investment
Manager’s performance are also conducted
regularly throughout the year by the Board.
Reviews of engagements with other service
providers, such as the Administrator, to
ensure all parties are operating satisfactorily
are also undertaken by the Management
Engagement Committee so as to ensure
Governance
Corporate Governance Statement
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 2024 (2023: 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.
35
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
2024 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 consider 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 changes to
the Company's Investment Objective and
Investment Policy approved at the EGM
held in January 2023.
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
36
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 and the control and
dissemination of price sensitive information,
as outlined in MAR;
• Whistleblowing Policy;
• Anti-Bribery Policy;
• Applicable Financial Conduct Authority
Regulations;
• UK Listing Rules, and Disclosure Guidance 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 2024.
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 £1,840,831 for the year
ended 31 December 2024 (£2,910,525 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 FCA, pursuant to Regulation 59 of the
Alternative Investment Fund Managers
Regulations 2013 (SI 1773/2013) (the “AIFM
Regulations”) of its intention to market the
shares to investors in the United Kingdom in
accordance with the AIFM Regulations and
the rules and guidance of the FCA.
The AIFM has given written notification to
the Netherlands Authority for the Financial
Markets (“AFM”) pursuant to Article 1:13b
section 1 and 2 of the Act on the Financial
Supervision (Wet op het financieel toezicht)
(the “AFS”) of its intention to market the
shares to investors in the Netherlands in
accordance with the AFS, any rules and
regulations promulgated pursuant thereto
and the rules and guidance of the AFM.
On 12 February 2016, the AIFM obtained a
marketing licence in Sweden in accordance
with Chapter 5, Section 10 of the Swedish
Alternative Investment Fund Managers
Act (Sw. lag (2013:561) om förvaltare av
alternativa investeringsfonder). This enables
shares in the Company to be marketed to
professional investors in Sweden.
Currently, the National Private Placement
Regime (“NPPR”) provides a mechanism to
market Non-EU AIFs that are not allowed
to be marketed under the AIFMD domestic
marketing regimes. The Board is utilising
NPPR in order to market the Company,
specifically in the UK, Sweden and the
Netherlands. The Board works with the
Company’s advisers to ensure the necessary
conditions are met, and all required notices
and disclosures are made under NPPR.
Any regulatory changes arising from
implementation of the AIFMD (or otherwise)
that limit the Company’s ability to market
future issues of its shares may adversely
affect the Company’s ability to carry out
its investment policy successfully and to
achieve its investment objective, which in
turn may adversely affect the Company’s
business, financial condition, results of
operations, NAV and/or the market price of
the Ordinary Shares.
The Board, in conjunction with the
Company’s advisers, will continue to monitor
the development of the AIFMD and its impact
on the Company. The Company will continue
to use NPPR pending further consultation
from the European Securities and Marketing
Authority (“ESMA”).
The Board has considered the disclosure
obligations under Articles 22 and 23 and can
confirm that the Company complies with
the various organisational, operational and
transparency obligations.
Governance
Corporate Governance Statement
37
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
effectively 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 must
develop and maintain long-term relationships
with service providers, borrowers and other
key stakeholders.
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 2025, 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
2 April 2025
38
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.
39
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 applying the necessary professional
scepticism their role requires.
The Audit Committee met three 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; and
• Consideration of the AIC Code, FRC Guidance
on Audit Committees and other regulatory
guidelines.
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.
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.
40
Significant Issues Actions to Address Issue
Amortised cost
measurement of
loans advanced
Loans advanced at the year-end, totalling £149.5 million (note 10), are measured at amortised cost. Loans advanced
make up a significant part of the consolidated statement of financial position and due to the nature of this balance, the
measurement is subject to estimation uncertainty.
The assumptions and estimates regarding the receipt and timing of scheduled and unscheduled payments of loans
advanced could significantly impact the net asset value of the Group. The specific areas of estimation uncertainties
encompass the impact of variations in both the amount and timing of expected cash flows for each loan measured at
amortised cost. In addition 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 also
subject to significant management judgements and estimates. The Audit Committee reviews the controls in place
around the loan models and is notified regularly by the Investment Manager of any changes to underlying assumptions
made in the loan models.
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.
Expected credit
losses on loans
advanced
The Group's loans advanced, which are measured at amortised cost, fall within the scope of IFRS 9's expected credit
loss (“ECL”) model. The assessment, recognition, and measurement of the ECL involves numerous assumptions and
judgments. The ECL is also subject to a high level of estimation uncertainty due to the forward-looking information
considered when assessing significant increases in credit risk and when measuring and recognising an ECL.
