IERE.L Regulatory News (IERE)

17 December 2010

INVISTA EUROPEAN REAL ESTATE TRUST SICAF

FULL YEAR RESULTS FOR 12 MONTHS ENDED 30 SEPTEMBER 2010

INVISTA EUROPEAN REAL ESTATE BENEFITS FROM STABILISATION OF PROPERTY MARKETS

The Invista European Real Estate Trust SICAF (the "Company"/ "Group") has today announced its results for the year ended 30 September 2010.

Financial Highlights

·; Property assets of €515.7 million (30 September 2009: €532.9 million) following disposals of €26.0 million. Portfolio now comprises 43 properties with over eighty five per cent in the two main European markets, France and Germany

·; Portfolio valuation increased by 0.3% on a like for like basis over the year

·; Adjusted NAV of €0.54 per share (30 September 2009: €1.12 per share), reduction principally due to the dilutive effects of the capital raise on 30 December 2009

·; Loss before tax €1.1 million (30 September 2009: €133.8 million)

·; Loss per share of €0.00016 (30 September 2009: €1.11)

·; Drawn down debt facilities of €343.7 million resulting in a loan-to-value ratio of 66.6% (30 September 2009: 75.1%). The Company has repaid over €100 million of borrowings over the last two years

·; Group cash of €34.3 million (excluding tenants deposits and escrow amounts) post year end, providing the potential to generate additional returns, either through investing in the capital structure and/or the property portfolio

Operational highlights

·; Progress in terms of delivering on three strategic objectives:

o Strengthened balance sheet following capital raise in December 2009

o Maximised cash flow through maintaining strong income returns and reducing operating costs

o Borrowings reduced and more favourable debt terms have contributed towards resetting the Company's capital structure

·; One asset acquired, the previously committed property in Girona, Spain for €10.4 million

·; Five properties sold for €27.4 million at prices, on average, 3.9% above the prevailing valuation and post period end, one asset French asset disposed of at a price 14.6% above September 2010 valuation

·; Void levels stabilised at circa 8.4% of income at year end and will reduce to 7.5% as a result of letting office accommodation in France

·; Lease lengths improved to a weighted average of 6.22 years as at 30 September 2010 (30 September 2009: 6.06 years)

Commenting, Tom Chandos, Chairman of the Invista European Real Estate Trust, said:

"As the economic recovery gains more momentum, property returns are expected to improve. The Investment Manager has identified France and Germany, currently our two main markets, as attractive prospects for above-average property performance. Evidence from recent sales, and the active asset management of our property portfolio, confirms that these markets offer the right balance of liquidity, transparency, income performance, low volatility, and potential for capital growth.

"However, given the uncertain economic outlook, we will continue to manage our investments actively, reduce borrowings, and control costs. The emphasis will remain on mitigating risk, both at the property level and within the capital structure. The combination of stable property valuations and additional working capital provides a sound basis from which to push ahead with these initiatives."

For further information:

Tony Smedley / Chris Ludlam

Invista Real Estate Investment Management 020 7153 9345

Dido Laurimore / Olivia Goodall

Financial Dynamics 020 7831 3113

Company Summary

As at 30 September 2010, Invista European Real Estate Trust SICAF (the "Company") and its subsidiaries (together the "Group") held a diversified real estate portfolio comprising 43 commercial properties across seven Continental European countries. The combined aggregate value of these properties was €515.7 million1.

The long term investment objective of the Company is to provide shareholder returns through investing in a diversified commercial real estate portfolio in Continental Europe with the potential for income and capital growth. The geographical focus of the Group is France and Germany due to the relative stability, transparency and liquidity of these markets.

Financial Summary

v Net Asset Value2 increased during the year from €128.0 million to €139.9 million

v Net Asset Value2 per share decreased by 52.0% to €0.54 mainly due to the dilutive effects of the capital raise

v On a like for like basis adjusting for the gross capital raise of €32.5 million from the issuance of 145.7 million of ordinary shares, Net Asset Value per share decreased by 13%

v Loss per share of €0.000163

Sources: Invista Real Estate Investment Management; Datastream

1 Direct property valuation includes €0.5 million in respect of one asset in France which was sold in November 2010.

2 NAV is calculated using International Financial Reporting Standards and adjusted to add back the change in fair value of the warrants and deferred tax.

3 Loss for the period divided by the weighted average number of ordinary shares in the year.

4 €:£ exchange rate used was €1.161 as at 30 September 2010; €1.091 as at 30 September 2009.

5 The NAV for preference share is equal to the nominal value plus accrued interest divided by the total number of preference shares.

6 Current Liabilities exclude banking facilities.

Performance Summary

Property performance

Note: The company disposed of 5 properties valued at €26.0 million during the year

Summary consolidated income statement

Earnings

Bank borrowings

Estimated annualised total expense ratio 3

1 As at 30 September 2009 the value of the property assets includes assets held for sale of €15.4m.

2 Share price converted to Euro at exchange rate of €:£ of 1.161 prevailing at 30 September 2010 and 1.091 prevailing at 30 September 2009. During the 2010 and 2009 financial years no ordinary dividend was paid.

3 The TER reflects the total of all operating costs associated with running the Group, including the Investment Manager's annual management charge, but excluding any costs associated with the day to day maintenance of the assets.

4 These calculations are presented as a percentage of average shareholder's funds over the period.

Chairman's Statement

The stabilisation of European property markets over the last year has given investors and the Company the opportunity to take stock and adapt their investment strategies. The continental markets gained value, led by France and Germany, in which the Company holds over eighty five per cent of its property investments. The return of gentle growth in the continental markets over the last year provided an appropriate context for the Company to strengthen its balance sheet and build the foundations for future growth.

However, it is income returns, rather than capital growth, that have driven performance in the property markets for some time, and market forecasters expect income to remain the primary source of performance for at least the next year. Income is therefore likely to continue to drive the Company's investment and asset management activity in the medium term. While there remain downside risks to economic growth and market performance, the Board is optimistic that when the economy recovers and market returns remain positive and stable, the Company will be in a position to resume dividend payments.

Results

During the year, the Company successfully acted in line with its three strategic objectives - to strengthen the balance sheet, maximise cash flow and reset the capital structure. The Company has a stronger balance sheet after a capital raise that concluded on 30 December 2009 at which point the Company also reduced its borrowings and negotiated more favourable terms. It also succeeded in maintaining strong income returns and stable property valuations throughout the year. Together, these factors contributed to a strengthened foundation for the Company, allowing it to access growth in its target markets.

The Company's Adjusted NAV on 30 September 2010 was €0.538 (46.4p) per share. This was down from the previous year's result of €1.12 (103p) per share, due principally to the dilutive effects of the capital raise of €0.51 (50p) per share and further reductions caused by the mark-to-market value of the Company's interest rate and FX swaps of €0.02 (2p) per share. It was pleasing to note that after nine consecutive quarters of property valuation declines, the market stabilised during the year, and the portfolio increased in value on a like-for-like basis by a total of 0.3% over the final three quarters.

Balance Sheet

On 30 September 2010, the Company had drawn down debt facilities of €343.7 million resulting in a loan-to-value ratio of 66.6%. The Company has repaid over €100 million of borrowings over the last two years, which, when combined with the renegotiated terms, has significantly reduced the cost of servicing its debt. The Company agreed improved debt terms on 12 January 2010, giving it substantial headroom on debt covenants, yet the Company still aims to reduce its borrowings to achieve an LTV of 60%.

The Company's interest rate swaps remain at a weighted average of 4.08% against a current market rate of approximately 1.75%, which reduces the Company's free cash flow. The swaps' negative mark-to-market valuations will unwind as they approach maturity in December 2013, which will strengthen the Company's NAV. In the meantime, we will continue to monitor the debt capital markets to take advantage of any opportunities that may exist to access lower borrowing costs.

The Group had €34.3 million in cash as at 30 September 2010, increasing to €39.3 million post quarter end following the financing of the Girona investment. This additional cash provides the potential to generate additional returns, either by investing it in the capital structure and/or the property portfolio. A significant proportion of this cash is however needed for working capital and other operating requirements but to date surplus cash has been retained as a strategic asset given the Board's concerns about the slow economic recovery and relatively weak occupational demand for property in the Eurozone. The Group decided during the year to hold £15.4 million of cash in Sterling as a partial hedge against a weaker Euro and the redemption of the preference shares in 2016.

Dividend Policy

The Board is committed to resuming the payment of dividends on ordinary shares as soon as possible, but wishes to ensure that any such dividend is sustainable over the long term. While good progress has been made in 2010 in working through the strategic objectives of the Company, the Board remains cautious about economic conditions and their impact on occupational markets and the earnings of the Company. The decision to resume dividends will be linked to the Company's performance and our success in further reducing borrowings and debt service costs.

Investment Manager

On 12 October 2010, Invista Real Estate Investment Management Holdings plc ('Invista PLC'), parent company of Invista Real Estate Investment Management Limited (the 'Investment Manager'), announced that material fund management contracts run for Lloyds Banking Group PLC ('the HBOS Contracts') had been terminated on 12 months notice. These contracts represented £2.4 billion of Invista's total assets under management of £5.4 billion and approximately £5.3 million of total revenue of £13.7 million for the six months to 30 June 2010.

Invista PLC also announced that without the revenue generated from the HBOS Contracts, the interests of both clients and shareholders of Invista PLC would be best served through an orderly realisation of value from Invista's assets, including the Investment Manager's asset management business, with the proceeds of such realisations returned to shareholders in due course.

The Company also issued a statement on 12 October 2010, stating that the Board of the Company had received assurances from Invista regarding the continuing quality of the investment management services to be provided. The Board will take all necessary steps to secure the stability and continuity of the management of the Company's assets by the current team, for which the Board has a high regard. It is therefore engaging proactively in discussions with Invista PLC in order to achieve an outcome in the best interests of the Company's shareholders.

The Board will make a further announcement if any developments occur that are material to the Company's shareholders.

Property Portfolio

At the time of writing, twelve months has passed since the trough of a deep recession across Europe, and six months since the approval of an unprecedented aid package to support the Greek economy. Although the outlook remains uncertain, not least following the more recent financial package provided to Ireland, it is nevertheless encouraging that we can now look back on the recent stabilisation of the Continental European property market. ,

On 30 September 2010, the Company owned a diversified portfolio of 43 commercial property investments, predominately located in our core markets, France and Germany.

The value of our property portfolio stabilised during the year, partly as a result of an improved investment market, but primarily thanks to the attractive income return profile and the positive effect of asset management initiatives. The Investment Manager believes that active management potential, mid-market rents, and relatively low capital values exhibited by the Company's portfolio, all provide a sound basis from which to pursue value-enhancing initiatives. The Company will also undertake further sales to reduce debt and associated costs.

Rental income is likely to dominate total returns from property over the coming year. Accordingly, the income performance of the portfolio remains a key priority for the Company. Void levels within our portfolio stabilised at around 8% of income, and will reduce after the year end, as tenants have signed new leases. Lease lengths have also improved over the year, to a weighted average of 6.22 years as at 30 September 2010 from 6.06 years in 30 September 2009. All of the Company's leases are index-linked, which provides inflation-proofing characteristics, the potential for growth, and mitigates volatility. Through careful cost management our aim is to ensure that property income returns contribute as much as possible to the net earnings of the Company.

