IERE.L Regulatory News (IERE)

19 December 2011

INVISTA EUROPEAN REAL ESTATE TRUST SICAF

FULL YEAR RESULTS FOR 12 MONTHS ENDED 30 SEPTEMBER 2011

The Invista European Real Estate Trust SICAF (the "Company"/ "Group") has today announced its results for the year ended 30 September 2011.

Financial Highlights

·; Property assets of €451.1 million (30 September 2010: €515.7 million) following disposals of €50.2 million. Portfolio now comprises 39 properties with over eighty six per cent in the two main European markets, France and Germany

·; Portfolio valuation decreased by 3.16% on a like for like basis over the year

·; Adjusted NAV of €0.52 per share (30 September 2010: €0.54 per share), reflecting the weakening of property valuations in the second half of the year

·; Earnings on an EPRA basis of €4.7 million

·; Loss before tax €11.5 million (30 September 2010: €1.1 million)

·; Loss per share of €0.045 (30 September 2010: €0.0002)

·; Drawn down debt facilities of €298.0 million resulting in a loan-to-value ratio of 66.1% (30 September 2010: 66.6%). The Company has repaid over €49.7 million of borrowings over the last year

·; Group cash of €36.2 million (excluding tenants' deposits and escrow amounts) at year end.

Operational highlights

·; Five properties sold for €50.2 million at prices, on average, at 1.3% discount to the prevailing valuation

·; Void levels stabilised at circa 10.2% of income at year end

·; Lease lengths stabilised with a weighted average of 6.25 years as at 30 September 2011 (30 September 2010: 6.22 years)

Investment manager and strategy

·; Post year-end, the Company appointed Internos Real Investors ("Internos"), a leading pan-European property fund manager, to take on the management of the Company's assets, following a rigorous selection & approval process

·; The Company announced in June that it proposed to change its investment objective and policy to a structured realisation. This was approved by Shareholders at a general meeting following the financial year end and discussions continue with the Commission de Surveillance du Secteur Financier on this point.

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

"The appointment of Internos represents a new start for the Company and its key managers worked assiduously to prepare for the assumption of the management role. This makes the Company well placed to face the challenges of the macroeconomic environment in Europe, with financing for commercial real estate becoming once more very restricted and tenants increasingly cautious which will have inevitable impact on both the valuation of the Company's properties and their liquidity."

For further information:

Ludovic Bernard

Internos Real Investors 020 7355 8800

Michael Sandler

Hudson Sandler 020 7796 4133

Invista European Real Estate Trust Company Summary

As at 30 September 2011, Invista European Real Estate Trust SICAF (the "Company") and its subsidiaries (together the "Group") held a diversified real estate portfolio comprising 39 commercial properties across six Continental European countries. The combined aggregate value of these properties was €451.1 million.

At the time of IPO on 20 December 2006, the stated long term investment objective of the Company was 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 was France and Germany due to the relative stability, transparency and liquidity of these markets.

On 14 October 2011 an Extraordinary General Meeting ('EGM') of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders subject to approval by the Commission de Surveillance du Secteur Financier ('CSSF'). The CSSF has approved the appointment of Internos Real Limited ("Internos") as investment manager and promoter and discussions continue with the CSSF regarding the proposed new investment objective and policy.

Financial Summary

v Net Asset Value decreased during the year from €139.9 million to €136.1 million

v Net Asset Value per share decreased by 2.8% to €0.52

v Loss per share of €0.045032

Sources: Invista Real Estate Investment Management; Datastream

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

2 As at 30 September 2011, deferred tax liabilities of €24.9 million, based upon temporary differences at the time of initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS12. The Group has deferred tax assets of €14.2 million which also have not been recognised.

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

4 €:£ exchange rate used was €1.149 as at 30 September 2011; €1.161 as at 30 September 2010.

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

\* The company disposed of five properties valued at €50.8 million during the year.

Summary consolidated income statement

Earnings and dividends

Bank borrowings

Estimated annualised total expense ratio 2

1 Share price converted to Euro at exchange rate of €:£ of 1.149 prevailing at 30 September 2011 and 1.161 prevailing at 30 September 2010. During the 2009 and 2010 financial years no ordinary dividend was paid.

2 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.

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

Chairman's Statement

In a year which has got progressively more difficult, the Company has made steady progress in strengthening its balance sheet, with a programme of disposals generating €50.2 million of net proceeds, allowing a reduction in net debt of €49.7 million. At the same time, significant strategic changes have been initiated, with the appointment of a new investment manager, Internos Real Limited ("Internos"), having been announced in the summer and implemented on 15th December 2011. A new investment objective and policy has been proposed, which, having been approved by shareholders in October 2011, is under discussion with the Luxembourg financial regulator.