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, asset management and the role of the
Investment Adviser’s investment committee and the Investment Manager’s Board.
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 expected credit loss 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 ECL assessed for each loan advanced.
All existing loans advanced as at 31 December 2024 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 2024, one loan (accounting for 14.0 per
cent of the funded portfolio as at 31 December 2024), was classified as Stage 3, two loans were classified as Stage 2
and the remaining loans were classified as Stage 1. An impairment provision of £10,849,579 has been provided in these
accounts for the loan classified as Stage 3 as at 31 December 2024. No further expected credit loss provision has been
made in respect of the loans classified as Stage 2 and Stage 1.
Governance
Report of the Audit Committee
41
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 effectiveness of the audit process.
Similarly, feedback in relation to the
effectiveness 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. Adrian
Peacegood is currently serving his second
year of five as engagement partner.
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 remains 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.
42
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 controls report
that has been reviewed and reported upon by
the Administrator’s service Auditor regarding
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 2024, 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 2025 year end annual report.
Charlotte Denton | Audit Committee
Chairman
2 April 2025
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
38-42. Furthermore, the Board believes that
the disclosures set out on pages 2-25 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 2024, 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 2024, 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
2 April 2025
43
4444
Financial Statements
45
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 2024, 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 2024;
• 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 registered in Guernsey,
with 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 based upon the books
and records 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
• Amortised cost measurement of
loans advanced
• Expected credit losses (“ECLs”) on
loans advanced
MATERIALITY
• Overall group materiality: £4.4 million
(2023: £6.5 million) based on 2.25% (2023:
2%) of consolidated net assets.
• Performance materiality: £3.3 million
(2023: £4.9 million).
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the consolidated financial
statements. In particular, we considered
where the directors made subjective
judgements; for example, in respect of
significant accounting estimates that involved
making assumptions and considering future
events that are inherently uncertain. As in all
of our audits, we also addressed the risk of
management override of internal controls,
including among other matters, consideration
of whether there was evidence of bias that
represented a risk of material misstatement
due to fraud.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the
auditor’s professional judgement, were of most
significance in the audit of the consolidated
financial statements of the current period
and include the most significant assessed
risks of material misstatement (whether or
not due to fraud) identified by the auditor,
including those which had the greatest effect
on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts
of the engagement team. These matters, and
any comments we make on the results of
our procedures thereon, were addressed in
the context of our audit of the consolidated
financial statements as a whole, and in forming
our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified
by our audit.
46
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
Amortised cost measurement of loans advanced
Loans advanced at the year-end, totalling £149.5 million (note 10),
are measured at amortised cost and comprise 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,
the subsequent measurement is subject to estimation uncertainty.
The assumptions and estimates regarding the receipt and timing
of scheduled and unscheduled payments of loans advanced could
significantly impact the net asset value of the group and this is
considered to be a key source of estimation uncertainty as described
in note 2c of the consolidated financial statements.
The specific areas of estimation uncertainties encompass the impact
of variations in both the amount and timing of expected cash flows
for each loan measured at amortised cost.
Due to the level of estimation uncertainties and the significance
of the balance of loans advanced in the consolidated statement of
financial position, this was considered a key audit matter.
• We understood and evaluated the controls in place at the
Administrator, the Investment Manager, and the Investment
Adviser over the amortised cost measurement of the loans
advanced.
• 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.
• We tested the mathematical accuracy of the models used by
management to value the loans advanced at amortised cost
using the effective interest rate method. Additionally, we verified
a sample of the assumptions and inputs into the amortised cost
models by comparing them with the associated agreements and
other legal documentation.
• Back-testing procedures were conducted to support our
conclusions regarding the reliability of the cash flow forecasting
applied by the Investment Adviser.
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.
47
Key audit matter How our audit addressed the key audit matter
Expected credit losses on loans advanced
The Group's loans advanced, which are measured at amortised cost,
fall within the scope of IFRS 9's expected credit loss (“ECL”) model.
The assessment, recognition, and measurement of the ECL involve
numerous assumptions and judgments. The ECL is also subject to
a high level of estimation uncertainty due to the forward-looking
information considered when assessing significant increases in credit
risk and when measuring and recognising an ECL.
The specific areas of assumptions and judgments include significant
increases in the credit risk of a borrower, changes in the probability
of default, fluctuations in the valuation of underlying collateral and
the Loan-To-Value (LTV) ratio headroom, as well as the borrowers'
ability to execute their business plans and achieve projected financial
performance to meet contractual obligations.
Due to the level of estimation uncertainties, this was considered a
key audit matter.
• We understood and evaluated the controls in place relating to the
ECL assessment, recognition and measurement processes.