Outlook

The Board recognises and acknowledges the support of the Company's shareholders and new investors in participating in the capital raise earlier in the year. This enabled the Company to take a positive step forwards and stabilised the balance sheet.

As the economic recovery gains more momentum, property returns are expected to improve. The Investment Manager has identified France and Germany, currently our two main markets, as attractive prospects for above-average property performance. Evidence from recent sales, and the active asset management of our property portfolio, confirms that these markets offer the right balance of liquidity, transparency, income performance, low volatility, and potential for capital growth.

However, given the uncertain economic outlook, we will continue to manage our investments actively, reduce borrowings, and control costs. The emphasis will remain on mitigating risk, both at the property level and within the capital structure. The combination of stable property valuations and additional working capital provides a sound basis from which to push ahead with these initiatives.

Tom Chandos

Chairman

Invista European Real Estate Trust SICAF

16 December 2010

Investment Manager's Report

Over the last year the property portfolio performance was driven largely by stabilising property values. The recovery in European property valuations was fragmented across countries and sectors, but it was led by France and Germany, where over eighty five per cent of the Company's property assets are located. Valuations within the portfolio were supported by the strength and relative stability of income returns, which resulted from significant activity focused upon re-negotiating leases and letting up vacant accommodation.

Mitigating risk within the property portfolio and in the capital structure were also key themes over the financial year. Our success in securing longer term income, reducing borrowings and cutting operational costs all contributed to a stronger balance sheet and have provided the Company with a more stable platform from which to grow.

Given the current economic climate, it is difficult to predict anything other than a slow and uneven recovery, and we expect occupational markets to remain fragile into 2011. As a result property valuations may remain depressed, emphasising the significance of income returns. Despite the uncertain outlook, the yield premium from property over fixed-income remains very attractive and, all things being equal, investor allocations to property can be expected to increase over time.

The Market

The return of growth in the European economy over the past 12 months, reflected in a GDP rise of 1.9% (source: Eurostat, cumulative change in 12 months to end Q2 2010), has been beneficial for commercial property markets. Capital values in Continental Europe stabilised during the second quarter (source: CB Richard Ellis European Valuation Monitor Q2 2010), and have even begun to increase in some countries, particularly at the prime end of the market. These trends have helped to underpin the more positive performance of the Company's property portfolio over the past year.

The Company remains mindful of the risks posed to future economic growth in Continental Europe by structural and cyclical economic factors and their potential impact on property portfolio performance. However, downside risks are currently focused on the most indebted countries at Europe's periphery, including Ireland and the south, where structural issues remain to be addressed and culminated during November in the Irish government requesting financial assistance from the International Monetary Fund and European Union. By contrast, across the "core" of Belgium, France, Germany and Netherlands, where the majority of the Company's properties are located, the recovery of the economy and property market has been stronger and the risks to future growth are more cyclical than structural.

After the credit crunch in 2008 investment performance across European property markets was highly correlated as valuations decreased in spite of very limited transactional evidence in all sectors. Looking forward, we expect valuation performance to diverge in favour of countries and sectors that are likely to see the highest levels of investment activity. France and Germany remain by far the largest and most liquid property markets in Continental Europe and we expect investors, who seek a combination of secure income and opportunities to add value through asset management, to focus on these markets over the medium term.

Property Portfolio

As at 30 September 2010, the Company owned a portfolio of 43 assets valued at €515.7 million. This includes the committed asset in Girona, Spain which, following successful due diligence, was purchased and debt drawn down on 12 October 2010. The portfolio valuation increased 0.3% on a like for like basis over the year.

Top 10 properties by value*- Table 1

* Percentage of aggregate asset value plus cash as at 30 September 2010.

Table 1 above shows the Company's ten largest properties by value calculated as a proportion of the open market value of the portfolio (including cash) as at 30 September 2010. The top ten properties remained largely unchanged during the year, with the exception of the logistics investment in Trappes, Paris which materially increased in value as a result of active asset management and capital improvements. 

As at 30 September 2010, the property portfolio remained diversified by sector and country as shown in the tables below.

Sector Weightings

Note: percentages are calculated as a proportion of the open market value of the properties within the Group as at 30 September 2010

Over eighty five per cent of the portfolio is located in the Company's key markets, France and Germany. These are the largest property markets in Continental Europe and comprise some 62% of the investable universe in the Eurozone (Source: IPD). By virtue of their size and their relatively mature property leasing/investment markets they exhibit the greatest liquidity and transparency in the Eurozone.

As set out below, the Company has been realising some investments in other markets such as Belgium at premiums to valuation, which has reduced the Belgian weighting from 7.10% one year ago to 3.00% as at 30 September 2010. We expect to continue to reduce non-core investment positions in order to focus on the Company's key markets.

Income/Tenancies

As at 30 September 2010 the Group's portfolio generated a gross income of €42.1 million per annum (net €41.3 million) and a net income return at property level of 7.56%, excluding vacant accommodation. The portfolio had a void level of 8.42% as at 30 September 2010, which will reduce to 7.53% as a result of letting office accommodation in Cergy, near Paris and Grenoble, France. If all vacant space was leased, the income return of the portfolio would rise to 8.26%.

The weighted average lease length to expiry is 6.22 years and 3.86 years until the next lease break. The credit rating of the tenants within the portfolio is 77 (out of 100) which is classified as "low risk" (Source: IPD M-RIS October 2010).

Top 10 tenants by income**- Table 2

** Percentage of aggregate gross rent as at 30 September 2010

Table 2 above shows the Group's ten largest tenants by income, calculated as a proportion of the gross annual rental income receivable by the group as at 30 September 2010.

Expiry Dates of Lease Contracts

Break Dates of Lease Contracts

Source: Invista Real Estate Investment Management and DTZ, Debenham Tie Leung valuation as at 30 September 2010

The tables above show the lease expiry and break profile of the Company's portfolio. The percentages are calculated as a proportion of the Group's gross annual rental income as at 30 September 2010. The structure of Continental European property leases, notably those in the Company's largest market, France, typically have tenant break clauses every three years, which largely explains the near-term lease break dates shown in the chart. Such leases require a more active management strategy, such as that pursued by the Company. For example, the re-negotiation of a total of eleven leases during the year improved the weighted average lease term to expiry from 6.06 years to 6.22 years. Negotiations are already progressing with tenants and respect of lease breaks in 2011 and 2012.

Portfolio Statistics

1 As at 30 September 2010

2 Source: Invista Real Estate Investment Management Limited

3 Source: DTZ Debenham Tie Leung Valuation as at 30 September 2010

4 Potential Rent is calculated as the sum of Gross Rent and ERV on vacancy

5 Positive figures represent over-rented, negative figures represent under-rented. Calculated as the percentage difference between Potential Rent and ERV

6 Calculated as a percentage of ERV on vacancy on total Potential Rent

7 Weighted average by property

8 Calculated as a percentage of market valuation as at 30 September 2010

9 Calculated as Gross Rent per square metre of let accommodation

Disposals

The Company continues to pursue its strategy of reducing borrowings, and disposed of five property investments during the financial year. Three properties were sold in France and two in Belgium for a total of €27.4 million at prices, on average, 3.9% above the prevailing valuation.

Post the period end, an additional asset was sold in Entraigues, France at a price 14.6% above the September 2010 valuation.

Sales will continue to be effected where they realise value for the Company. The aim is to use sale proceeds to pay down debt with a view to achieving a target LTV of 60%.

Asset Management Highlights

Maximising the earnings performance of the Company has been central to the property investment strategy since inception. In the long run, the income return makes up a substantial part of the total return from commercial property investment. The Company's asset-level business plans typically focus on reducing vacancy, lengthening leases and improving the quality of the cash flow. As a result, the Company's properties benefit from above average income returns. The table below shows the level of income returns of the Company when compared against the IPD Eurozone benchmark:

Income returns of the Company compared against the IPD Eurozone benchmark

Source: IPD, Invista REIMNote: Benchmark data only available at calendar year end.

Almost 20% of the portfolio income has been re-negotiated during the year generating the following benefits:-

·; increased values on those properties by an average of 17% over the year;

·; extended the weighted average lease length to expiry by 2.6%;

·; mitigated potential vacancy on 34,142sqm logistics properties in France; and

·; generated additional revenue from short term, flexible leases of €625,000;

A further €9.7m of rental income (or 23% of portfolio revenue) is under negotiation, the successful completion of which would further improve the quality and duration of property rental earnings.

In addition to the active management philosophy set out here, all leases are indexed which provides the foundation for a good inflation hedge.

Offices

Occupancy in the office sector on a like-for-like basis remained stable at 91.3% during the year. Negotiations with two of our office tenants, representing 17.1% of office income, resulted in extended lease terms to first break by 2.5 years. In addition, two leases have been signed on a long term basis with Valeo and Seiitra to take 2,051 sqm of vacant office accommodation post quarter-end. As a result, office occupancy will increase to 94.8%, and these new leases will generate an additional €421,000 of income per annum.

The office assets currently generate an income return of 7.21% which will rise to 7.48% when the new leases take effect.

Logistics

The final phase of a 32,598 sqm logistics development and refurbishment project in Trappes, southwest Paris, was completed post the year end. The asset is fully let to two tenants generating an annual rent of €1.6 million. In addition, a new six year lease from January 2011 was signed with existing tenant Veolog and a new nine year lease with Nature et Decouverte, extending the weighted average lease length by over three years. Since 30 September 2009, the asset has increased in value by 27%.

The committed property in Girona, Spain was purchased during the year for a total investment volume of €10.4 million (excluding recoverable VAT of €1.6 million). The asset provides 13,200 sqm of logistics accommodation and is fully let to an international third party logistics company. While the purchase is accretive to current earnings and generates an income return in excess of 10% at 30 September 2010, this transaction has had a negative marked to market effect on the Company's NAV due to the strike price having been agreed in 2005.

Action was taken during the year to reduce the portfolio weighting to the largest tenant, Norbert Dentressangle, from 19.96% as at 30 September 2009 to 15.67% as at year end. This reduction resulted from a number of successful asset management initiatives including disposals and re-letting space to existing subtenants.

Occupancy in the logistics portfolio declined slightly to 90.0% as tenants reduced space commitments. Nevertheless, the Company was successful in generating additional revenue from short term leases of three to six months' duration, from which €0.6 million was added to gross income.

During the year, the Company succeeded in securing income by renegotiating lease terms on seven leases (including one post quarter end) representing 28.3% of logistics income. As a result, lease terms to expiry were extended by an average 6.1 years. In addition to the above, heads of terms have been agreed to re-gear a lease on 10,790 sqm of logistics space in France, extending the fixed lease term by 1.7 years. 

Retail

The retail portfolio consists of three properties in Germany, which are 98% income producing. The blended income return from the retail portfolio is 7.36%.