Adjusted net asset value declined modestly in the year from € 0.538 (46.4p) to a figure of €0.52 (45.5p) per share, reflecting the weakening of property valuations in the second half of the year and some further adverse movement in the valuation of interest rate swaps, offset by retained earnings from operations; net earnings (on an EPRA basis) were €4.7 million. The proceeds of the property disposals allowed the level of net debt to fall to 60.2% of total assets, compared to 62.1% in the previous year.

As at year end, the Company's property portfolio was valued at €451.1 million and comprised 39 commercial property investments across 6 countries (€515.7 million, 43 assets and 7 countries as at 30 September 2010). The implementation of a range of asset management initiatives made a positive contribution to the net earnings of the Company with almost a third of portfolio income re-negotiated during the year. Net property income returns and lease lengths have remained stable at 7.53% (7.56%; 30 September 2010) and 6.25 years (6.22 years;30 September 2010) respectively. Internos expects the Company to make further leasing and disposal announcements in due course.

As has been previously reported, the parent company of Invista Real Estate Management ("Invista"), the Company's then investment manager, announced at the beginning of the financial year that it intended to realise its assets. After initially exploring the possibility of jointly acquiring the fund management arm, the Company instead served notice on the manager and began a process of selecting a new manager. Internos, a leading pan-European property fund manager, was selected and, after all the necessary approvals had been obtained, has now, since the financial year end, taken over the management of the Company.

The Company announced at the same time as the selection of the new manager that it proposed to change its investment objective and policy to a structured realisation. This was approved, subject to regulatory approval, by shareholders at a general meeting following the financial year end. The Commission de Surveillance du Secteur Financier ("CSSF"), has approved the appointment of Internos as investment manager and promoter and discussions continue with the CSSF regarding the proposed new investment objective and policy.

In the meantime, the existing investment objective and policy continue to apply, under which the Company has been pursuing an accelerated, proactive programme of disposals (with €50.2 million of sales in the past twelve months); Internos will be maintaining this approach, in order to further reduce the Company's borrowings, while discussions continue with the CSSF about the longer term strategy.

The macroeconomic environment in Europe is extremely challenging, with financing for commercial real estate becoming once more very restricted and tenants increasingly cautious. This has an inevitable impact on both the valuation of the Company's properties and their liquidity. The corporate instability at Invista has been very unhelpful to the Company, although at the working level the team that has been responsible for the management of the Company maintained a strong level of focus and commitment; we wish them well in the future.

The appointment of Internos represents a new start for the Company and its key managers worked assiduously to prepare for the assumption of the management role. A number of former employees of Invista have now joined Internos, including the entire Paris-based team, so there should be a useful level of continuity and transfer of knowledge. I therefore look forward to the challenges of the coming years fortified both by the quality of the Company's underlying assets and the commitment and enthusiasm of the new investment manager. 

Tom Chandos

16 December 2011

Investment Manager's Report

Invista Real Estate Investment Management ("IREIM") has been the Investment Manager throughout the financial year concerned and until 15th December 2011 when management was handed over to Internos. The Investment Manager's Report was prepared by IREIM and reviewed by Internos.

Results

The Company's Adjusted NAV as at 30 September 2011 was €0.523 (45.5p) per share. This decreased over the financial year by 2.8% (1.9%) from €0.538 (46.4p) due principally to the combined effect of a fall in property valuations of 3.16% and further reductions in the mark-to-market valuation of the Company's interest rate swaps.

Over the 12 months to September 2011, the Company generated net earnings of €4.7 million as calculated on an EPRA basis.

In order to meet strategic objectives, the Company completed five sales (including one part sale) totalling €50.2 million and reduced borrowings by €49.7 million, accessing lower margin financing at below 65% LTV.

Asset management initiatives completed included new lettings on 19,970 sqm of accommodation, generating net additional earnings of €1.8 million on an annualised basis. On a like-for-like basis (excluding sales), the weighted average lease length to first break improved by 9.5% to 4.27 years.

The Market

Signs of economic recovery in the first half of 2011 in the Eurozone, which had supported the region's property markets over the past year, began to lose some of their momentum over the summer and as a result GDP growth forecasts for the region have been reduced in recent months.

Within the property market, the 'prime' sub-markets have, according to CB Richard Ellis, experienced rental growth of 2.7% in the 12 months to Q3 2011 (source: CB Richard Ellis Prime Eurozone Index). By contrast, rents in secondary and tertiary sub-markets generally remain weak as a result of high rates of availability in older stock. Overall, investors and tenants are cautious and this has constrained the volume of property leasing and investment activity, particularly in countries on the Eurozone's Periphery.