• We understood and evaluated the assumptions and judgements
made by the Investment Adviser in respect of the ECL for each
loan advanced which include:
°
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 LTV ratio headroom for each
of the loans;
°
inspecting the Investment Adviser’s application of its ECL criteria to
evaluate the appropriateness and completeness of the loans moved
between ECL stages;
°
recalculating a targeted sample of the Investment Adviser’s sensitiv-
ity analysis of the LTV 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 collat-
eral is held by the group for the loans advanced, and which underpin
the LTV considerations applied in the ECL modelling; and
°
inspecting a sample of compliance certificates signed by each
respective underlying borrower in respect of compliance with cove-
nants as at the year-end.
Based on the audit work described above we have nothing to report to
those charged with corporate governance.
48
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 registered 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 books and records 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 £4.4 million (2023: £6.5 million).
How we determined it 2.25% 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%
(2023: 75%) of overall materiality, amounting
to £3.3 million (2023: £4.9 million) for the
group financial statements.
49
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 £0.2 million (2023: £0.3
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.
50
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.
51
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 and Corporate Governance
Statement, 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;
52
• The directors’ explanation as to their
assessment of the group’s prospects, the
period this assessment covers and why the
period is appropriate; and
• The directors’ statement as to whether
they have a reasonable expectation that the
company will be able to continue in operation
and meet its liabilities as they fall due over
the period of its assessment, including any
related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement
regarding the longer-term viability of the
group was substantially less in scope than an
audit and only consisted of making inquiries
and considering the directors’ process
supporting their statements; checking that the
statements are in alignment with the relevant
provisions of the Code; and considering
whether the statement is consistent with the
consolidated financial statements and our
knowledge and understanding of the group
and its environment obtained in the course of
the audit.
In addition, based on the work undertaken as
part of our audit, we have concluded that each
of the following elements of the corporate
governance statement is materially consistent
with the consolidated financial statements and
our knowledge obtained during the audit:
• The directors’ statement that they consider
the Annual Report, taken as a whole, is fair,
balanced and understandable, and provides
the information necessary for the members
to assess the group's position, performance,
business model and strategy;
• The section of the Annual Report that
describes the review of effectiveness of risk
management and internal control systems;
and
• The section of the Annual Report describing
the work of the Audit Committee.
We have nothing to report in respect of our
responsibility to report when the directors’
statement relating to the company’s
compliance with the Code does not properly
disclose a departure from a relevant provision
of the Code specified under the Listing Rules
for review by the auditors.
OTHER MATTER
The company is required by the Financial
Conduct Authority Disclosure Guidance
and Transparency Rules to include these
consolidated financial statements in an annual
financial report prepared under the structured
digital format required by DTR 4.1.15R –
4.1.18R and filed on the National Storage
Mechanism of the Financial Conduct Authority.
This auditor’s report provides no assurance
over whether the structured digital format
annual financial report has been prepared in
accordance with those requirements.
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 a non-statutory opinion on
the consolidated financial statements in
accordance with auditing standards generally
accepted in the United States of America. We
have reported separately in this respect within
the Annual Report
.
Adrian Peacegood
For and on behalf of PricewaterhouseCoopers
Chartered Accountants and
Recognised Auditor
Guernsey, Channel Islands
2 April 2025
Financial Statements
Independent Auditor’s Report to the Members of
Starwood European Real Estate Finance Limited
53
OPINION
We have audited the accompanying
consolidated financial statements of
Starwood European Real Estate Finance
Limited and its subsidiaries (together “the
Group”), which comprise the consolidated
statements of financial position as of 31
December 2024 and 31 December 2023
and the related consolidated statements of
comprehensive income, of changes in equity
and of cash flows for the years then ended,
including the related notes (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
2024 and 31 December 2023, 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 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
The directors are responsible for the
preparation and fair presentation of the
consolidated financial statements in
accordance with International Financial
Reporting Standards 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 financial statements, the
directors are responsible for assessing
the Group’s ability to continue as a going
concern for at least, but not limited to,
twelve months from the end of the reporting
period, 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.
.
Financial Statements
Independent Auditor’s Report to the Directors of
Starwood European Real Estate Finance Limited (US GAAS)
Report on the audit of the consolidated financial statements
54
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 judgment 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
the directors, as well as evaluate the
overall presentation of the consolidated
financial statements.
• Conclude whether, in our judgment, 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 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
The directors are responsible for the other
information included in the annual report.
The other information comprises all the
information included in the Annual Report and
Audited Consolidated Financial Statements
but does not include the consolidated
financial statements and our auditor’s report
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 independent auditor’s report, including
the opinion, has been prepared for and only
for the directors and for no other purpose.