Borrowings

As at 30 September 2010, the Company had a total of €343.7 million of senior debt, in respect of its €359.3 million facility with the Bank of Scotland and its €12.0 million facility with Credit Foncier. In addition, the Company had cash balances at the end of the year of €34.3 million (excluding tenant deposits of €4.5 million and escrow items of €3.6 million), giving a net debt position of €309.4 million. On 12 October 2010 the Company drew down €5.0 million of senior debt in respect of the Girona property which replenished cash on a pro-forma basis to €39.3 million at the end of the year.

The Company's gross Loan To Value ("LTV") ratio as at 30 September 2010 was 66.6% and the net debt LTV was 60.0%. This includes the valuation of Girona but does not include the debt drawn down on 13 October 2010. As at 19 October 2010, the Company's gross LTV under the Finance Documents with the Bank of Scotland was 67.9%, including the Girona investment, against an LTV covenant of 85%.

All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.58% per annum at current LTV levels. This cost of financing significantly reduces the Company's net earnings, and efforts will continue so as to take advantage of any opportunities that may exist to access lower borrowing costs.

During the year, the Company agreed revised banking terms with Bank of Scotland, which were conditional on paying down €40 million of debt and a revised facility size of €359.3 million. The improved terms included an extension of the maturity date by two years until December 2013, greater covenant headroom and access to cheaper loan margins at lower LTV ratios. It is the Company's intention to reduce borrowings to a level of 60% LTV over time.

On 16 November 2009, the Company announced a capital rising of approximately £58.27 million (£53.51 million net of expenses) by way of a Firm Placing and a Placing and Open Offer of both New Ordinary Shares and a class of Preference Shares with Warrants attached. This capital raising was successful and closed on 30 December 2009.

Outlook

Looking forward, the consensus view is that economic growth could moderate in the next 12 months as the positive effects of fiscal stimulus wear off. Under these conditions, we expect property leasing markets to remain challenging in 2011 as tenants continue to adapt to a period of austerity. Capital value growth driven by yield compression is expected to slow, and with limited prospects for widespread rental growth before a stronger economic recovery, property performance is expected to be driven by income returns.

We believe Continental European property offers a particularly attractive risk-adjusted profile for property investors seeking strong income in the medium term, especially in sectors such as logistics and out-of-town retail, which generally offer above-average income returns. An added benefit to income performance in Continental Europe could come from indexation, which provides frequent uplifts to rental payments in line with local inflation trends. As economic growth accelerates in the medium term it is possible that inflation rates will pick up, providing support to income levels.

While the Company's balance sheet is in better health following completion of this year's strategic initiatives there is more work to be done. Reducing borrowings and the costs associated with borrowings will continue to be a focus of the Company. This has been supported by sales at good prices and retaining cash to improve operational flexibility. Over time we feel confident that adjusting the capital structure in this way will better position the Company to pass the benefit of strong property income returns through to shareholders.

Tony Smedley

Head of European Funds

Invista Real Estate Investment Management

Invista European Real Estate Trust SICAF Annual Report and Accounts 2010

Report of the Directors

The Directors of the Company (the 'Directors' or the 'Board') present their report and the Audited Financial Statements of the Company and the Group Financial Statements for the year ended 30 September 2010.

Business review

Business of the Company

The Company was incorporated on 6 June 2005 as Insight European Real Estate Trust S.A. On 17 November 2006 the Company's name was changed to its present name Invista European Real Estate Trust SICAF together with conversion of the Company into an investment company with fixed capital (société d'investissement à capital fixe). The Company has been listed on the main market of the London Stock Exchange since 20 December 2006.

Invista European Real Estate Trust SICAF is a public limited closed-ended capital company managed by Invista Real Estate Investment Management Limited. Additional information regarding the Company and Group's the business during the year is contained in the Chairman's Statement and the Investment Manager's Report.

Investments

The independent valuation of the Company's property portfolio as at 30 September 2010 was €515.7 million and consisted of 43 properties located in France, Germany, the Netherlands, Spain, Belgium, Czech Republic and Poland.

Disposals

The following disposals took place during the year:

Strategic outlook

The Company will continue to actively manage the existing property portfolio to improve the income characteristics of the Group, maximise capital returns and enhance NAV performance. This will include regular reviews of the relative performance of the countries, regions and sectors in which the Company has invested and managing asset, country and sector allocation. Sales will continue to be undertaken where this is beneficial to the Group. Sales proceeds will be used to reduce borrowings.

Key performance indicator

The Board uses the absolute Net Asset Value ('NAV') return of the Company to monitor and assess the performance of the Company. As at 30 September 2010, the Company's audited NAV (adjusted to add back deferred taxation and the change in the fair market value of warrants) was €0.538 per share.

During the year ended 30 September 2010, the Company's audited adjusted NAV has decreased by €0.582 per share or 52.0%. The decline in NAV has arisen primarily from the dilution caused by the issuance of new ordinary shares in December 2009 and the change in the market-to-market valuation of the Group's interest rate swaps. On a like for like basis, adjusting for the issuance of new ordinary shares in December, the NAV has declined by 13%.

An analysis and review of performance of the property portfolio is set out in the Property Portfolio section of the Investment Manager's report.

Important events post year end

The Chairman's Statement and the Investment Manager's Report, where appropriate, both contain information on the important events of the Company occurring since the end of the financial year and the Company's likely future development.

1. Investment Manager's update

On 12 October 2010, Invista Real Estate Investment Management Holdings plc ('Invista PLC'), parent company of Invista Real Estate Investment Management Limited (the 'Investment Manager'), announced that material fund management contracts run with Lloyds Banking Group PLC ('the HBOS Contracts') had been terminated with 12 months' notice. These contracts represented £2.4 billion of Invista's total assets under management of £5.4 billion and approximately £5.3 million of total revenue of £13.7 million for the six months to 30 June 2010.

Invista PLC also announced that without the revenue generated from the HBOS Contracts, the interests of both clients and shareholders of Invista PLC would be best served through an orderly realisation of value from Invista's assets, including the Investment Manager's asset management business, with the proceeds of such realisations being returned to shareholders in due course.

The Company also issued a statement on 12 October 2010, stating that the Board of the Company has received assurances from Invista regarding the continuing quality of the investment management services to be provided. The Board will take all necessary steps to secure the stability and continuity of the management of the Company's assets by the current team, for which the Board has a high regard. It is therefore engaging proactively in discussions with Invista PLC in order to achieve an outcome in the best interests of the Company's shareholders.

2. Property transactions update

Following satisfactory due diligence the purchase of the committed asset in Girona was completed for a total price of €11.1 million and senior debt drawdown on 13 October 2010. The Girona asset provides 13,200 sqm of logistics accommodation, is fully income producing and based on the 30 September 2010 valuation, generates a net initial yield in excess of 10%.

Sale of asset

On 19 November 2010 the Company sold its warehouse property located in Entraigues sur la Sorgue, France for a price of €493,952, which enabled the repayment of €263,720 bank debt. As at 30 September 2010 the valuation of the property was €428,552.

Capital Structure

At 30 September 2010 the Company's issued share capital consisted of 259,976,943 ordinary shares each allotted fully paid, 29,137,134 of preference shares and 29,109,140 warrants.

On 29 December 2009 the Company's share capital was reduced from €142,829,093.75 to €11,426,327.50 (without the cancellation of shares and without any reimbursement or repayment to the Shareholders) to accomplish the following:

(i) absorption of the (non consolidated) losses of the Company as at 30 September

2009 of €13,089,270 resulting in the reduction of share capital of the Company being reduced to €129,739,823.75; and

(ii) creation of a non-distributable reserve of €118,313,496.25 was created which would be used exclusively to absorb losses incurred or to increase the share capital of the Company through the capitalisation of the non-distributable reserve

Subsequent to the share capital reduction each ordinary share had an accounting par value of 10 eurocents (€0.1).

On the 29 December 2009 the Company issued the following ordinary shares, preference shares and warrants:

·; 145,685,674 Ordinary Shares at £0.20 per Ordinary Share, (representing a discount to the current share price and a discount to the NAV as at 30 June 2009)

·; 29,137,134 Preference Shares priced at £1 per Preference Share, with a seven year term.

·; One Warrant per Preference Share giving the right to subscribe for an Ordinary Share at £0.29 exercisable in May and November of each year during the four year life of the Warrants as set out in the Instrument and the Prospectus of the Company dated 16 November 2010 .

The ordinary shares and preference shares were issued pursuant to the terms of the Articles of Incorporation and the terms of Luxembourg Company law while the Warrant Instrument is governed by English law.

On 1 June 2010, 27,944 warrants were converted to 27,944 ordinary shares.

On 1 December 2010, 2,937 warrants were converted to 2,937 ordinary shares.

Voting rights 

There are no restrictions on the voting rights attaching to the ordinary shares. The preference shares do not carry voting rights except in circumstances (i) set out in articles 44 to 46(1) of the Company Act, and (ii) where, despite the existence of profits available for that purpose, the preferential cumulative dividends to which the Preference Shareholders are entitled are not paid in their entirety for any reason whatsoever for a period of one financial year, in which case the holders of Preference Shares will have the right to vote in the same manner as other Shareholders at all meetings until such time as all such preferential cumulative dividends have been received in full. The Warrants do not carry any voting rights. Voting rights to each share and procedures relating thereto are described in articles 7, 8 and 26 of the Articles of the Company.

Authority to allot shares 

Pursuant to article 8 of the Articles, the Board is authorised to issue ordinary shares, and, as the case may be, additional Warrants (if and when required to comply with adjustment mechanisms provided for in the terms and conditions of the Warrants) within the limits of the authorised share capital. The ordinary shares and/or Warrants may be issued in one or several tranches, on such terms and conditions as the Board may approve, and at such price including such share premium as the Board may decide. The authority expires on 29 December 2014.

Pre-emption rights

Pursuant to article 8 of the Articles, pre-emption rights do not apply to shares that are offered for subscription by way of contributions in cash at or above the latest published net asset value, providing such offer is made within the period expiring on 29 December 2014. Where shares are offered for subscription by way of contributions in cash below the latest published net asset value, pre-emption rights apply as described in article 8 of the Articles of the Company.

Repurchase and redemption of own shares 

The Company may repurchase its own shares in compliance with the Company Act, the Listing Rules and its Articles. Shares redeemed by the Company may remain in existence and be held in treasury by the Company. Shares which are not cancelled do not have any voting rights or any right to participate in any dividends declared by the Company, or in any distribution paid upon the liquidation or winding-up of the Company. Such shares are also disregarded for purposes of determining Net Asset Value, in each case, for so long as such shares are held by the Company. The price of shares reissued by the Company are determined according to such policy as the Board may determine from time to time.

Under the Articles of Association, all shares are redeemable shares within the meaning of article 49-8 of the Company Act. The Company may redeem its own ordinary shares whenever the Board considers this to be in the best interest of Company, subject to the terms and conditions determined by the Board, within the limitations set forth by the Company Act and by article 9 the Articles of the Company. Preference shares can only be redeemed in the specific circumstances described in article 9 of the Articles, in accordance with the terms of, and subject to the conditions set in, article 49-8 of the Company Act.

Dividend

As at the date of this report, the Company has neither declared nor paid dividends to the holders of ordinary shares during the financial year.