Property investment turnover has held up best in Europe's most liquid markets (Germany and France) and its strongest economies (Sweden and Central & Eastern Europe), which together accounted for 73% of investment turnover in the 12 months to Q3 2011, compared to a long-term average of 64% (source: CB Richard Ellis, Continental European investment turnover). By contrast, in Benelux, Italy and Iberia, where economic growth is most at threat from public and private sector deleveraging, property investment volumes in the year to Q3 2011 accounted for only 16% of the European total (compared to a long-term average of 22%).

Events in the European sovereign debt market since the end of Q3 2011 have underlined that a sovereign default within the Eurozone remains the most significant risk to economic growth and by extension to future performance in the property market. While the exact consequences of such an event are difficult to predict, the immediate damage to economic growth would inevitably lead to heightened risk aversion among investors, emphasising the need to protect rental income through tenant retention.

Property Portfolio

As at 30 September 2011, the Company's property portfolio was valued at €451.1 million and comprised 39 commercial property investments across 6 countries (€515.7 million, 43 assets and 7 countries as at 30 September 2010) following disposals of five properties (includes one part sale) of €50.2 million during the financial year.

On a like for like basis the portfolio value decreased by 3.16% during the year; 2.03% of this was experienced during the last quarter of the year due to increased uncertainty associated with the Eurozone's sovereign debt crisis.

Top 10 properties by value*- Table 1

* Percentage of aggregate asset value plus cash as at 30 September 2011.

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 2011.

http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf 

Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2011

Over 86% of the portfolio is located in the Company's key markets, France and Germany. These are the largest property markets in Continental Europe and account for 55% of the total market (Source: IPD 2010). In line with the stated objective to reduce weighting to non-core markets, the Company sold down its only investment in Poland at a price 2.9% above valuation.  

http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf 

Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2011

The portfolio is invested in the three main commercial property sectors, logistics, offices and retail. Disposals during the year contributed to the reduction in the logistics weighting from 55.8% as at 30 September 2010 to 50.2% as at 30 September 2011.

Income/Tenancies

As at 30 September 2011 the Company's portfolio generated a gross income of €36.8 million per annum (net €36.0 million) and a Net Initial Yield at property level ("NIY") of 7.53%. The portfolio void level increased to 10.2% as at 30 September 2011 from 8.4% as at 30 September 2010. This risk was noted in the interim results and reflects a combination of completing sales of fully let properties during the year and continuing weakness in the occupational markets.

The weighted average lease length to expiry has remained relatively stable over the year at 6.25 years as at year end. The weighted average lease length to first break has improved slightly to 4.27 years from 3.86 years as at 30 September 2010. The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in October 2011 was 73 out of 100 which is classified as "low to medium risk". Furthermore, over 61% of the portfolio income is considered to have negligible or low credit risk. This includes our two largest tenants, Deutsche Telekom and Norbert Dentressangle.

Top 10 tenants by income**- Table 2

** Percentage of aggregate gross rent as at 30 September 2011

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 2011.

http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf 

http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf 

Source: Invista Real Estate Investment Management and DTZ, Debenham Tie Leung valuation as at 30 September 2011

The charts above show the lease expiry and break profile of the Company's portfolio. The percentages represent the proportion of the Group's total annual rental income due to break or expire in each year, as at 30 September 2011. A total of twelve leases have been renegotiated during the year representing 26.5% of portfolio income for a fixed term weighted average 6.3 years. Negotiations are progressing in respect of those leases with breaks occurring during 2012.

http://www.rns-pdf.londonstockexchange.com/rns/2006U_1-2011-12-18.pdf 

1 As at 30 September 2011

2 Source: Invista Real Estate Investment Management Limited

3 Source: DTZ Debenham Tie Leung Valuation as at 30 September 2011

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 valuation as at 30 September 2011

Disposals

The key strategic objective of the Company has been to reduce the level of borrowings. The principal method by which this has been achieved is through property sales and using cash to access lower margin financing. In a market characterised by risk averse investors it has been necessary to prepare assets for sale by extending leases or completing other asset enhancing initiatives so as to improve saleability and maximise equity return to the Company upon realisation.

During the year, the Company completed sales of five logistics assets (including one part sale) totalling €50.2 million and repaid €49.7 million of borrowings, including €4.6 million of cash to achieve lower margin financing. Sale prices were on average 1.3% below valuation.

