Starwood Eur Regulatory News (SWEF)

19 June 2020

Starwood European Real Estate Finance Limited: Portfolio Update and Appointment of Corporate Broker and Financial Adviser

New Investment

Starwood European Real Estate Finance Limited (the "Company" and, together with its subsidiaries, the "Group") is pleased to announce that on 17 June 2020, the Group closed an investment in the funding of a €71.9 million, 36 month floating rate senior loan secured by a portfolio of industrial/logistics assets in the UK and Germany. The investment has been made alongside Starwood Property Trust, Inc (through a wholly owned subsidiary) with the Group participating in €20 million (27.8 per cent) of the senior loan amount. The Group expects the transaction to generate attractive risk-adjusted returns, in line with its stated investment strategy.

Portfolio Update

Following closing of the new investment noted above, the Group has approximately £462 million of total loans advanced across 19 investments (as of 18 June 2020) with approximately £68 million of unfunded commitments. The average loan to value across the portfolio remains at approximately 62 per cent representing a strong equity cushion. Following the funding of the new loan the Group has approximately £34m of net debt (approximately 8 per cent of Net Asset Value). All loan interest up to the date of this release has been paid in full and on time and future interest payments are expected to be paid in full based on the forecast gradual continued easing of lockdowns across the UK and Europe.

The Group's largest exposure by asset class is hospitality at 33 per cent. As previously announced, the Group's largest hospitality exposure (Hotel, Dublin, Ireland) which equates to 29 per cent of the total hospitality exposure has been significantly de-risked by the signing in March 2020 of a licence with the Irish Health Service Executive (the Irish public health service provider) to assist in delivering additional accommodation capacity related to managing the Covid-19 outbreak.

Of the remaining hospitality exposure, 35 per cent represents three hotels located in regional England and Scotland that are scheduled to re-open during July 2020 in accordance with government guidelines. 85 per cent of the UK's 2019 tourism spend was generated by domestic UK visitors (source: STR, Tourism Economics, WTTC) and these hotels are attractively located and are predominantly leisure-focused hotels. As such, the Group's Investment Adviser expects that while operations may continue to be disrupted, they will benefit from increased UK domestic demand for staycations this year. These hotels will also benefit from a comprehensive planned refurbishment programme during the coming winter months, meaning that they will re-open during 2021 with a stronger offering and new branding which the Group's Investment Adviser considers will place them in a robust position to recover from Covid-19 related market disruption. Interest reserves are a standard structural feature across all three of these loans and interest is expected to be paid on time throughout the period through to completion of the refurbishment projects and thereafter.

The majority of the remaining hospitality exposure represents a significant refurbishment project (25 per cent) where interest capitalises until approximately six months following project completion expected in late Q3 2020 and currently has no impact on the operating cash flows of the Group.

The Group's office exposure represents 23 per cent of total loans advanced. The Group's exposure is well diversified across city centre and suburban office markets but with a strong focus on two core markets. 51 per cent of the Group's office exposure is located in London and Dublin with 49 per cent spread across city centre and suburban office markets in Spain, Germany, the Netherlands and Finland. So far rent collections have been robust with in excess of 91 per cent of contracted rent collected year to date[1]. These assets, where currently income producing, have robust stabilised income profiles, displaying a weighted average interest cover ratio[2] in excess of two times.

Loans on assets under construction or under renovation represent 22 per cent of the Group's total loans advanced. All of the construction sites in the portfolio are currently open and operating. While most European markets experienced Covid-19 related government-mandated shutdowns, 62 per cent of the Group's ground up construction / heavy refurbishment exposure is located in England where construction sites were permitted to remain open, albeit under strict social distancing measures and therefore these sites have been less impacted than other markets. All construction projects being funded are adequately capitalised with financially strong and committed sponsors actively engaged in delivering underwritten business plans. Interest is either capitalised or cash paid and there are no forecast unfunded cost overruns related to development costs to complete projects. The Investment Adviser remains confident in the construction loan business plans and considers that a significant cushion to real estate collateral value exists to protect the Group's position.

The Group's exposure to retail is limited to 13 per cent of total loans advanced. The largest exposure in this asset class is represented by loans secured against four Spanish shopping centres equating to 83 per cent of the retail exposure. These assets are regionally dominant centres that have now all re-opened following the lifting of lockdown regulations in Spain in late May and early June. While this asset class is experiencing significant headwinds, this has been particularly so in the US and UK where shopping centre densities are significantly higher than that of Spain. Early indications of post-Covid retail activity in Spain are positive with footfall since re-opening tracking at approximately 69 per cent of 2019 levels. This is considered a strong performance given that key attractions such as cinema anchors and leisure areas are yet to re-open. All interest has been paid on time on these loans.

Appointment of Corporate Broker and Financial Adviser

The Board of Directors is pleased to announce the appointment of Jefferies International Limited to act as the Company's sole broker and financial adviser with immediate effect.

The Company looks forward to releasing its quarterly factsheet during July 2020.

For further information, please contact:

Notes:

Starwood European Real Estate Finance Limited is an investment company listed on the main market of the London Stock Exchange with an investment objective to provide 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 wider European Union's internal market. www.starwoodeuropeanfinance.com.

The Group is the largest London-listed vehicle to provide investors with pure play exposure to real estate lending.

The Group's assets are managed by Starwood European Finance Partners Limited, an indirect wholly-owned subsidiary of the Starwood Capital Group.

[1] Rent collections refer to only office exposures of loans advanced, with the exception of the Mixed Portfolio Europe whose largest asset class is office but the portfolio also includes some industrial and retail income.

[2] Interest cover ratio in excess of 2 times is based on loans whose majority sector exposure is office and is based on current contracted rent.