We do not, in giving these 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
2 April 2025
55
Financial Statements
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2024
| 1 January 2024 to | 1 January 2023 to | ||
| Notes | 31 December 2024 | 31 December 2023 | |
| £ | £ | ||
| Income | |||
Income from loans advanced | 10 | ||
Short term deposits interest income | |||
Net foreign exchange gains | 6 | ||
Total income | |||
| Expenses | |||
Net impairment loss on loans advanced | 10 | ||
Investment management fees | 3(a), 22 | ||
Audit and non-audit fees | 5 | ||
Administration fees | 3(b) | ||
Legal and professional fees | |||
Directors' fees and expenses | 4, 22 | ||
Other expenses | |||
Credit facility commitment fees | |||
Broker's fees | 3(d) | ||
Credit facility interest and amortisation of fees | |||
Total operating expenses | |||
Operating profit for the year before tax | |||
Taxation | 20 | ||
Operating profit for the year | |||
| Other comprehensive loss | |||
| Items that may be reclassified to profit or loss | 2(k) | ( | ( |
| Exchange differences on translation of foreign operations | |||
Other comprehensive loss for the year | ( | ( | |
Total comprehensive income for the year | |||
Weighted average number of shares in issue | 7 | ||
Basic and diluted earnings per Ordinary Share (pence) | 7 |
The accompanying notes form an integral part of these consolidated financial statements.
56
| As at | As at | ||
| Notes | 31 December 2023 | ||
| £ | £ | ||
| Assets | |||
Cash and cash equivalents | 8 | ||
Prepayments | 9 | ||
Revolving credit facility capitalised cost | 12 | ||
Financial assets at fair value through profit or loss | 11 | ||
Loans advanced | 10 | ||
Total assets | |||
| Current liabilities | |||
Trade and other payables | 13 | ||
Total current liabilities | |||
Net assets | |||
| Capital and reserves | |||
Share capital | 15 | ||
Retained earnings | |||
Translation reserve | ( | ( | |
Total equity | |||
Number of Ordinary Shares in issue | 15 | ||
Net asset value per Ordinary Share (pence) |
The accompanying notes form an integral part of these consolidated financial statements.
Financial Statements
Consolidated Statement of Financial Position
as at 31 December 2024
57
Year ended 31 December 2024
| Share capital | Retained | Translation | Total Equity | |
| £ | earnings | reserves | £ | |
| £ | £ | |||
Balance at | ( | |||
Shares redeemed | ( | ( | ( | |
Dividends paid | ( | ( | ||
Operating profit for the year | ||||
| Other comprehensive loss for the year | ( | ( | ||
Balance at | ( | |||
| Year ended 31 December 2023 | Share capital | Retained | Translation | Total Equity |
| £ | earnings | reserves | £ | |
| £ | £ | |||
Balance at 1 January 2023 | ( | |||
Shares redeemed | ( | ( | ( | |
Dividends paid | ( | ( | ||
Operating profit for the year | ||||
| Other comprehensive loss for the year | ( | ( | ||
Balance at 31 December 2023 | ( |
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 2024
58
Financial Statements
Consolidated Statement of Cash Flows
for the year ended 31 December 2024
The accompanying notes form an integral part of these consolidated financial statements.
| 1 January 2024 to | 1 January 2023 to | |
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| Operating activities: | ||
Operating profit for the year before tax | ||
| Adjustments: | ||
Net impairment loss on loans | ||
Income from loans advanced | ( | ( |
Short term deposits interest income | ( | ( |
Decrease in receivables and prepayments | ||
Decrease in trade and other payables | ( | ( |
Net unrealised gains on foreign exchange derivatives | ( | ( |
Net foreign exchange gains | ( | ( |
Net foreign exchange losses on foreign exchange derivatives | ||
Credit facility commitment fees | ||
Credit facility interest and amortisation of fees | ||
Currency translation difference | ||
Loan repayments and amortisation | ||
Interest income received | ||
Commitment and exit fee income from loans advanced | ||
Loans advanced | ( | ( |
Corporate taxes paid | ( | ( |
Net cash inflow from operating activities | ||
| Cash flows from investing activities | ||
Short term deposits interest income | ||
Net cash inflow from investing activities | ||
| Cash flows from financing activities | ||
Shares redemptions | ( | ( |
Dividends paid | ( | ( |
Repayments under credit facility | ( | |
Credit facility commitment fees paid | ( | ( |
Credit facility interest and amortisation paid | ( | |
Net cash outflow from financing activities | ( | ( |
Net (decrease) / increase in cash and cash equivalents | ( | |
Cash and cash equivalents at the start of the year | ||
Net foreign exchange losses on cash and cash equivalents | ( | ( |
Cash and cash equivalents at the end of the year |
59
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
1. GENERAL INFORMATION
was incorporated with limited liability in Guernsey
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,
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”).