Using these sale proceeds the Company achieved an LTV ratio with the Bank of Scotland of below 65%. This triggered a reduction in the loan margin from 2.50% to 2.25% per annum as at 25 July 2011 which on an annualised basis will result in savings of approximately €1.8 million in interest charges.

Discussions are progressing with prospective purchasers in respect of further asset sales.

Asset Management Highlights

In addition to preparing assets for potential sale, the key feature of asset level business plans has been to minimise downside risk from lease breaks and expiries and, where possible, grow rental income.

A range of such initiatives have been implemented this year, including notable lease re-negotiations facilitating the sale of the €20.7 million logistics asset in Trappes, Paris as well as lease extensions with key occupiers DHL and real SB-Warenhaus GmbH representing 9.1% of portfolio income.

During the year, leases representing over 28.6% of portfolio income were negotiated with new or existing tenants. This included 19,970 sqm of vacant office, logistics and retail space let to new tenants generating additional revenue of €1.4 million per annum and service charge savings of €0.4 million per annum.

A further €6.1 million of rental income (or 16.5% of portfolio revenue) is currently under negotiation, largely in respect of those leases with breaks occurring in 2012. These negotiations have already resulted in agreeing heads of terms on two properties in Belgium and France with a combined annual income of €1.9 million. Executing such business plan initiatives to maximise income return and stabilise or improve capital value is key to preserving Group earnings as well as positioning assets for disposal.

Offices

Over 35% of office income has been re-negotiated during the year. The Company's fourth largest tenant Valeo extended their lease at Cergy, France by four years and leased a further 3,100 sqm of accommodation. In Grenoble, France two new leases were agreed with Rolls Royce and Seiitra, representing 2,531 sqm of offices, while existing tenants Oracle and Euromaster extended their leases for an additional average fixed term of four years.

Heads of terms have also been agreed on a lease extension on an office property in central Brussels where the lease has been extended by nine years at a rent 18.0% above ERV.

New office lettings generated additional income of €0.8 million per annum and in addition reduced void costs by €0.4 million per annum. As a result of such activity, the office sector benefits from a high occupancy rate of 95.2% and a weighted average lease term to break of 6.6 years.

The office portfolio generates an income return (NIY) of 7.74%.

Logistics

Five properties (including one part sale) totalling €50.2 million were sold during the year, generating €14.8 million of equity proceeds which were applied to reduce borrowings.

The sale of the prime €20.7 million logistics property in Trappes, southwest Paris was undertaken at a NIY of 7.41% following the successful completion of a nine year lease extension immediately prior to disposal. Completing this key asset management initiative ensured a competitive sales process and maximised value, realising €10.7 million of equity.

In addition to the active sales programme a number of logistics leases were re-negotiated to improve income security and prepare properties for sale. This included a lease with Deutsche Post Immobilien in Lutterberg, Germany which was extended until April 2017 and Norbert Dentressangle in Monteux, France where a three year extension was achieved. The electronics distributor Nissin also extended their lease at the property in Nanteuil, France at an annual rent of €0.6 million. Despite challenging occupational markets in Spain, the Company leased 13,839 sqm of warehousing space in Madrid resulting in additional revenue of €0.5 million pa.

While the Company has been successful in effecting profitable sales and securing income, the logistics portfolio has nevertheless seen occupancy decline over the year to 84.2%. This reflects the concerns we expressed in the interim results that logistics occupiers continue to consolidate their space requirements in line with the wider market, which we believe reflects the challenging economic environment in which they are operating. It is notable that tenants have not vacated the Company's properties in favour of cheaper or better quality accommodation elsewhere; the rising void level in the logistics portfolio is more of a reflection of occupiers scaling back their operations.

Active marketing campaigns are in place to lease vacant accommodation and consideration is being given to short term letting solutions where this benefits earnings. Continuing to engage with existing occupiers to track business changes and negotiate resolutions ahead of lease break or expiry remains a key initiative to mitigate future risks.

The logistics portfolio generates an income return (NIY) of 7.50%.

Retail

The German retail assets have maintained the highest occupancy rate of the portfolio at 98.0%. This is in part a reflection of the longer leases in the German market and also due to the successful lease re-negotiation with anchor tenant Real-SB Warenhaus GmbH at the shopping centre in Riesa. This lease was extended by 12 years to provide a fixed term until 2024 and marked a very significant step forward in the implementation of the business plan for this property. Agreeing terms with the anchor tenant has meant that negotiations with other new occupiers can progress, including for example, an extension of 250 sqm to be leased to a pharmacy operator, Apo Concept at a rent of €60,000 pa. This new letting will generate an estimated IRR of 31.5%.