The Payment Dates for the payments of dividends relating to the Preference Shares changed from 31 May and 30 November to the third week of June and the third week of December respectively to be consistent with the ordinary share dividend pay dates previously set in place.

On 27 April 2010, the Company declared the first interim preference dividend of £0.03699 per Preference Share for the year ended 30 September 2010 which was paid on 28 May 2010 to Preference Shareholders on the Register on 7 May 2010 and the shares were quoted ex-dividend on 5 May 2010.

The second interim preference share dividend of £0.05203 per Preference Share was declared on 24 November 2010 for the year ended 30 September 2010. The second interim dividend will be paid on 24 December 2010 to Preference Shareholders on the Register on 3 December 2010. The shares were quoted ex-dividend on 1 December 2010.

The completion of the capital raising and refinancing of the Company's debt facility has provided the Board with an improved level of clarity as to the Company's ongoing financial position. The revised loan terms enabled the Group to access cheaper loan margins at lower LTV ratios. These cheaper loan margins, combined with the potential to access current lower Swap rates, are expected to improve the Group's net cash income on an annual basis thereby enhancing the Company's ability to resume dividend payments on the ordinary shares.

The overriding objective of the Company continues to be a) to reduce debt and debt costs b) strengthen the balance sheet and achieve a reduction in LTV and c) to improve sustainable and recurring net cash income over the long term so as to enable the resumption of a sustainable ordinary dividend.

Warrants

The registered holders of Warrants were in a position to subscribe on 31 May and 30 November for new Ordinary Shares subject to the terms and conditions attaching to the Warrants as set out in the Instrument and the Prospectus of the Company dated 16 November 2010.

Investment objective and policy

Investment objective

The long term investment objective of the Company is to provide shareholder returns through investing in a diversified commercial real estate portfolio in Continental Europe with the potential for income and capital growth. The geographical focus of the Group is primarily France and Germany due to the relative stability, transparency and liquidity of these markets.

Investment strategy

The strategy for the ownership and management of the Group's properties is to generate investment performance through the implementation of initiatives set out in asset level business plans. These business plans typically require an active asset management approach to generate performance such as re-negotiating leases, maximising net rental income receivable from tenants, extending lease duration to preserve income security, letting up current vacancy, stabilising rents and, amongst other initiatives, developing surplus or ancillary land reserves.

The Investment Manager has acquired a portfolio of commercial property investments which it believes exhibit some or all of the following characteristics:

> well-located for their purpose;

> modern or recently refurbished;

> let to tenants of good creditworthiness on market standard leases;

> freehold or long leasehold;

> low vacancy;

> net initial yields higher than those available on prime properties

> a value in excess of €10 million and

> opportunity to enhance value through active asset management.

The degree to which the Group's current or future properties exhibit some or all of these characteristics will depend upon conditions in the local real estate market and the specific property. The Investment Manager will continue to manage the Group's portfolio based on a research led investment strategy seeking to identify relative outperforming or underperforming property markets over the medium to long term in different countries, regions and sectors with a view to recycling capital where appropriate to do so.

Diversification

The Board believes that in order to maximise the stability of the Group's income, the optimal strategy for the Group is to be invested in a portfolio of assets which (a) is diversified by location, sector, asset size, lease length and tenant exposure and (b) has low vacancy rates and (c) creditworthy tenants. While there will be no predefined limit on exposures to location, sector, asset size, vacancy rates and tenant types, the Company's portfolio will be invested and managed, as is currently required by the Listing Rules, in a way which is consistent with its objective of spreading investment risk and taking into account the Company's investment objectives, policies and restrictions.

Asset allocation

The Group currently owns, and intends to continue to own, a diversified portfolio of commercial real estate. Its sector focus is logistics, office, retail and light industrial. From time to time the Group may acquire modest exposure to other types of real estate, for example leisure or residential. There will be no predetermined limits on investment per sector and no predetermined geographical limit on investment. Asset allocation will be determined taking into account current Listing Rule requirements (see below under 'Investment Restrictions'), the objective of spreading risk and the Company's investment objectives, policies and restrictions.

Investment restrictions

As a registered Luxembourg closed ended investment fund company listed on the London Exchange, the Company and, where relevant, its subsidiaries are subject to the UK Listing Rules as well as various rules of the CSSF, the Luxembourg regulator. The Company and where relevant, its subsidiaries will observe the following restrictions in compliance with the current Listing Rules:

As the Company is a closed-ended investment fund for the purposes of the Listing Rules, the Group will also adhere to the Listing Rules applicable from time to time to closed-ended investment funds. This includes observing the following restrictions in compliance with the current Listing Rules for closed-ended investment funds:

·; The borrowings of the Group (excluding intra group loans) are limited by the Articles to 65% of the gross assets of the Group. This limit is tested at the time any borrowing is made. In addition, the Company is subject to a limit on borrowing of 70% of gross assets which, in accordance with Luxembourg legal and regulatory requirements applies at all times; and

·; No one property (including all adjacent or contiguous properties) shall at the time of Admission or, if later, at the time of acquisition, represent more than 15% of the gross assets of the Group

In relation to the investment restriction set out in the second bullet point above, the Company has previously received a waiver of this restriction from the UKLA (when this requirement was set out in the Listing Rules) in respect of the initial assembly of the Total Property Portfolio. However, in accordance with Luxembourg regulatory requirements, the Company is now in compliance with restriction, four years after its conversion into a SICAF.

No more than 20% of the gross assets of the Company may be exposed to the creditworthiness or solvency of any one counterparty (including its subsidiaries or affiliates).

The total amount of loans granted by the Company to entities which are not part of the Group may not represent more than 20% of the gross assets of the Company (consolidated where appropriate) at a time a loan is made.

Ancillary holding of liquid assets by the Group is subject to the following restrictions:

·; the Company may not invest more than 10% of its net assets in money market instruments or debt securities of one single issuer;

·; the Company may not hold more than 10% of any single class of money market instrument or debt security of a single issuer nor may it invest more than 10% of its net assets in money market instruments or debt securities which are neither listed on a stock exchange nor dealt on a Regulated Market.

The above restrictions are, however, not applicable to securities issued by companies which are wholly or partly owned and controlled by the Company.

Where amendments are made to the Listing Rules, the restrictions applying to the Company will, subject to the prior approval of the CSSF, be amended so as to reflect the new Listing Rules. In this instance the Board will consider the revisions applicable to the Company and, if considered suitable, will, subject to the prior approval of the CSSF, adopt the new Listing Rules investment restrictions.

In case of non-compliance with the investment restrictions, corrective and compensatory actions will be undertaken in accordance with the CSSF Circular 02/77 and an announcement of such action shall be made through a regulatory information service.

Material change to investment objective and policy

In accordance with the requirements of the UK Listing Authority and the CSSF, any material change in the investment objective and policy of the Company may only be made with the approval of Shareholders. Following regulatory and shareholder approval such a change will take effect on the quarter end date subsequent to the quarter during which a notice informing the Shareholders of such material change was sent.

Principal risks and Uncertainties

In addition to the various operating risks presented below, the Board has set out and presented risks it considers to be critical to the Company in Note 5 to the Consolidated Financial Statements as at 30 September 2010.

Investment and strategy

Market circumstances can introduce volatility into investment returns arising from factors such as market sentiment, an excess supply of accommodation relative to occupier demand, macro economic factors impacting on the capability of tenants to pay rents or fiscal and legislative changes. The Investment Manager and the Board seek to mitigate these risks through a business plan led approach, which incorporates a rigorous asset management strategy, research-based investment decisions and regular reviews of portfolio strategy. This approach has led to owning a well diversified and balanced portfolio with opportunities for active asset management.

To enable the Board to ensure that the portfolio does not become overly concentrated or reliant on individual assets, sectors or tenants, the Investment Manager reports quarterly on asset concentration, sector and regional diversification.

On a semi-annual basis the Investment Manager provides an independent analysis of tenant quality to the Board, sourced from Investment Property Databank's tenant credit rating system.

The primary control is that no single property (including all adjacent or contiguous properties) shall represent more than 15% of the gross assets of the Group at the time of purchase. Furthermore income receivable from any tenant or tenants within the same group shall not exceed 20% of the total rental income of the Group in any financial year.

Borrowings

The Group seeks to enhance NAV total returns through borrowing. There is risk associated with third party borrowings and to mitigate this risk, consistent with the Company's Articles of Incorporation, the Board has adopted an upper borrowing limit of 65% of the Group's gross assets on a fully consolidated basis. This limit is tested at the time any borrowing is made. In addition, the Group is subject to a limit on borrowing of 70% of gross assets which that applies at all times in accordance with Luxembourg legal and regulatory requirement.,

At 30 September 2010 the Group had access to a €359.3 million credit facility from Bank of Scotland of which the Group had drawn down a total of €333.2 million which together with €10.4 million with Crédit Foncier represents 66.6 % of gross assets. The Group seeks to avoid significant exposure to unforeseen upward interest rate movements, with all third party debt currently hedged.

Accounting, legal and regulatory

The Group has processes in place to ensure that the administrators maintain accurate accounting records are maintained and that sufficient evidence to support the accounts is available to the auditors upon request. The Administrator also operates established accounting systems that address issues of control and completeness. Procedures are in place to ensure that the quarterly NAV and Gross Asset Value are calculated properly by the Administrator, and the Group's property assets are valued quarterly by an independent specialist property valuation firm which is provided with regular updates on portfolio activity by the Investment Manager.

The Administrator monitors legal requirements in Luxembourg to ensure that adequate procedures and reminders are in place to meet the Group's legal requirements and obligations. The Investment Manager undertakes appropriate legal, tax and structuring due diligence with the assistance of external advisers when transacting and managing the Company's assets. All contracts entered into by the Group are reviewed by the Company's legal and the Group's other advisers. Processes are in place to ensure that the Group complies with the conditions applicable to property investment companies set out in the Listing Rules and the Circulars issued by the Luxembourg financial supervisory authority, the Commission de Surveillance de Secteur Financier ('CSSF').

The Administrator attends all Board meetings to be aware of all announcements that need to be made and the Group's advisers are aware of their obligations to advise the Administrator, and where relevant the Board, of any events which require notification be made to the Board.

Finally, the Board is satisfied that the Investment Manager and Administrator have adequate procedures in place to ensure continued compliance with regulatory requirements of the UK Financial Services Authority and the CSSF.

Citco REIF Services (Luxembourg) S.A. has entered into an Administration Agreement with the Company which may be terminated by either party giving to the other not less than 120 days notice in writing. The Administrator is entitled to an annual fee equal to €1.1 million pa.

Management

The Company has retained the services of Invista Real Estate Investment Management Limited ('Invista') as Investment Manager. Invista is the largest listed real estate fund manager in the UK with Lloyds Banking Group holding a 55% stake. Under an investment management agreement dated 17 November 2006, as subsequently amended, (the 'Investment Management Agreement'), Invista is responsible for advising the Group on the overall management of the Group's investments in accordance with the Group's investment objective and policy and subject to the overall supervision of the Directors.