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. During the years ended 2020, 2021 and 2022 the
Company bought back a total of 17,626,702 Ordinary Shares at
an average cost of 91.51 pence per share. These Ordinary Shares
were held in treasury until they were cancelled in June 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
119,761,309 shares (2023: 81,901,754 shares) for an aggregate
of £125,000,001 in 2024. As at 31 December 2024 the Company
had 193,929,633 shares (2023: 313,690,942 shares) in issue.
Further details and background is covered in the Corporate
Summary section of this report.
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 2024.
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 or 2024.
60
| 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 2024
61
62
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
63
64
| Reasonable | 31 December | 31 December | |||
| possible shift | 2024 | ECL | 2023 | ECL | |
| (absolute value) | £ | £ | |||
LTV | +25% (2023: +25%) | 120,677 | 172,755 | ||
LGD | +0.3% (2023: +0.3%) |
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
65
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.
66
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.
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
67
| 31 December | 31 December | |
| 2024 | 2023 | |
| £ | £ | |
Directors’ emoluments | 197,000 | 197,000 |
Other expenses | 2,279 | 7,739 |
199,279 | 204,739 |
4. DIRECTORS’ FEES
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.
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. In March 2024 the credit facilities available to
the Group (of £25 million) were cancelled by the Company and
their extension not pursued as the Company had sufficient cash
in reserve.
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.
68
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| Audit and non-audit fees expensed in the Consolidated Statement | ||
| of Comprehensive Income | ||
Audit of company | 118,003 | 135,000 |
Audit of subsidiaries | 274,330 | 128,376 |
Total audit | 392,333 | 263,376 |
Audit related assurance services (Interim review) | 28,350 | 27,000 |
Total assurance services | 28,350 | 27,000 |
Total fees expensed | 420,683 | 290,376 |
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
69
6. NET FOREIGN EXCHANGE GAINS / (LOSSES)
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Loans advanced gains - realised | 449,103 | 221,192 |
Loans advanced losses - realised | (2,310,327) | (724,358) |
Forward contracts gains - realised | 2,829,114 | 5,218,375 |
Forward contracts losses - realised | (8,500) | (334,112) |
Other gains - realised | 43,448 | 320,918 |
1,002,838 | 4,702,015 | |
Loans advanced gains - unrealised | 1,305,217 | 57,994 |
Loans advanced losses - unrealised | (1,795,936) | (3,236,599) |
Forward contracts gains - unrealised | 4,636,868 | 7,319,116 |
Forward contracts losses - unrealised | (4,617,267) | (7,032,573) |
(471,118) | (2,892,062) | |
531,720 | 1,809,952 |
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.
70
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Prepayments | 22,822 | 24,225 |
22,822 | 24,225 |
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Cash at bank | 506,395 | 20,673,973 |
Short term deposit | 45,179,967 | 43,163,671 |
45,686,362 | 63,837,644 |
71
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| UK | ||
Hotels, United Kingdom | 47,083,091 | 37,355,613 |
Industrial Estate, UK | 27,109,384 | 27,410,670 |
Hospitals, UK | 25,367,849 | 25,370,368 |
Life Science, UK | 16,087,880 | 15,923,105 |
Hotel, North Berwick | 15,144,986 | 15,241,403 |
Hotel, Scotland | - | 43,232,893 |
Hotel and Office, Northern Ireland | - | 9,099,325 |
| Ireland | ||
Office Portfolio, Ireland | 10,925,208 | 21,428,669 |
Hotel, Dublin | - | 20,332,167 |
| Spain | ||
Office Portfolio, Spain | 7,790,072 | 8,236,586 |
Three Shopping Centres, Spain | - | 29,276,457 |
Shopping Centre, Spain | - | 11,189,028 |
149,508,470 | 264,096,284 |
72
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Loans advanced at the start of the year | 264,096,284 | 432,459,966 |
Income from loans advanced | 18,522,158 | 31,923,037 |
Loans advanced (1) | 11,461,744 | 7,338,190 |
Impairment reversal on loans advanced | 143,478 | - |
Commitment fees received | (514,116) | (846,127) |