Income security in the retail portfolio has been extended by 2.25 years on a like for like basis during the year.

The retail portfolio generates an income return (NIY) of 7.24%.

Case Studies

Borrowings

As at 30 September 2011, the Company had drawn down a total of €298.0 million of senior debt in respect of its €359.3 million facility with the Bank of Scotland. In addition, the Company had cash balances of €36.2 million (excluding tenant deposits of €4.2 million and escrow accounts of €3.6 million) at that date, giving a net debt position of €261.8 million.

In July 2011, the proceeds from the sale of the logistics assets in Trappes, Paris and Vitrolles, France plus €4.6 million of cash from the Company's balance sheet were applied to paying down a total of €20.6 million of debt with the Bank of Scotland and all of the outstanding €9.5 million of debt with Credit Foncier. As at the Interest Payment Date on 25 July 2011 therefore, and based on valuations of the property portfolio as at 30 June 2011, the Loan To Value ("LTV") ratio was 64.99% and accordingly the margin on the debt reduced from 2.50% to 2.25% pa. This reduced margin will apply at least until the next Interest Payment Date on 25 January 2012 at which point the LTV will be tested using property valuations as at 31 December 2011.

The Company's gross Loan To Value ("LTV") ratio as at 30 September 2011 was 66.1% and the net debt LTV was 58.0%. As at 30 September 2011, the Company's gross LTV under the Finance Documents with the Bank of Scotland was 64.7%, against an LTV covenant of 82.5% in 2011.

All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.29% per annum at current LTV levels.

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 2011.

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 ("Invista"). 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 2011 was €451.1 million and consisted of 39 properties located in France, Germany, the Netherlands, Spain, Belgium, and Poland.

Disposals

The following disposals took place during the year:

Strategic outlook

As referred to in the Company Summary, on 14 October 2011 an EGM of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders and discussions continue with the Commission de Surveillance du Secteur Financier ('CSSF') regarding the proposed new investment objective.

Presently, the Company will continue to pursue a strategy where it actively manages the existing property portfolio to reduce the level of borrowings through sales where this is beneficial to the Group, 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.

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 2011, the Company's audited NAV (adjusted to add back deferred taxation and the change in the fair market value of warrants) was €0.523 per share. 

During the year ended 30 September 2011, the Company's audited adjusted NAV has decreased by €0.015 per share or 2.8%. The decline in NAV was primarily due to the combined effect of a fall in property valuations and further marked-to-market fall of the Group's interest rate swaps.

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.

Extraordinary General Meeting

On 14 October 2011, an EGM of the Company's shareholders was held to approve a proposed new investment objective and policy to realise its existing portfolio of properties and return capital to shareholders, subject to the approval of the CSSF.

This resolution was duly passed by shareholders holding Ordinary Shares, currently the Company is in discussions with the CSSF with a view to gaining their approval.

Capital Structure

At 30 September 2011 the Company's issued share capital consisted of 259,980,739 ordinary shares each allotted fully paid, 29,137,134of preference shares and 29,105,344 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 December 2010, 2,937 warrants were converted to Ordinary shares.

On 1 June 2011, 859 warrants were converted to Ordinary shares.

On 6 December 2011, 170 warrants were converted to Ordinary shares.

Since the warrants were issued on 16 November 2009, a total of 31,960 warrants have been converted to 31,960 of 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 25 May 2011, the Company declared the third semi-annual preference dividend of £0.04488 per Preference Share in respect of the period from 25 December 2010 to 24 June 2011, which was paid on 24 June 2011 to Preference Shareholders on the Register on 3 June 2011 and the shares were quoted ex-dividend on1 June 2011.

The fourth semi-annual preference share dividend of £0.04488 per Preference Share was declared on 30 November 2011 in respect of the period from 25 June to 23 December 2011, which will be paid on 23 December 2011 to Preference Shareholders on the Register on 9 December 2011. The shares were quoted ex-dividend on 7 December 2011.

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.

Shareholders' agreements

The Company is not aware of any shareholders' agreements which would result in restrictions on the transfer of securities or voting rights within the meaning of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the "Transparency Directive").

Shares and warrants transferability

Shares of the Company (i.e., Ordinary Shares and Preference Shares, as such terms are defined in the Articles) are freely transferable subject to article 10 of the Articles. Warrants issued by the Company are freely transferable subject to the provisions laid down in Part IV, Section 5. of the Prospectus.

Special Control rights

No security holder is vested with special control rights with regard to control of the Company.

Investment objective and policy

Current investment objective and strategy

The Company is currently continuing to implement its long term investment objective 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.