The team dealing with the Company is led by Duncan Owen, CEO of Invista, who is a member of the European Investment Committee which sits every two weeks, or as required. The fund manager is Tony Smedley, who also chairs the European Investment Committee. The other members of that Committee are Tim Francis, Veronica Gallo-Alvarez, Guillaume Masset and Chris Ludlam. The Board continues to be satisfied that Invista has sufficient resources available to deliver the investment objective.

Under the terms of the Investment Management Agreement, subject to the overall supervision of the Directors, the Investment Manager shall provide the Company with such investment advisory, investment management services and administrative services as may be required by them in relation to the Total Property Portfolio. The Investment Manager will also procure the provision of asset management services to the Property Subsidiaries.

The Investment Management Agreement may be terminated by either the Company or the Investment Manager giving to the other not less than 18 months written notice. The Investment Management Agreement may also be terminated by the Company with immediate effect on the occurrence of certain events.

Management fees

Under the Investment Management Agreement, the Investment Manager is entitled to a base management fee of 2% per annum of the aggregate Net Asset Value attributable to the Ordinary Shares and the Preference Shares subject to a minimum annual fee of €3 million. This fee is subject to a cap of an amount equal to 0.95% per annum applied to the Adjusted Gross Assets. The base management fee is payable monthly in arrears subject to a recalculation provision to capture any change in Net Assets from quarter to quarter on a straight line basis. The Investment Management Agreement also provides for the Investment Manager to be reimbursed by the Company for costs and expenses incurred by it, including (without limitation) all costs and expenses relating to accounting, tax, due diligence, legal, surveyors, building contractors, estate managers and other properly appointed service providers.

The Investment Manager is also entitled to an annual performance fee where the total return per ordinary share during the relevant financial period exceeds an annual rate of 10% (the "Performance Hurdle"). Where the Performance Hurdle is met, a performance fee will be payable in an amount equal to 15% of any aggregate total return over and above the Performance Hurdle.

The Performance Hurdle is calculated on a three year rolling basis. This requires that the annualised total return over the period from Admission to the end of the relevant financial period in the first three year period, and on a rolling three year basis thereafter, is equal to or greater than 10% per annum.

Subject to the above conditions, the performance fee is payable by the Company to the Investment Manager within 14 days of receipt by the Company of such calculation.

The Investment Management Agreement can be terminated by either party on not less than eighteen months notice in writing.

Significant contracts

Apart from the Investment Management Agreement and Administration Agreements, other significant contracts are with the following parties:

·; RBC Dexia Investor Services Bank SA as Custodian Bank

·; Maitland Luxembourg SA as Registrars

·; Capita IRG Trustees Limited as Depository

·; Primexis for accounting and tax compliance with regard to French investment properties/ companies

Other Significant contracts which have been entered into by the Company are listed in Part XII, Section 8 of the Prospectus.

Creditor payment policy

It is the Group's policy to ensure settlement of supplier invoices in accordance with stated terms.

Donations

The Company made no political or charitable donations during the year (2009: nil)

Directors

The Directors of the Company (who together with their beneficial interests in the voting rights of the Company's ordinary share capital as at 30 September 2010) are listed below:

On 30 December 2009 Tom Chandos purchased 111,000 ordinary shares, 10,200 preference shares, and 10,200 warrants. Duncan Owen purchased 13,875 ordinary shares and John Frederiksen purchased 57,350 ordinary shares.

Directors are elected and may be removed with or without cause or replaced by the shareholders in accordance with the rules set out in articles 13 and 26 of the Articles.

The appointment dates and gross remuneration of the Directors during the current and previous financial year was as follows:

The Directors do not have service contracts with the Company. The terms of appointment provide that a Director shall retire at every Annual General Meeting.

The Directors receive a base fee of €30,000 per annum, and the Chairman receives €52,000 per annum. The Chairman of the Audit Committee receives an additional fee of €5,000 per annum, reflecting his additional responsibilities and workload. All Luxembourg based Directors also receive an additional €5,000 per annum in recognition of their additional work.

The Directors are not eligible for bonuses, pension benefits, share options or other incentives or benefits.

Compensation in case of resignation, redundancy or takeover bid.

The Company has not entered into any agreements with the Directors providing for compensation if they resign or are made redundant without valid reason or if their employment cease because of a takeover bid.

Disclosure of information to auditors

As far as each of the Directors is aware, there is no relevant audit information of which has not been disclosed to the Company's external auditors and each of the Directors has taken all of the steps that they each ought to have taken to be aware of relevant audit information and to establish that the Company's Auditors are aware of that information.

Substantial shareholdings - At 30 November 2010 the Board was aware that the following shareholders owned 3% or more of the issued shares of the Company:

Independent auditors

KPMG Audit S.à.r.l. has been appointed as independent auditor of the Company with effect from 17 November 2006 and for a duration of six years.

Amendment to the Articles

The Articles may be amended in accordance with the rules set out in article 25 of the Articles.

Status for taxation

The Company is not liable for any Luxembourg tax on profits or income, nor are distributions paid by the Company subject to any Luxembourg withholding tax. The Company is, however, liable in Luxembourg to a subscription tax of 0.05% per annum of its Net Asset Value, such tax being payable quarterly on the basis of the value of the aggregate net assets of the Company at the end of the relevant calendar quarter. No stamp duty or other tax is payable in Luxembourg on the issue of Shares. No Luxembourg tax is payable on the realised capital appreciation of the assets of the Company.

Going concern

The Directors have examined significant areas of possible financial risk and have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future. After due consideration the Board believes it appropriate to adopt the going concern basis for the preparation of the financial statements. Please see note 2 to the accounts.

Related Party transactions

This is detailed in Note 28 in the accounts.

Corporate governance

Principles statement

The Directors are committed to high standards of corporate governance and have made it Company policy to comply with best practice in this area and insofar as the Directors believe it is relevant and appropriate to the Company, to comply with the UK Corporate Governance Code published by the Financial Reporting Council or to explain areas of non-compliance.

There is no generally applicable Luxembourg corporate governance code for Luxembourg companies. Whilst the Luxembourg stock exchange has issued a corporate governance code based on international precedents, this code is not applicable to the Company.

The relevant corporate governance rules are the statutory rules of the Luxembourg Companies Act, which are, in essence, reflected in the constitutional documents of the Company. The Company's application of the UK Corporate Governance Code (which is available at www.frc.org.uk/corporate/combinedcode.cfm) is discussed in the following paragraphs.

Composition and Balance of the Board

The Board currently consists of six directors, four of whom are Non-Executive Directors and two Non-Independent Directors.

John Frederiksen is a Non-Executive Director of Invista Foundation Property Trust Limited. Invista Foundation Property Trust Limited is managed by the Investment Manager and Mr. Frederiksen is therefore considered to be a non-independent director under Listing Rule 15.2.13A.

Duncan Owen is the Chief Executive Officer of Invista and therefore a Director of the Investment Manager. Pursuant to the Listing Rules, as a Director of the Investment Manager Duncan Owen is considered to be a non-independent director under Listing Rule 15.2.13A.

The remaining Directors (Tom Chandos, Michael Chidiac, Robert DeNormandie and Jaap Meijer) are considered independent.

The Board believes that the Directors have a breadth of property investment, business and financial skills and experience relevant to the Company.

Senior Independent Director

The Board has considered the need to appoint a Senior Independent Director but believes that this is not appropriate due to the size of the Board.

The Role of the Board

The Board has determined that its role is to consider the following principal matters which it considers are of strategic importance to the Company and to take appropriate decisions thereon:

1. The overall objectives of the Company, as described under Investment Objective and Policy above, and the strategy for fulfilling those objectives within an appropriate risk framework.

2. The strategy followed is appropriate in light of the prevailing market conditions.

3. The capital structure of the company, including consideration of an appropriate use of borrowings is appropriate both for the Company and its shareholders.

4. The appointment and monitoring through regular reports and meetings of the Investment Manager, Administrator and other appropriately skilled service providers to ensure their ongoing effectiveness through regular reports and meetings.

5. Review of the key elements of the Company's performance including NAV growth and the payment of dividends.

Board decisions

At Board meetings, matters listed under the Role of the Board above are considered and resolved by the Board. Some issues associated with implementing the Company's strategy may be delegated by the Board either to the Investment Manager or the Administrator. However matters of strategic importance to the Company are usually reserved for the Board. Generally these are defined as large property decisions affecting either 5% or more of the Group's assets and decisions affecting the Group's borrowings.

A formal schedule of matters reserved to the Board has been adopted which clearly defines the Directors'

Responsibilities and the powers of the Board are further described in articles 6,9,10 and title III of the Articles. In particular, the Board may decide to issue shares and to redeem the Company's own shares subject to the conditions set out in articles 8 and 9 of the Articles of the Company.

Board performance evaluation

The Board undertakes an annual review of its performance during the financial year. The Board's procedure for evaluating the performance of the Board, its Committees and the individual Directors in respect of the year ended 30 September 2010 has occurred through a combination of questionnaire and discussion. The evaluation process is designed to show whether individual Directors continue to contribute effectively to the Board and to clarify the strengths and weaknesses of the Board's composition and processes. The Chairman takes the lead in acting upon the results of the evaluation process. In respect of the Chairman, a meeting of Directors was held, without the Chairman present, to evaluate his performance.

Following the annual review the Board concluded it was operating effectively and that the members of the Board had the breadth of skills required to fulfil their role.

Accordingly, as the individual performance of the respective Directors continues to be effective and the attendance by all Directors at meetings of the Board during the last financial year (see 'Board meetings') demonstrates the continued commitment of all Directors to their respective roles, the Board therefore considers all Directors standing for re-election at the Annual General Meeting on 15 February 2011 should be re-elected for a period of one year.

Re-appointment of Directors and Directors' tenure

Directors' re-appointment is subject to the Company's Articles and UK Corporate Governance Code and the Listing rules. The Company's Articles require that all Directors stand for re-appointment every year and are appointed for a period of six years.

Directors Training

Directors are provided on a regular basis with key information on the Company's activities, including regulatory and statutory requirements, internal control.

Conflicts of interest

There are no conflicts of interests between the Directors and the Company. The Prospectus issued in November 2009 discloses the Director's interest in Part XI, Section 3.

Board meetings

The Board meets quarterly and as required from time to time to consider specific issues reserved for the Board.

At the Board's quarterly meetings it considers papers circulated in advance including reports provided by the Investment Manager and the Administrator. The Investment Manager's report comments on the Continental European commercial property market, performance, strategy, transactional and asset management and the Group's financial position including relationships with its bankers and lenders.

These reports enable the Board to assess the success with which the Group's property strategy and other associated matters are being implemented and also to consider any relevant risks and how they can be properly managed. The Board also considers reports provided from time to time by its various service providers reviewing their internal controls.

The table below shows the attendance at the Board's quarterly meetings during the financial year to 30 September 2010:

In between its regular quarterly meetings, the Board has also met on a number of occasions during the year to consider specific transactions or reach decisions on matters arising. It has not always been possible for all Directors to attend these meetings. The Company maintains liability insurance for its Directors and Officers.