Exit fees received | (1,298,650) | (499,300) |
Foreign exchange losses | (2,351,944) | (3,681,770) |
Impairment loss on loans advanced | (10,849,579) | (3,476,360) |
Interest income received (1) | (20,338,875) | (32,199,782) |
Loan repayments | (109,362,030) | (166,921,570) |
Loans advanced at the end of the year | 149,508,470 | 264,096,284 |
Loans advanced at fair value | 155,403,126 | 275,556,353 |
| Discount Rate | Value calculated £ | 31 December 2024 |
| Value increase / (decrease) £ | ||
6.0% (fair value) | 155,403,126 | 5,894,656 |
7.4% | 152,935,395 | 3,426,925 |
7.9% | 152,062,018 | 2,553,548 |
8.4% | 151,199,872 | 1,691,402 |
8.9% | 150,348,755 | 840,285 |
9.4% (Carrying value) | 149,508,470 | - |
9.9% | 148,678,820 | (829,650) |
10.4% | 147,859,619 | (1,648,851) |
10.9% | 147,050,682 | (2,457,788) |
11.4% | 146,251,829 | (3,256,641) |
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
10. LOANS ADVANCED (CONTINUED)
73
| Notional contract | Fair values | |||
| 31 December 2024 | amount (1) | Assets | Liabilities | Total |
| £ | £ | £ | £ | |
| Foreign exchange derivatives | ||||
| Currency forwards: | ||||
Lloyds Bank plc | 49,537,976 | 1,996,273 | (983,468) | 1,012,805 |
Total | 49,537,976 | 1,996,273 | (983,468) | 1,012,805 |
| Notional contract | Fair values | |||
| 31 December 2023 | amount (1) | 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 |
| 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) | 264,096,284 | - |
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) |
74
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
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. In March 2024 the credit facilities available to the
Group (of £25 million) were cancelled by the Company as described in note 3(g) of these
financial statements.
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 2024, such costs had been fully amortised
(2023: £8,333).
The changes in liabilities arising from financing activities are shown in the table below.
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Borrowings at the start of the year | - | 18,863,204 |
Repayments during the year | - | (19,000,000) |
Interest paid during the year | - | (327,796) |
Credit facility amortisation of fees | - | 311,342 |
Interest expenses recognised for the year | - | 153,250 |
Borrowings at the end of the year | - | - |
75
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Audit fees payable | 383,513 | 206,866 |
Investment management fees payable | 364,757 | 672,075 |
Tax provision | 235,665 | 342,547 |
Administration fees payable | 196,087 | 82,556 |
Accrued expenses | 168,741 | 256,530 |
Commitment fees payable | - | 54,654 |
Directors' fees and expenses payable | - | 12,757 |
1,348,763 | 1,627,985 |
76
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| 31 December 2024 | 31 December 2023 | |
| Number of shares | Number of shares | |
| Ordinary Shares of no par value | 193,929,633 | 313,690,942 |
| Issued and fully paid | ||
Total Ordinary Shares | 193,929,633 | 313,690,942 |
Ordinary Shares | Number | £ |
Balance at the start of the year | 313,690,942 | 321,570,857 |
Shares redeemed in 2024 | (119,761,309) | (119,604,750) |
| Balance at the end of the year | 193,929,633 | 201,966,107 |
| Issue costs since inception | (8,289,989) | |
Net proceeds | 193,676,118 |
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 |
On 13 June 2023, the Board of the Company announced the cancellation of 17,626,702 shares
that were held in treasury.
77
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.
The Group paid the following dividends in respect of the year to 31 December 2024:
| Period to: | Dividend rate per | Net dividend | Payment date |
| Share (pence) | paid (£) | ||
31 March 2024 | 1.375 | 3,714,950 | 24 May 2024 |
30 June 2024 | 1.375 | 2,666,532 | 23 August 2024 |
30 September 2024 | 1.375 | 2,666,532 | 22 November 2024 |
31 December 2024 (1) | 1.375 | 2,666,532 | 28 February 2025 |
(1)
Declared on 24 January 2025 and paid on 28 February 2025 to shareholders on the register as at 7 February 2025.
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 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) | 1.875 | 5,881,705 | 23 February 2024 |
(1)
Declared on 25 January 2024 and 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.