The current strategy for the ongoing 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 properties exhibit some or all of these characteristics will depend upon conditions in the local real estate market and the specific property.

Proposed new investment objective and strategy

At an EGM held on 14 October 2011, shareholders approved a proposed new investment objective and policy to realise the existing property portfolio and return capital to shareholders. Discussions continue with the Commission de Surveillance du Secteur Financier ('CSSF') regarding the proposed new investment objective. The Board believes that the proposed new investment objective and policy is the most appropriate course of action for the Company at this time, and is expected to have the following benefits:

·; shareholders should be able to obtain net realisable value (after repayment of borrowings and liabilities) in as short a timescale as practicable;

·; the approach to realisation should achieve the best balance between maximising value (compared to an immediate liquidation) and minimising the time taken to return capital to shareholders;

·; the implementation of the proposed new investment objective and policy should allow the Company to take advantage of buyers' immediate appetites for portfolio assets, at the same time as holding other assets over a longer timescale in order to maximise realisable value. Portfolio sales and corporate transactions, such as the merger or sale of the Company, will also be considered as a means of accelerating the delivery of value to shareholders; and

·; the Company's listing and capacity to trade in the shares will be maintained for as long as practicable.

It is proposed that all property assets will be sold as expeditiously as is consistent with the protection of value, with an initial focus on those properties already optimised for sale and those in markets where the Company has relatively few assets, so as to reduce property management costs.

The sales proceeds would be applied in the first instance to the repayment of debt and thereafter returned to shareholders of the Company within a targeted timescale of approximately three years from 29 September 2011, being the date on which a circular was issued by the Company to its shareholders seeking approval of the new investment policy of the Company.

As the property assets of the Company are sold, the Board would use cash proceeds in excess of the amount that is required to repay allocated loan amounts and related financing costs either for further debt repayment or for return of capital to the shareholders in accordance with its assessment at that time of what will deliver the best time and risk adjusted returns to shareholders.

New property assets would not be acquired unless such an acquisition is deemed by the Board, in consultation with the investment adviser, to be essential to protect or enhance the realisable value of an existing property asset. Where there is an opportunity to accelerate the realisation of optimal value for shareholders of the Company, a corporate transaction, such as the merger or sale of the Company, will be considered.

Diversification

Under the existing investment objective, the Board continues to believe 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 a diversified portfolio of commercial real estate. Its sector focus is logistics, office, retail and light industrial. From time to time the Group may have 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.

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.

The proposed new investment objective and strategy of the Company, if approved by the CSSF, will supersede any previously published investment policy and/or restrictions.

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.

At an EGM held on 14 October 2011, shareholders approved a proposed new investment objective and policy to realise the existing property portfolio and return capital to shareholders. Discussions continue with the Commission de Surveillance du Secteur Financier ("CSSF") regarding the proposed new investment objective.

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 2011.

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. Under current strategy, 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.

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 2011 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 €298.0 million. The Company's gross Loan to Value ("LTV") as at that date was 66.1% and the net debt LTV was 58.0%.

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 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 investment management arrangements with Invista which applied during the financial year reported are set out in an investment management agreement dated 17 November 2006, as subsequently amended, (the 'Invista IMA'). Invista was responsible for advising the Group on the overall management of the Group's investments in accordance with the Group's existing investment objective and policy and subject to the overall supervision of the Directors.

The fund manager was Tony Smedley, who also chaired the European Investment Committee which sat every two weeks or as required. The other members of that Committee were Tim Francis, Guillaume Masset and Chris Ludlam.

Under the terms of the Invista IMA, required to the overall supervision of the Directors, the Investment Manager was subject to provide the Company with such investment advisory, investment management services and administrative services as required by them in relation to the Total Property Portfolio. The Investment Manager also procured the provision of asset management services to the Property Subsidiaries.

On 12 October 2010, Invista Real Estate Investment Management Holdings plc announced that it intended to realise the value of Invista. The Company subsequently entered into negotiations to acquire, jointly with Invista Foundation Property Trust Limited and certain members of Invista's management team, part of the business of Invista. However, those discussions were ultimately terminated, and the Company announced on 18 March 2011 that it had given notice to Invista to terminate the Invista IMA with effect from no later than 18 September 2012 (the "Notice Period"). The Company announced on 15 December 2011 that it has entered into a Termination Agreement with Invista Real Estate Investment Management Limited.

Following consultation with shareholders and the consideration of proposals from a wide range of prospective new investment managers and advisers, the Board concluded that, in light of the substantial discount to net asset value at which the shares of the Company were trading, a structured realisation strategy of the existing assets of the Company would be in the best interests of shareholders.