Committees of the Board

The Audit Committee

The Audit Committee is chaired by Robert DeNormandie with Michael Chidiac and Jaap Meijer as voting members. Non-voting members are Tom Chandos, John Frederikson and Duncan Owen. The Company considers that Robert DeNormandie's experience makes him suitably qualified to chair the Audit Committee. If required, meetings can also be attended by the Investment Manager, the Administrator and the Independent Auditor as well as with the Company's property appraiser to discuss the scope and conclusions of their work.

The primary tasks of the Company's Audit Committee are to assist the Board in fulfilling its oversight responsibilities relating to the integrity of the financial statements of the Company, including:

• periodic reporting to the Board on its activities;

• reviewing the half-year and annual financial statements before their submission to the Board;

• advising the Board on the terms and scope of the appointment of the auditors, their remuneration, the independence and objectivity as well as reviewing with the auditors the results and effectiveness of the semiannual review and the annual audit;

• performing such other duties imposed by applicable laws and regulations of the markets on which the shares are listed, as well as any other duties entrusted to the Audit Committee by the Board; and

• any material non-audit or tax services must be considered and approved by the Committee and a recommendation submitted to the Board for final approval.

During the year the Company's auditors were involved in a limited review of the interim financial statements. No other work by the external auditor was performed.

The Audit Committee is satisfied that KPMG s.à.r.l is independent of the Company.

Terms of Reference

The Committee has written terms of reference, which clearly define its responsibilities and duties.

Other Committees

The Company does not have a Remuneration Committee or a Nominations Committee, since the Company does not have any executive Directors. New appointments to the Board and remuneration issues are considered by the Board as a whole from time to time.

Review of the Investment Manager's performance and the contractual arrangement with the Investment Manager are conducted by the Board as a whole during its regular quarterly meetings.

Shareholder relations

Shareholder communications are a high priority for the Board. The Investment Manager produces a quarterly fact sheet which is posted on the Company's website at www.ieret.eu; the latest version can be found at www.ieret.eu/Documents/67-IERET_Sept10_Q3_FINAL.pdf. The fund manager and other relevant members of the Investment Manager's Investment Committee make themselves available at all reasonable times to meet with brokers, shareholders and sector analysts. Feedback from these sessions is provided by the Investment Manager to quarterly Board meetings.

In addition, the Board is also kept fully appraised of all market commentary on the Company prepared by the Investment Manager and other professional advisers including the Company's brokers. Through this process the Board seeks to monitor the views of shareholders and to ensure an effective communication programme. The Chairman and Directors also hold meetings with shareholders in response to invitations to do so or as required.

Details of the resolutions to be proposed at the Annual General Meeting on 15 February 2011 can be found in the Notice of the Meeting.

Statement of Directors' responsibilities

The Directors are responsible for ensuring proper preparation of the Report of Directors, the Company's Annual Report and interim financial statements for each financial period

(i) which give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as of and at the end of the financial period in accordance with International Financial Reporting Standards and the Listing Rules and

(ii) which give a true and fair view of the evolution and results of the Group as well as a true and fair description of the principal risks and uncertainties the Group may encounter.

In addition, the Board is responsible to ensure that the Company is in compliance with applicable company law and other UK or Luxembourg applicable laws and to provide a description of the risks and uncertainties the Group may encounter and to put in place an appropriate control framework designed to meet the Group's particular needs and the risks to which it is exposed.

In preparing such financial statements the Directors are responsible for:

·; Selecting suitable accounting policies and applying them consistently.

·; Making judgments and estimates that are reasonable and prudent.

·; Stating whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements.

·; Preparing the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

·; Maintaining proper accounting records which disclose with reasonable accuracy the financial position of the Group and enable them to ensure that the Financial Statements comply with all relevant regulations.

·; Safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Internal control

The Directors are responsible for the determination of the Company's investment objective and related policies and have overall responsibility for the Group's activities including the review of investment activity and performance.

The UK Corporate Governance Code requires the Directors to review the effectiveness of the Group's system of internal controls on an annual basis and to report to shareholders that they have done so. Although such a system can only provide reasonable assurance and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure.

The Board considers risk management and internal control on a regular basis during the year.

The key reviews conducted by the Directors are described as follows:

1. The Board has reviewed a report prepared by Invista's team on Invista (Investment Manager), Citco (Administrator), Primexis (French Accountant), RBC Dexia (Custodian), Capita Registrars (UK Registrar) and Maitland (Luxembourg Registrar) and has been satisfied that their approach is appropriate for the Group.

2. The Board meets regularly at the offices of the Administrator for its formal quarterly Board meetings and for ad-hoc Board meetings. The Board is therefore familiar with the environment in which the Administrator is operating and has the opportunity to meet the staff responsible for providing administrative agency services to the Company. This enables the Board to view at first hand the level of resources made available to the Company by the Administrator.

As the Company has no employees and its operational functions are undertaken by third parties, the Audit Committee does not consider it necessary for the Company to establish its own internal control function. The effectiveness of internal controls is assessed on a regular basis by the Compliance and Risk departments of the Investment Manager and Administrator. Therefore the Company is substantially reliant on the Investment Manager's and Administrators own internal controls and their internal audit. The Board considers risk management and internal control on a regular basis during the year. The processes implemented to identify, evaluate and manage risk that are described in the following paragraphs have been in place throughout the financial year to the date of this document and accord with the Revised Turnbull Guidance issued by the Financial Reporting Council, a guidance document relating to the principles under UK Corporate Governance Code .

The key elements designed to provide effective control are as follows:

1. Regular review of relevant financial data including management accounts and performance projections.

2. Contractual documentation with appropriately regulated entities which clearly describes responsibilities for the two principal service providers concerned.

3. The Investment Manager's system of internal controls is based on clear written processes, a formal investment committee, clear lines of responsibility and reporting all of which are monitored by Invista's internal risk team. Invista is regulated by the Financial Services Authority in the UK.

4. The Company's strategy is authorised by the Board which also monitors the Investment Manager's effectiveness in implementing the strategy.

Tom Chandos, Chairman

16 December 2010

Robert DeNormandie, Chairman of the Audit Committee

16 December 2010

CONSOLIDATED INCOME STATEMENT

For the year ended 30 September 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2010

All items in the above statement are derived from continuing operations

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2010

The financial statements were approved by the Board of Directors on 16 December 2010 and signed on its behalf by:

Tom Chandos Robert DeNormandie

Chairman Chairman of Audit Committee

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2010

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2010

COMPANY INCOME STATEMENT

For the year ended 30 September 2010

COMPANY STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2010

All items in the above statement are derived from continuing operations

COMPANY STATEMENT OF FINANCIAL POSITION

As at 30 September 2010

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2010

COMPANY STATEMENT OF CASH FLOWS

For the year ended 30 September 2010

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010

 1 Reporting entity

Invista European Real Estate Trust SICAF ("the Company") was incorporated as a "société anonyme" under the laws of Luxembourg on 6 June 2005. On 17 November 2006 the Company was converted into an investment company with fixed capital "société d'investissement à capital fixe" ("SICAF"). Through its subsidiaries (together "the Group") its main activity is to evaluate, make and actively manage direct and indirect investments in real estate in Continental European countries.

The Company is a public limited liability company incorporated for an unlimited term. On 31 July 2009 the registered office of the Company moved from 25B, Boulevard Royal, L-2449 Luxembourg to 25C, Boulevard Royal, L-2449 Luxembourg.

Information pertaining to the Company is included to the extent required by the London Stock Exchange listing rules. This information should not deem to represent statutory annual accounts, which are separately prepared in accordance in accordance with International Financial Reporting Standard (IFRS) as adopted by the European Union.

2 Basis of preparation

2.1 Statement of compliance

These consolidated financial statements have been approved for issue by the Board of Directors on 16 December 2010 and have been prepared in accordance with International Financial Reporting Standard (IFRS) and interpretations adopted by the International Accounting Standard Board (IASB), as adopted by the European Union (EU).

These consolidated financial statements are presented for the year ended 30 September 2010, with comparative figures for the year ended 30 September 2009.

The Company's stand alone accounts and the consolidated accounts have been approved for issue by the Board of Directors on 16 December 2010.

2.2 Functional and presentation currency

These consolidated financial statements are presented in Euro, which is the Company's presentation and functional currency. All financial information presented in Euro has been rounded to the nearest thousand.

2.3 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following:

·; Investment properties are measured at fair value (Note 4)

·; Derivative financial instruments are measured at fair value (Note 4)

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the Group's policies. Changes in assumptions may have a significant impact on the financial statement in the period the assumption changed. The Board of Directors believes that the underlying assumptions are appropriate. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

2 Basis of preparation (Continued)

Going concern assessment

The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular the loan to value covenant and interest cover ratio along with the loan repayment date of December 2013. They have not identified any material uncertainties which would cast significant doubt on the Group's ability to continue as a going concern for a period of not less than 12 months from the date of the approval of the financial statements. The Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for the foreseeable future. After due consideration the Board believes it is appropriate to adopt the going concern basis in preparing the financial statements.

2.4 New standards and interpretations adopted

Standards and amendments to existing standards effective for the year ended 30 September 2010

The following Adopted International Financial Reporting Standards (IFRS) relevant to the Group have been applied to these financial statements for the first time in 2009-2010 with new disclosures and comparatives presented accordingly. There is no financial impact arising from the application of these standards, only presentational changes and some additional or expanded notes to the accounts.

Standard/ Applicable for financial

IAS 23 Borrowing costs 1 January 2009

IFRS 8 Operating Segment Information 1 January 2009

IAS 1 Presentation of financial statements 1 January 2009

IFRS 7 Amendment: Improving disclosures about financial

instruments 1 January 2009

IAS 32 and IAS 1 Puttable financial instruments and obligations

arising on liquidation 1 January 2009

Accounting for borrowing costs - IAS 23

In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on after 1 October 2009, the Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

2 Basis of preparation (Continued)

Determination and presentation of operating segments - IFRS 8

As of 1 October 2009, the Group determines and presents operating segments based on the information that is internally provided to the Board of Directors. The new accounting policy requires segment disclosure based on components of an entity that the Board of Directors monitors in making operating decisions. The segment information for the year ended 30 September 2010 and for the comparative period is presented in Note 30.

Presentation of financial statements - IAS 1

The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the Consolidated Statement of Changes in Equity all owner changes in equity, whereas all non-owner changes in equity are presented in the Consolidated Statement of Comprehensive Income.

Improving disclosures about financial instruments - IFRS 7

IFRS 7 requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy.

Financial instruments: Puttable financial instruments and obligations arising on liquidation - IAS 32 and IAS 1

The amendment requires some puttable financial instruments (being those which give the holder the right to put the instrument back to the issuer for cash or another financial asset) and some financial instruments that impose an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity.

The adoption of the amendment results in additional disclosures but does not have an impact on profit or earnings per share.

