SWEF: December 2017 Factsheet

29 January2018

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Starwood European Real Estate Finance Limited: Quarterly Factsheet Publication

Starwood European Real Estate Finance Limited (the 'Company') announces thatthe factsheet for the fourthquarter ended on 31 December2017is available at:

www.starwoodeuropeanfinance.com

Extractedtext of thecommentary is set out below:

'Investment Portfolio at 31 December2017

As at 31 December2017, the Group had 16investments and commitments of £399.5million as follows:

Transaction	Sterling equivalent balance (1)	Sterling equivalent unfunded commitment (1)
Centre Point, London	£25.4m	-
Industrial Portfolio, UK	£25.5m	-
Hospitals, UK	£25.0m	-
Hotel, Channel Islands	£26.9m	-
VardePartners mixed portfolio, UK	£9.2m	-
Mixed use development, South East UK	£10.5m	£2.7m
Regional Hotel Portfolio, UK	£45.9m	-
Junior notes, UK real estate loans	£21.8m	-
Total Sterling Loans	£190.2m	£2.7m
Residential Portfolio, Cork, Ireland	£5.3m	-
Residential Portfolio, Dublin, Ireland	£6.8m	-
Logistics, Dublin, Ireland	£13.1m	-
Hotel, Barcelona, Spain	£40.9m	-
School, Dublin, Ireland	£16.8m	-
Industrial Portfolio, Eastern Europe	£60.9m	-
Shopping Centres, Spain	£31.0m	£8.7m
Office building, Paris	£23.1m	-
Total Euro Loans	£197.9m	£8.7m
Total Portfolio	£388.1m	£11.4m

(1) Euro balances translatedto sterling at period endexchange rates.

Dividend

On 26 January 2018the Directors declared a dividend of 1.625 pence per Ordinary Share (annualised 6.5 pence per Ordinary Share) in relation to the fourthquarter of 2017.

Portfolio activity

As at 31 December2017, the average remaining maturity of the Group's £388.1million loan book was 3.1years. The Group had £11.8million of cashwith £11.4million of commitmentsto fund.The Group had drawn £13.3 million on its available credit facilities. The gross annualised leveredreturn of the invested loan portfolio is 7.7per cent.

The following portfolioactivity occurred in the fourthquarterof 2017:

Repayment: UK Regional Budget Hotel Portfolio: The Group received full repayment of the £75 million loan following a successful refinancing of the portfolio by the owner. In the September factsheet the Company indicated that it was expecting further repayments in the final quarter of the year and this was one of the loans we had anticipated would be repaid.

New Loan: Spanish Shopping Centres: On 24 November 2017, the Group closed a EUR44.63million,five-year floating rate whole loan secured by threeshopping centres in Spain. The loanwasmade available to fund an initial acquisition advance along with capex fundingto support the sponsors' proven retail repositioning capability to make further investment in the properties. The properties are well-anchored, dominate their catchmentareas and are positioned to benefit from the sponsors' active asset management strategy.

New Loan: Regional Hotels On 20 December 2017 the Group closed on a £45.87 million mezzanine loan secured by a well-invested portfolio of geographically diversifiedmid-rangehotels in strong regional UK cities.

New Loan: Junior notes, UK Real estate loans: On 22 December 2017 the Group acquired £21.77 million junior notes linked to the performance of a portfolio of high quality UK real estate loans owned by a major commercial bank. The underlying reference loan pool is secured by an institutional quality, well-diversified pool of commercial real estate assets with an average LTV of less than 50 per cent.

New Loan: Office, Paris:On 22 December 2017, the Group subscribed to a EUR26 million note issuance, the proceeds of which were used to finance an office building in suburban Paris.

Whilst the Group had material cash for parts of the quarter, anumber of the loans which have been repaid during the year benefitted from prepayment protection in their early years providing a level of income protection whilst in that protected period. This income allows the Groupto mitigate cash drag for periods of time during which the Groupreinvests the proceeds from repayments.

Following the new loan activity in the last quarter theGroupremains substantially fully invested. The Investment Adviser is reviewing multiple lending opportunities and several opportunities are in execution. The Group expects to be able to utilise the credit facilities available to it in the near future and as a result increase the levered return on the invested portfolio.

Credit facilitiesavailable to the Group

On 18 December 2017,the Group entered into a new £64 million secured borrowing facility (the 'Secured Facility'). The Secured Facility provides for additional flexibility and optionality for the Group to implement its investment strategies. The Secured Facility is a five-year revolving credit facility allowing both for term financing of whole loans and additional capacity to bridge syndication strategies.

Previously the Group usedits £50 million revolving credit facility with Lloyds to manage new investments, loan repayments and equity raising. Whilst this facility continues to be extremely useful, the Secured Facility will provide additional investment and operationalflexibility. The longer term nature of the Secured Facility will allowthe Group to flexibly apply longer-term leverage to enhance returns on whole loans which would otherwise generate returns lower than the Group's targets,without the cost and time requirements of syndicatingan A-Note. Alternatively,the facility could be used to provide a backstop financing to an A-Note syndication where the Group is underwriting a whole loan with the intention of syndicating an A-Note. This allows time to effect a sale without suffering from reduced returns in the interim period. The Secured Facility may also be used in conjunction with the Lloyds facility to manage liquidityand repayment risk and also as a bridge to an equity raise.