The Board has appointed Internos Real Limited ("Internos") to execute the proposed new investment objective and policy set out above pursuant to an investment advisory agreement dated 22 September 2011 (the "Internos IAA"). Under the terms of the Internos IAA, Internos would take over the management of the Company and its assets with effect from the date on which the Invista IMA is terminated (which, in any event, will be no later than the end of the Notice Period).

The appointment of Internos has been approved by (i) the CSSF as the Company's regulator (in relation to Internos acting as manager and promoter of the Company); and (iii) Bank of Scotland in its capacity as facility agent in connection with the credit facility provided by it to the Company. The Company announced on 15 December 2011 that Internos has taken on the role of investment manager with effect from 15 December 2011 and that the proposed change of the Company investment objective and policy to implement a structured realisation of its portfolio of assets is subject to regulatory approval. Discussions with the CSSF on this point are still ongoing.

In the meantime, the existing investment objective and policy continue to apply. The Company has appointed Internos under the existing objective and policy, in order to achieve the earliest possible transition for the management of the Company's assets. Under the existing investment objective and policy, the Company has been pursuing an accelerated, proactive programme of disposals (with €50 million of sales in the past twelve months) and Internos will be maintaining this approach, in order further to reduce the Company's borrowings.

The Internos IAA (including the transitional arrangements thereunder), may be terminated by either the Company or Internos on 6 months written notice. The Internos IAA may also be terminated immediately by the Company in certain circumstances, such as in the case of the departure of certain key persons of Internos or for regulatory reasons.

Management fees

Under the Invista IMA that applied during the financial year reported on, Invista was 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 was subject to a cap of an amount equal to 0.95% per annum applied to the Adjusted Gross Assets. The base management fee was 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 provided 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.

Invista was 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 was met, a performance fee would be payable in an amount equal to 15% of any aggregate total return over and above the Performance Hurdle.

The Performance Hurdle was 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, was equal to or greater than 10% per annum.

Subject to the above conditions, the performance fee was payable by the Company to Invista within 14 days of receipt by the Company of such calculation.

From the 15th December 2011, when Internos took on the management of the Company's assets from Invista, the Company agreed to pay Internos pursuant to the Internos IAA a management fee of 1.25% per annum on the Net Asset Value attributable to the Company's ordinary shareholders, subject to a minimum of €1.0 million per annum. Assuming an unchanged level of NAV, this would be approximately €1.6 million per annum lower than the management fee payable under the Invista IMA, representing a reduction of 47%.

In addition, the Company will pay Internos a realisation fee equal to 12.5% of the amount by which cash returned to ordinary shareholders exceeds €82.8 million (being the average market capitalisation in the 30 days preceding this announcement converted at the £/€ exchange rate at the close of business on 29 June 2011), compounded thereafter at 10% per annum.

Between 1 August 2011 and the date on which Internos assumes responsibility for the day-to-day management of the Company from Invista, the Company will pay Internos a transition fee of €75,000 per month to conduct a full strategic and operational review of all aspects of the Company's property portfolio, banking facilities and administrative arrangements with a view to achieving additional cost reductions for the Company.

On 15 December 2011 the Company announced that it has agreed under a Termination Agreement to pay to Invista a termination fee of €855,000. This compares with an estimated liability of €2.4 million if the management fees for the balance of the notice period (to 18 September 2012) were to be paid.

In addition the Company will pay Internos a fee of £60,000 in connection with the transition of the entire Invista REIM Paris team.

Significant contracts

Apart from the Invista IMA, Internos IAA 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 (2010: nil)

Directors

On 30 September 2011, Duncan Owen resigned as a Director of the Company. This was resolved and passed at the EGM of the Company on 14 October 2011.

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 2011) are listed below:

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 2011 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 (with which the Company complies, and 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 five Directors, four of whom are Non-Executive Directors and one Non-Independent Director.

Tom Chandos is the Chairman of the Board.

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.

The remaining Directors (Tom Chandos, Michael Chidiac, Robert DeNormandie and Jaap Meijer) are considered independent as they have no links with the Investment Manager and all have other professional employment.

The Board believes that the Directors have a breadth of property investment, business and financial skills and experience relevant to the Company. Biographical details of all current Board members are set out at the start of this section.

The Board acknowledges the Financial Reporting Council's proposed changes to the UK Corporate Governance Code in relation to the consideration of greater diversity within the boardroom as a whole, including that of gender. The Board remains committed to ensuring that the Directors of the Company possess a broad balance of skills, experience, independence and knowledge and that there is sufficient diversity within the composition of the Board. The matter of Board diversity will be considered at regular intervals and will be an integral part of the annual Board evaluation process, however all appointments will be made on merit

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. (provision A,4.1)

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 and that of its Committees and individual members 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 2011 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 Chairman and 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 24 February 2012 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 and operational/portfolio risks.