The Group paid the following dividends in respect of the year to 31 December 2023:
78
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
17. RISK MANAGEMENT POLICIES AND PROCEDURES
The Group through its investment in whole loans, mezzanine loans and junior loans is
exposed to a variety of financial risks, including market risk (including market price risk,
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:
79
| 31 December 2024 | Danish Krone | Sterling | Euro | Total |
| £ | £ | £ | £ | |
| Assets | ||||
Loans advanced | - | 130,793,190 | 18,715,280 | 149,508,470 |
Financial assets at fair value through profit or loss | - | 1,012,805 | - | 1,012,805 |
Prepayments | - | 22,700 | 122 | 22,822 |
Cash and cash equivalents | (53) | 45,492,738 | 193,677 | 45,686,362 |
| Liabilities | ||||
Trade and other payables | - | (831,769) | (516,994) | (1,348,763) |
Net currency exposure | (53) | 176,489,664 | 18,392,085 | 194,881,696 |
| 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 profit or loss | - | 993,204 | - | 993,204 |
Prepayments | - | 24,225 | - | 24,225 |
Cash and cash equivalents | (45) | 47,350,920 | 16,486,769 | 63,837,644 |
| Liabilities | ||||
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 |
80
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
81
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| Floating rate | ||
Loans advanced (1) | 124,140,621 | 238,725,916 |
Cash and cash equivalents | 45,686,362 | 63,837,644 |
| Fixed rate | ||
Loans advanced | 25,367,849 | 25,370,368 |
| Total financial assets subject | 195,194,832 | 327,933,928 |
| to interest rate risk |
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| Floating rate | ||
Increase of 100 basis points (1) | 1,698,270 | 3,025,636 |
Decrease of 100 basis points | (1,698,270) | (3,025,636) |
82
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
83
| Total as at | Total as at | |
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Barclays Bank plc (rated: A1) | 341,241 | 20,654,384 |
ING Luxembourg, SA (rated: A1) | 164,416 | 18,321 |
Lloyds Bank plc (rated: A1) | 698 | 698 |
HSBC Bank plc (rated: A1) | 40 | 374 |
| Royal Bank of Scotland International | - | 196 |
| (rated: A1) | ||
| BlackRock Inc - Money Market Fund | 22,589,159 | 31,109,262 |
| (rated AA-) | ||
| Deutsche Bank - Money Market Fund | 22,590,808 | 12,054,409 |
| (rated A1) | ||
Total cash and cash equivalents | 45,686,362 | 63,837,644 |
| Stage 1 | Stage 2 | Stage 3 | Total as at | Total as at | |
| £ | £ | £ | 31 December 2024 | 31 December 2023 | |
| £ | £ | ||||
Net carrying amount (1) | 107,350,396 | 31,232,866 | 10,925,208 | 149,508,470 | 264,096,284 |
84
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| Up to 3 months | Between 3 and | Over 12 months | Total | |
| 12 months | ||||
| £ | £ | £ | £ | |
| Assets | ||||
Loans advanced | 15,144,986 | 60,171,009 | 74,192,475 | 149,508,470 |
Cash and cash equivalents | 45,686,362 | - | - | 45,686,362 |
| Liabilities and commitments | ||||
Loan commitments (1) | (6,159,251) | (10,902,785) | (5,974,547) | (23,036,583) |
Trade and other payables | (1,348,763) | - | - | (1,348,763) |
53,323,334 | 49,268,224 | 68,217,928 | 170,809,486 |
85
| Derivatives | Up to 3 months | Between 3 and | Over | Total as at |
| 12 months | 12 months | 31 December 2024 | ||
| £ | £ | £ | £ | |
| Lloyds Bank plc: | ||||
| Foreign exchange derivatives | ||||
Outflow (1) | (223,989) | (18,647,471) | - | (18,871,460) |
Inflow | 224,372 | 19,013,692 | - | 19,238,064 |
| 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) | (1,809,314) | (18,429,070) | (16,013,871) | (36,252,255) |
Trade and other payables | (1,627,985) | - | - | (1,627,985) |
71,589,373 | 61,707,548 | 156,756,767 | 290,053,688 |
| 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 (1) | (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 |
86
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
| Equity | ||
Equity share capital | 193,676,118 | 313,280,868 |
| Retained earnings and translation | 1,205,578 | 14,050,837 |
| reserve | ||
Total capital | 194,881,696 | 327,331,705 |
87
| Level 1 | Level 2 | Level 3 | Total | |
| £ | £ | £ | £ | |
| Assets | ||||
Investments at fair value through profit or loss | - | 3,826,628 | - | 3,826,628 |
Short term deposit 1 | 43,163,671 | - | - | 43,163,671 |
Total | 43,163,671 | 3,826,628 | - | 46,990,299 |
| Liabilities | ||||
Investments at fair value through profit or loss | - | (2,833,424) | - | (2,833,424) |
Total | - | (2,833,424) | - | (2,833,424) |
| Level 1 | Level 2 | Level 3 | Total | |
| £ | £ | £ | £ | |
| Assets | ||||
Investments at fair value through profit or loss | - | 1,996,273 | - | 1,996,273 |
Short term deposit 1 | 45,179,967 | - | - | 45,179,967 |
Total | 45,179,967 | 1,996,273 | - | 47,176,240 |
| Liabilities | ||||
Investments at fair value through profit or loss | - | (983,468) | - | (983,468) |