Standards and amendments to standards becoming effective for the year ended 30 September 2010 but not relevant for the Group

Standard/ Applicable for financial

IFRS 3 Business combinations 1 July 2009

IFRS 1 and IAS 27 Cost of an investment in a subsidiary, jointly-

controlled entity or associate 1 January 2009

IFRS 2 Share-based payments - vesting conditions and

cancellations 1 January 2009

IFRIC 13 Customer loyalty programmes 1 July 2008

IFRIC 16 Hedges of a net investment in a foreign operation 1 October 2008

IAS 27 Consolidated and separate financial statements 1 January 2009

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

2 Basis of preparation (Continued)

Standards, amendments and interpretations that are not yet effective and not expected to have a significant impact on the Group's financial statements for the year ended 30 September 2010

*Not expected to be relevant for the Group

Financial instrument: Classification of rights issues - IAS 32

IAS 32 is applicable for annual periods commencing on or after 1 February 2010 and requires that rights issues denominated in a currency other than the functional currency of the issuer to be classified as equity regardless of the currency in which the exercise price is denominated.

Financial instrument: Classification and measurement - IFRS 9

IFRS 9 simplifies the recognition of financial assets by requiring such assets to be measured at either amortised cost or fair value, depending on certain criteria. The standard is effective for financial years beginning on or after 1 January 2013.

Financial instruments: recognition and measurement - eligible hedged items - IAS 39

The amendments to IAS 39 become effective for financial years beginning on or after 1 July 2009. The amendments clarify how the principles underlying hedge accounting should be applied in particular situations.

Extinguishing Financial Liabilities with equity instruments - IFRIC 19

IFRIC 19 interpretation clarifies that when equity instruments are issued to a creditor, the financial liability is extinguished and the equity instruments are treated as consideration paid to extinguish the liability. The interpretation has an effective date for the financial year beginning on or after 1 July 2010.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all the periods presented in these consolidated financial statements, and have been applied consistently by Group entities except as explained in Note 2.4, which addresses changes in accounting policies.

The presentation of the consolidated financial statements have been modified and reclassified to ensure that the comparability between the years ended 30 September 2009 and 30 September 2010 better reflect the economic substance of the Company and to follow industry best practice. Comparative information has been re-presented. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

3.1 Basis of consolidation

The consolidated financial statements comprise the accounts of the Company and all of its subsidiaries drawn up to 30 September each year. Subsidiaries are those entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date control ceases.

The Group's acquisitions of subsidiaries are primarily accounted for as acquisitions of assets as the subsidiaries are special purpose vehicles established for the sole purpose of holdings companies. The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

The assets and liabilities of the subsidiaries and their results are fully reflected in the consolidated financial statements. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have also been changed where necessary to ensure consistency with new or revised accounting policies adopted by the Group.

3.2 Related parties

Related parties are defined as parties either directly or indirectly controlled, managed or owned by Invista European Real Estate Trust SICAF. A list of related party transactions is disclosed in Note 28.

3.3 Foreign currency translation

The functional currency of a subsidiary is determined as the principal currency in which the entity's assets, liabilities, income and expenses are denominated. Subsidiaries in all jurisdictions have the Euro as their functional currency.

Transactions in currencies other than the functional currency of an entity are recorded at the rate in effect at the date of transaction. Monetary assets and liabilities denominated in such currencies are translated at the date of exchange ruling at the balance date sheet date. All differences are recognized in the Consolidated Income Statement under 'finance expense" (see Note 14). The cumulative effect of exchange differences on cash transactions are classified as realised gains and losses in the Consolidated Income Statement in the period in which they are settled. Exchange differences on transactions not yet settled in cash are classified as unrealised gains and losses under "finance expense".

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies (Continued)

The assets and liabilities of subsidiaries are determined in accordance with the accounting principle of the Company. Where the local currency is different from the functional currency of the Company, those monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date. The Consolidated Income Statement counterparty of these monetary assets and liabilities of such subsidiaries are translated at the average exchange rate for the period. The exchange differences arising on the currency translation are recorded as unrealized gains and losses under "finance expense".

Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the acquired company and are recorded at the exchange rate at the date of the transaction.

3.4 Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes. Investment property comprises freehold land, freehold buildings and land held under operating leases.

Investment property is initially recognised on completion of contracts at cost, including related transaction and borrowing costs associated with the investment property. Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property are capitalised as part of its costs. Borrowing costs are capitalised while acquisition or construction is actively underway and cease once the asset is substantially completed, or suspended if the development of the asset is suspended.

Where unconditional commitments have been entered into prior to the Balance Sheet date property acquisitions are recognised at their contractual value. After initial recognition, investment properties are measured at fair value as determined by third party independent appraisers. The gains or losses arising from a change in the fair value of the investment property is included in the Consolidated Income Statement under the heading "net change valuation gains / (losses) on investment property" in the period in which it arises. Depreciation is not provided on investment properties. Realised gains and losses on the disposal of investment properties are determined as the difference between the disposal proceeds and the carrying value and are included in the Consolidated Income Statement in the period in which they arise.

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn income or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. This accounting policy is also applied for assets held for sale.

3.5 Investment in subsidiaries (Company only)

Investments in subsidiaries are held at cost less any impairment.

3.6 Loan to subsidiaries (Company only)

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at fair value, less any impairment losses.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3.7 Financial instrument

Financial assets: Initial recognition

The Company determines the classification of its financial assets at initial recognition. The Company's financial assets include cash and short term deposits, trade and other receivables and unquoted financial instruments available for sale.

Available-for-sale

After initial measurement, available-for-sale financial assets are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is (i) derecognised, at which time the cumulative gain or loss recorded in equity is recognized in the Other Comprehensive Income, or (ii) determined to be impaired, as which time the cumulative loss recorded in equity is recognised in Other Comprehensive Income.

Financial liabilities: Initial recognition

Financial liabilities within the scope of IAS 39 are classified as either financial liability at fair value through profit and loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

The Company's financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.

The subsequent measurement of financial liabilities depends on their classification:

- Financial liability at fair value recognised through profit and loss

Financial liability at fair value through profit and loss includes financial liabilities held for trading and financial liabilities designated upon the initial recognition at fair value through profit and loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative instruments entered into by the Company that do not meet hedging accounting criteria as defined by IAS 39. Gains and losses on liabilities held for trading are recognised in the Consolidated Income Statement;

- Fair value of financial instruments

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same discounted cash flow analysis or other valuation methods;

- Amortised cost of financial instruments

Amortised cost is computed using the effective interest rate method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

3.8 Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities (refer to Note 29). On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedge relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be "highly effective" in offsetting the changes in the fair value of cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies (Continued)

Derivatives are initially recognised at fair value with related transaction costs recognised in the Consolidated Statement of Comprehensive Income when incurred. Subsequent to initial recognition, derivative financial instruments are measured and stated at fair value on the date on which the derivative contract is entered into and are subsequently revised to reflect their fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge are taken directly to Other Comprehensive Income. The effectiveness of the hedge is assessed by comparing the value of the hedged item with the notional value implicit in the contractual terms of the financial instrument being used in the hedge. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classified as either fair value hedges, when they hedge the exposure to changes in the fair value of a recognised asset and liability, or cash flow hedges where they hedge exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability.

Cash flow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the Other Comprehensive Income. Amounts taken to equity are transferred to Other Comprehensive Income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when the related sale occurs.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the Consolidated Income Statement in the same period that the hedged item affects profit or loss.

Prior to the renegotiation of the debt and the interest rate hedging concluded on 12 January 2010, the interest rate swap hedging was not fully effective, and the changes of the fair value were recognised in the Consolidated Income Statement. Subsequent to the renegotiation of the debt due to the matching duration of hedge contracts and debt, the hedging contracts are considered to be effective and the changes of fair value are recognized in the consolidated Statement of Comprehensive Income and Changes in Equity.

3.9 Impairment

Financial assets (including receivables)

The Company assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of an impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred "loss event") and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the Consolidated Income Statement.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies (Continued)

Non Financial assets

The carrying amounts of the Company's non financial assets, other than rent receivable and deferred tax assets (which are measured at amortised cost) are reviewed at each reporting date to determine whether there is any indication of impairment. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates continuing cash flows that are largely independent of the cash flows of other assets or groups of assets (the "cash-generating unit").

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the Consolidated Income Statement.

3.10 Derecognition of financial instrument

Financial assets

A financial asset is derecognised when:

- The rights to receive cash flows from the asset have expired;

- The Company has transferred its rights to receive cash flows or transferred substantially all the risks and rewards and/or has neither transferred nor substantially retained all the risks and rewards of the asset, but has transferred control of the asset;

- If the hedging instrument no longer meets the criteria for hedge accounting then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the related transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the Consolidated Income Statement in the same period that the hedged item affects profit or loss.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as reversal of the original liability and the recognition of a new liability and the difference in the respective carrying amount is recognised in the Consolidated Income Statement.

3.11 Trade receivables

Trade receivables are carried at amortised cost less provision for doubtful debts, if any. The Directors' of the Company assess specific provisions (refer to Note 5.3) on a customer by customer basis throughout the period.

3.12 Current assets and liabilities

Due to the short time frame in which these transactions are settled, the fair value of other current assets and liabilities due within one year approximates the carrying value disclosed in the financial statements.

3.13 Cash and cash equivalents

Cash includes cash on hand and cash with banks. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and are subject to an insignificant risk of change in value. The use and disbursement of certain cash deposits are restricted under the terms of various financing agreements. Bank overdrafts that are repayable on demand and that form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash Flows.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies (Continued)

3.14 Share capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

3.15 Issue costs

The cost of raising capital represents direct costs incurred in establishing or increasing the capital of the Company including, amongst others, legal, accounting, financial advisory and equity underwriting fees.

3.16 Preference shares

Preference shares are classified as a financial liability due to the contractual obligation by the issuer to redeem them in cash at a date in the future.

Where the preference share are classified as a financial liability, external costs directly attributable to issuance of the preference shares are capitalised and amortised over the life of the preference shares.

3.17 Warrants

Preference shares and their related warrants are considered as two separate instruments due to the fact they are detachable and traded separately on the London Stock market. The warrants are considered as a financial derivative liability at fair value through profit and loss. Their recognition as a financial liability is due to the fact the strike price for the warrants is £0.29, a different currency (Sterling) than the functional currency of the Fund (Euro) as well as the fact the warrants were not issued on a pro rata basis to the existing shareholders.

3.18 Interest bearing debt

Debt, comprising secured and unsecured bank loans, is reflected in the Consolidated Statement of Financial Position at the fair value of the initial proceeds less the unamortised portion of discounts and transaction costs incurred to acquire the debt. Discounts and transactions costs are amortised over the life of the related debt through finance expenses using the effective interest rate method.

Transaction costs include fees and commission paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include internal administrative or holding costs.

3.19 Taxation and deferred taxation

According to the Luxembourg regulations regarding SICAF companies the Group is not subject to capital gains taxes in Luxembourg. It is, however, liable to an annual subscription of 0.05% (taxe d'abonnement) of its total net assets, payable quarterly, and assessed on the last day of each quarter. Real estate revenues, or capital gains derived thereon, may be subject to taxes by assessment, withholding or otherwise in the countries where the real estate is situated.

The subsidiaries of the Group are subject to taxation in the countries in which they operate. Current taxation is provided for at the current applicable rates on the respective taxable profits.

3 Significant accounting policies (Continued)

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements.

Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined with regard to tax laws and rates that have been enacted or substantially enacted into law by the Balance Sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilised. Unrecognised deferred tax assets are re-assessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and deferred tax liabilities are offset, if (i) a legally enforceable right exists to set off current tax assets against current tax liabilities, if (ii) the deferred taxes relate to the same taxable entity and the same taxation authority and if (iii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

3.20 Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

3.21 Deferred income

Deferred income represents rental income which has been billed to customers at the balance sheet date, but which relates to future periods.

3.22 Rental income

Rental income from investment properties is accounted for on a straight-line basis taking account of any rent free periods and other lease incentives, net of any sales taxes, over the term of the ongoing leases.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

3 Significant accounting policies (Continued)

3.23 Finance income and expenses

Finance income comprises interest income on funds invested and gains on hedging instruments that are recognised in the Consolidated Statement of Comprehensive Income. Interest income is recognised using the effective interest rate method.

Finance expenses comprise interest expense on borrowings, and losses on hedging instruments that are recognised in the Consolidated Income Statement.

Attributable transaction costs incurred in establishing the Group's credit facilities are deducted from the fair value of borrowings on initial recognition and are amortised over the lifetime of the facilities through the Consolidated Income Statement. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in the Consolidated Income Statement using the effective interest rate.

Finance expenses include the effect of unrealised foreign currency gains and losses on monetary assets and liabilities arising in the period plus the effect of the realised foreign currency gains and losses on cash transactions completed during the period.

3.24 Operating Expenses

All expenses are accounted for on an accruals basis. The Group's investment management and administration fees and all other expenses are charged to the Consolidated Income Statement.

3.25 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants.

3.26 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly to make decisions about resources to be allocated to the segment and to assess their performance (see Note 30).

3.27 Subsequent events

Post balance sheet date adjustments are disclosed in the notes to the consolidated financial statements when significant.

3.28 Contingencies

Contingent liabilities are not recognised in the consolidated financial statements, unless there is a probable chance of an outflow for which a provision is made.

A contingent asset is not recognised in the consolidated financial statement but disclosed when an inflow of economic benefits is probable.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

4 Significant accounting estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements is included in:

- Investment property

Fair value is based on the open market valuations of the properties as provided by an independent expert, DTZ Debenham Tie Leung, in accordance with the guidance issued by the Royal Institution of Chartered Surveyors (the "RICS"). Market valuations are carried out on a quarterly basis. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

Valuations typically reflect all the market and operational risks as described in Note 5.1 It should be noted that the valuation of property and property related assets is inherently subjective due to the nature of each property and the characteristics of local, regional and national real estate markets which change over time. The current economic climate and volatility in the global capital markets creates additional uncertainty and there can therefore be no assurance valuations of the Company's assets will reflect actual sale prices even where such sales occur shortly after the valuation date.

- Income and deferred taxes

The Company is subject to income and capital gain taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. The Company recognises liabilities for anticipated taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provision in the period in which the determination is made.

- Derivative financial instruments

An interest rate swap can be viewed as a series of cash flows occurring at known future dates. The value of the swap is the present value of these cash flows. To calculate the present value of each cash flow, both the future cash flows and an appropriate discount factor for each period on which a cash flow occurs are estimated. Future cash flows are calculated from a forward interest rate curve constructed using market prices for similar interest rate instruments independently sourced from mid-market broker quotes for the relevant market. The discount factor is the factor by which the future cash flow must be adjusted to obtain the present value. Discount factors are derived from an assessment of interest rates in the future and are calculated using forward rates such as EURIBOR. Interest rates used for calculating discount factors are independently sourced from mid-market broker quotes for the relevant market at the valuation date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

4 Significant accounting estimates and judgements (Continued)

The fair value of the Group's derivatives is the estimated amount that the Group would receive or pay to terminate the derivative at the balance sheet date. The Company estimates fair value of derivatives by reference to current market conditions compared to the terms of the derivatives agreement using the result of an external appraiser. Refer to Note 29 for the related balances.

- Classification of preference shares and the warrants

Judgement is required to determine whether preference shares should be classified as financial liability or equity in accordance with IAS 32 Financial instruments: Presentation. Based on the terms and conditions of the preference shares issued in December 2009 the Company has determined that the preference shares have the characteristics of a financial liability rather than equity. This was primarily based on the fact that the preference shares and the warrants are denominated in sterling whereas the functional currency used by the Company is the Euro. In addition, the preference shares have a right to receive a dividend and are redeemable.

5 Financial risk management objectives and policies

The Group has exposure to the following risks from its use of financial instruments:

- Market and operational risks,

- Currency risk,

- Credit risk,

- Liquidity risk,

- Capital risk management.

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these Consolidated Financial Statements.

Risk Management Framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. A description of the internal controls in place is set out in the Director's report.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

5 Financial risk management objectives and policies (Continued)

5.1 Market and operational risks

Market risk is the risk that changes in market prices, such as rental income, interest rates and property value will affect the Group's income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group uses derivatives, and also incurs financial liabilities, in order to manage the market risk attributable to the interest rate risk. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.

Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as changes in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies.

Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of bankruptcy or the insolvency of tenants or otherwise, the periodic need to renovate, repair and re-lease space and the costs thereof, the costs of maintenance and insurance, and increased operating costs.

The Investment Manager also analyses portfolio and investment risks under the following categories:

By monitoring assets under these categories using the risk controls outlined and by diversifying the portfolio in different property sectors, countries, regions and tenant industries the Group expects to lower the risk profile of the portfolio.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

5 Financial risk management objectives and policies (continued)

5.2 Currency risk

The Company obtains financing in currencies other than Euro (preference shares and warrants issued in Sterling, refer to Note 23 and 24) and is exposed to the fluctuations of the exchange rate of that currency.

5.3 Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. Credit risk for the Group arises principally from rental receivables from tenants and investment securities.

Trade and other receivables

In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and may incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Investment Manager reviews reports prepared by Experian, or other sources, to assess the credit quality of the Group's tenants and aims to ensure there is no excessive concentration of risk and that the impact of any default by a tenant is minimised:

- Credit risk for tenants

The Group's income would be adversely affected if a significant number of tenants were unable to pay rent or its properties could not be rented on favourable terms. Certain significant expenditure associated with each equity investment in real estate is generally not reduced when circumstances cause a reduction in income from properties;

- Credit risk management for tenants and property managers

Receivables from tenants are the main credit risk for the Group. A credit evaluation is performed on the financial condition of prospective new tenants and a deposit is taken depending on the credit worthiness of the tenant.

The Group establishes a provision for doubtful debt that represents its estimates of potential losses with respect to trade and other receivables and investments.

Investment securities

Investments, other than those in property, are held only in liquid securities and only with counterparties that have a credit rating above or similar to the Group. Transactions involving derivatives are with the counterparty Bank of Scotland Treasury. Credit and counterparty risk on liquid funds and on interest rate hedges is limited because the counterparty is a bank with a high credit rating assigned by international credit rating agencies.

5.4 Liquidity risk

Liquidity risk is the risk that the Group will encounter in realising its assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid. The Group's approach to managing liquidity exposure is that it will seek to have sufficient liquidity to meet its liabilities and obligations when due.

5.5 Capital management

The Group's objective when managing capital is to seek to ensure the Group's ability to continue as a going concern in order to provide returns to shareholders and benefits for further stakeholders; and to maintain an optimal capital structure while seeking to minimise the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend paid to shareholders, return capital to shareholders, issue new shares, sell its assets to reduce debt or drawdown further debt.

The Group regularly reviews compliance with Luxembourg regulations regarding restrictions on borrowings and Loan to value ratio

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

The Group leases out its investment properties under operating leases. The future minimum lease receipts under non-cancellable leases are as follows:

The Investment Manager's Report referred to in this document provides additional information regarding contingent rent recognised and leasing arrangements. During the year ended 30 September 2010 €41.9 million was recognised as rental income in the Consolidated Income Statement (2009: €44.9 million).

Property operating expenses incurred during the year were attributed to:

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

9 Investment management and performance fees

The Investment Manager is entitled to a base fee and a performance fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties.

The base fee from 17 November 2006 to 26 May 2009 was calculated at a rate of 0.95% per annum of gross assets prorated from the acquisition date of the assets. On 27 May 2009 the Company entered into an agreement with the Investment Manager to effect a change in the base fee. From this date the base fee was payable monthly in arrears at an amount equal to the lower of:

·; 2% of the Net Asset Value of the Company per annum (subject to a minimum threshold of €3 million per annum); and

·; A percentage equivalent of the Net Asset Value of the Company per annum which represents 0.95% of the Adjusted Gross Assets of the Company per annum.

In addition, and subject to the conditions below, the Investment Manager is entitled to an annual performance fee where the total NAV per share during the relevant financial period exceeds an annual rate of 10.0% (the "performance hurdle"). Where the performance hurdle is met, a performance fee will be payable in an amount equal to 15.0% of any aggregate total return over and above the performance hurdle. The performance hurdle is calculated on a three year rolling basis. This requires that the annualised total return over the period from listing on 20 December 2006 to the end of the relevant financial period in the first three year period, and on a rolling three year basis thereafter, is equal to or greater than 10.0% per annum.

As the conditions for receipt of a performance fee were not met during the year, no charge has been recognised in the Consolidated Income Statement.

The professional fee for audit services provided by auditors of the Group and its subsidiaries were €0.5 million in 2010 (2009: €0.6 million). In 2010 the non-recurring remuneration to the auditors for services other than audit was €0.2 million (2009: nil).

Other expenses include various expenses primarily related to the write off of a portion of prior year VAT receivables of €0.3 million and recoverable service charges of €0.4 million.

11 Administration fees

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)

As at 30 September 2010 the acquisition of Girona resulted in a negative value adjustment of €4.0 million. Capital expenditure (CAPEX) includes the refurbishment cost of Trappes SAS of €3.5 million (2009: €9.6 million) and borrowing costs capitalised during the year of €53,145 (2009: nil). The capitalisation rate for the borrowing costs used was the three month EURIBOR + 2.75% of margin and the CAPEX unpaid as at 30 September 2010 is equal to €1.2 million (2009: €2.8 million).

The net change in the value of the investment property also includes the valuation of assets sold:

On 26 October 2009, SCI Prolog sold its warehouse property located in Aix-en-Provence, France for a price of €0.7 million, which enabled the repayment of €0.5 million of bank debt.

On 16 November 2009 Fova Sarl sold a parcel of land for a price of €0.6 million, which enabled the repayment of €0.4 million of bank debt.

On 4 February 2010 Canal Business Park N.V. sold its warehouse property Campus Remy located in Remylaan 4B/4C, 3018 Wijgmaal, Leuven, Belgium, for a total price of €15.7 million, which enabled the repayment of €12.2 million of bank debt.

On 19 April 2010 and on 19 April 2010, KP Image House SA sold its warehouse property located in Belgium for a price of €7.6 million, which enabled the repayment of €6.1 million of bank debt.

On 13 July 2010, Cabrimmo Sarl sold its warehouse property located in Cabries, France for a price of €2.8 million, which enabled the repayment of €1.7 million of bank debt.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2010 (CONTINUED)