Commentary

2017 was generally seen as a year of two halves for commercial real estate lending activity, with market participants reporting a lower volume of lending prior to the summer break followed by a very active final quarter. According to Real Estate Capital, commercial real estate loan syndication volumes were down in the first half of the year by 25 per cent year on year,despite underlying investment market volumes being up. Sentiment changed after the summer and during the final quarter of the year we frequently heard that borrowers were struggling to get traction on new loans because lenders were loaded up with existing transactions in execution and so they had little further capacity to take on more lending mandates. We also saw issues with capacity amongst financing lawyers, valuersand other advisers to cope with the requests in the market. The Group had a good start to the year with £115.5million of new investments making it the highest half oneorigination volume for the Group. We saw a similar pattern to the market in the second half of the year reflected in our origination with an additional fournew loans with a total commitmentof £130.3million all being made in the month from the end of November to end of December also making it the largest new origination volume for the full year for the Group.

On the underlying commercial real estate market side despite the continuing BREXIT uncertainties, there has been increased volume in the UK market with a total of £26 billion of London commercial real estatetransactions in 2017 versus £22 billion in 2016 and £62 billion versus £52 billion for the UK as a whole according to PropertyData. Londonstilltops the table for global real estate investment in 2017 with the next largest contributor of Hong Kong at only £16 billion and Manhattan next at £12.4 billion. The average yield is also down by 28bps for the UK as a whole and 19bps for London. Recent data on London office leasing activity has also been strong, according to Savills 2017 was the second highest year of take-up for the West End and the fourth highest take-up for the City since 2000.

There has been an increase in the number of participants in the loan brokerage market and the number of brokered loans. Loan brokers have traditionally been a large part of the market in the U.S. but until recently have been a small part of the market in Europe. We believe this growth reflects a more diverse lender universe where it is harder for borrowers, especially those who access the market less frequently, to understand the market and so they are increasingly using brokers to help navigate the market to source debt. One example is HFF, a large player in the U.S. who have set up in Europe since the end of 2016 where the Group was the lender to their first European loan. We are also seeing increased volume coming through from the second tier brokerage teams at both established real estate services firms and also from an increasing group of smaller, often one-man brokers.

We continue to see anomalies in loan pricing and terms around Europe. An example from CBRE European debt map is that Prague prime office is more competitive than Oslo and London. This is both from a higher LTV at 70 per centversus 60per centand 55per centrespectively and pricing of 100-125bps versus 150bps and 140bps respectively. On the face of it this is counter intuitive given a lower country credit rating and a smaller, less liquid market, however there are many dynamics including the size and regulatory environment for banks, the level of cross-border lending and currency considerations which create these anomalies.

Overall the more fragmented market and the market dynamics highlighted above continue to offer the Groupgood opportunities with our flexible mandate between jurisdictions, real estate asset classes and capital structure. Looking into 2018 we start witha robust pipeline of new opportunities which has similar themes to previous investments. The UK, Ireland and Spain remain the jurisdictions that provide the most interesting opportunities for the Group. Whole loans are now are larger part of the book and we expect to see this continue into 2018.

Share Price / NAV at 31 December2017

Share price (p)	109.50
NAV (p)	102.17
Premium/ (discount)	7.2%
Dividend yield	5.9%
Market cap	£410.6m

Key Portfolio Statistics at 31 December2017

Number of investments	16
Percentage of currently invested portfolio in floating rate loans	75.2%
Invested Loan Portfolio unlevered annualised total return (1)	7.5%
Invested Loan Portfolio levered annualised total return (2)	7.7%
Weighted average portfolio LTV - to Group first £ (3)	14.5%
Weighted average portfolio LTV - to Group last £ (3)	63.2%
Average loan term (stated maturity at inception)	4.2years
Average remaining loan term	3.1years
Net Asset Value	£383.1m
Amount drawn under Revolving Credit Facility (excluding accrued interest)	£13.3m
Portfolio value (including accrued income)	£392.1m
Cash	£11.8m
Other net assets/ (liabilities) (including hedges)	-£7.5m
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(1)Calculated on amounts outstandingat the reporting date, excluding undrawn commitments, and assuming all drawn loans are outstanding for the full contractual term. 13of the loans are floating rate (partially or in whole and some with floors) and returns are based on an assumed profile for future interbank rates but the actual rate received may be higher or lower. Calculated only on amounts funded at the reporting dateand excluding committed amounts and cash un-invested. The calculation excludes the origination fee payable to the Investment Manager.

(2)The levered annualised total return is calculated as per the unlevered return but takes into account the amount of leverage in the Group and the cost of that leverageat current LIBOR/EURIBOR.

(3) 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 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 Centre Point, the Irish School, Dublin and the mixed use development, south east UK, the calculation includes the total facility available and is calculated against the assumed market value on completion of the project.

Remaining years to contractual maturity*	Value of loans(£m)	% of invested portfolio
0 to 1 years	25.4	6.5
1 to 2 years	50.5	13.0
2 to 3 years	107.6	27.7
3 to 5 years	179.6	46.3
5 to 10 years	25.0	6.5

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

Country	% of invested assets
UK - Regional England	32.4
UK - Central London	9.6
Hungary	12.9
Spain	18.5
Republic of Ireland	10.9
Channel Islands	6.9
Czech Republic	2.8
France	6.0

Sector	% of invested assets
Hospitality	30.0
Light Industrial	22.7
Residential for sale	6.8
Healthcare	6.4
Retail	12.1
Education	4.3
Office	9.6
Logistics	3.7
Residential for rent	3.1
Other	1.3

Loan type	% of invested assets
Whole loans	73.8
Mezzanine	20.6
Other debt instruments	5.6

Loan type	% of invested assets*
Sterling	49.0
Euro	51.0

*the currency split refers to the underlying loan currency, however the capital on all non-sterling exposure is hedged back to sterling.'

For further information, please contact:

Duncan MacPherson

Starwood Capital

T [phone]

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 Companyis 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.