Total | - | (983,468) | - | (983,468) |
88
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| Total fair | Total carrying | ||||
| Level 1 | Level 2 | Level 3 | values | amount | |
| £ | £ | £ | £ | £ | |
| Assets | |||||
Loans advanced | - | - | 155,403,126 | 155,403,126 | 149,508,470 |
Total | - | - | 155,403,126 | 155,403,126 | 149,508,470 |
| 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 |
89
| 31 December 2024 | 31 December 2023 | |
| £ | £ | |
Operating profit before tax (Luxco, Luxco 3 and Luxco 4 only) | 270,338 | 643,358 |
Corporate Income Tax and Municipal Business Tax | 65,010 | 158,403 |
Net Wealth Tax | 40,050 | 40,282 |
Withholding Tax | - | 130,814 |
(Over)/Underprovisions related to prior years | (8,075) | 277,693 |
Taxation per Consolidated Statement of Comprehensive Income | 96,985 | 607,193 |
90
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 45 to 54,
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. Under IFRS, the accrual of interest is not
suspended when the collection of interest is less than probable or the collection of any
portion of the loan's principal is doubtful, however, under the US GAAP basis, although not
specially prescribed, the accrual of interest income is generally suspended.
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.
| Fees, expenses and other payments | Outstanding at | For the year ended |
| 31 December 2024 | 31 December 2024 | |
| £ | £ | |
| Directors’ fees and expenses | ||
John Whittle | - | 60,000 |
Shelagh Mason | - | 45,000 |
Charlotte Denton | - | 50,000 |
Gary Yardley | - | 42,000 |
Expenses | - | 2,279 |
| Investment Manager | ||
Investment management fees | 364,757 | 1,840,831 |
Expenses | - | 71,490 |
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
91
| 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 |
92
Financial Statements
Notes to the Consolidated Financial Statements
for the year ended 31 December 2024
| Dividends paid during | As at | |
| Shareholdings and | the year ended | 31 December 2024 |
| dividends paid | 31 December 2024 | |
| £ | Number of shares | |
Starwood Property Trust Inc. | 344,944 | 4,480,649 |
SCG Starfin Investor LP | 86,236 | 1,120,164 |
John Whittle | 1,278 | 16,602 |
Charlotte Denton | 1,677 | 21,788 |
Shelagh Mason | 4,258 | 55,305 |
Duncan MacPherson * | 9,435 | 122,559 |
Lorcain Egan * | 3,158 | 41,022 |
| Dividends paid during | As at | |
| Shareholdings and | the year ended | 31 December 2023 |
| dividends paid | 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 |
93
Loan | Related party co-lenders |
Hotels, United Kingdom | SEREDFI |
Office Portfolio, Spain | STWD |
Office Portfolio, Ireland | STWD |
23. EVENTS AFTER THE REPORTING PERIOD
Subsequent to 31 December 2024, the following loan amortisation (unscheduled) has
been received up to 2 April 2025
| Local currency | |
| Life Science, UK | £1,430,000 |
| Local currency | |
Hotels, United Kingdom | £47,334,280 |
Subsequent to 31 December 2024, the following loans have been repaid in full up to
2 April 2025
On 20 February 2025, the Company announced a compulsory redemption of 45,889,830
Ordinary shares at a price of £1.0024 per share.
On 24 January 2025, the Directors declared a dividend in respect of the fourth quarter of
2024 of 1.375 pence per Ordinary share payable on 28 February 2025 to shareholders on
the register at 7 February 2025.
In February 2025, the £4,036,499 unfunded commitment on Life Sciences, UK
was cancelled.
94
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. As stated by FRC, where an APM cannot be reconciled directly to the financial
statements (e.g. financial ratios), they expect companies to provide calculations (unless not
practical). The APMs included in the financial statements, are unaudited and outside the
scope of IFRS and it is not practical to provide calculations. We have set out the calculation
mechanism as below:
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
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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. However, it has been our general experience that loans tend to repay
sooner 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”.
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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 or loan extensions).
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.
97Photo: Connie Zhou
Further Information
Corporate Information
Directors
John Whittle, Chairman
Shelagh Mason
Charlotte Denton
Gary Yardley
(all Non-Executive, Independent and 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
2nd Floor
Lefebvre Place
Lefebvre Street
St Peter Port
GY1 2JP
Guernsey
Sole 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 4BZ
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
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