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.

Insurance

Directors' and Officers' insurance is currently in place.

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 2011:

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 and John Frederikson. 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 [provision D.2.1] or a Nominations Committee [provision B.2.1], 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 http://www.ieret.eu/quarterly-factsheets. 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 24 February 2012 can be found in the Notice of the Meeting

Statement of Directors responsibilities

The Directors are responsible for ensuring proper preparation of the financial statements and Report of Directors 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 development and performance of the business and the position 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.

Responsibility statement

The undersigned, Mr Tom Chandos, Chairman of the Board, and Mr Robert DeNormandie, Chairman of the Audit Committee, both Directors of the Company, state that, to the best of their knowledge:

a) the financial statements which have been prepared in accordance with the International Financial Reporting Standards and the Listing Rules give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

b) the Annual Report includes a fair review of the development and performance of the business and the position of the Group for the financial year ended 30 September 2011, and their impact on the set of financial statements, together with a description of the principal risks and uncertainties for the next financial year.

Signed on behalf of the Board of Directors on 16 December 2011

Tom Chandos, Chairman

16 December 2011

Robert DeNormandie, Chairman of the Audit Committee

16 December 2011

CONSOLIDATED INCOME STATEMENT

For the year ended 30 September 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2011

All items in the above statement are derived from continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2011

The financial statements were approved by the Board of Directors on 16 December 2011 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 2011

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2011

The accompanying notes are an integral part of these consolidated financial statements

COMPANY INCOME STATEMENT

For the year ended 30 September 2011

The accompanying notes are an integral part of these consolidated financial statements

COMPANY STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2011

All items in the above statement are derived from continuing operations.

The accompanying notes are an integral part of these consolidated financial statements

COMPANY STATEMENT OF FINANCIAL POSITION

As at 30 September 2011

The accompanying notes are an integral part of these consolidated financial statements

COMPANY STATEMENT OF CHANGE IN EQUITY

For the year ended 30 September 2011

The accompanying notes are an integral part of these consolidated financial statements

COMPANY STATEMENT OF CASH FLOWS

For the year ended 30 September 2011

The accompanying notes are an integral part of these consolidated financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

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. The address of the registered office of the Company is 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 be deemed to represent statutory annual accounts, which are separately prepared in accordance with International Financial Reporting Standard (IFRS) as adopted by the European Union (EU).

2.1 Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) as issued by the International Accounting Standard Board (IASB), and adopted by the European Union (EU).

These consolidated financial statements are presented for the year ended 30 September 2011, with comparative figures for the year ended 30 September 2010.

The Company's financial statements and the consolidated financial statements have been approved for issue by the Board of Directors on 16 December 2011.

2.2 Functional and presentation currency

These consolidated financial statements are presented in Euro, which is the Company's presentational 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 investment properties, warrants and derivative financial instruments that have been measured at fair value.

The consolidated financial statements and the Company financial statements are prepared on a going concern basis.

2.4 Use of estimates and judgements

The preparation of the financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of the 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.

2.4 Use of estimates and judgements (continued)

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 4.

2.5 Changes in accounting policy and disclosures

(a) New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.

IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed.

IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. IAS 27 (revised) has had no impact on the current period, as none of the non-controlling interests have a deficit balance; there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests.

(b) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the group (although they may affect the accounting for future transactions and events)

The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early adopted them.

IFRIC 17, 'Distribution of non-cash assets to owners' (effective on or after 1 July 2009): The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable.

2.5 Changes in accounting policy and disclosures (continued)

IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both).

IFRIC 9, 'Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement', effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the 'fair value through profit or loss' category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety.

IFRIC 16, 'Hedges of a net investment in a foreign operation' effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the Group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the Group should clearly document its hedging strategy because of the possibility of different designations at different levels of the Group. IAS 38 (amendment), 'Intangible assets', effective 1 January 2010. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives.

IAS 1 (amendment), 'Presentation of financial statements': The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.

IAS 36 (amendment), 'Impairment of assets', effective 1 January 2010: The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ' Operating segments' (that is, before the aggregation of segments with similar economic characteristics).

IFRS 2 (amendments), 'Group cash-settled share-based payment transactions': effective form 1 January 2010. In addition to incorporating IFRIC 8, 'Scope of IFRS 2', and IFRIC 11, 'IFRS 2 - Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation.

IFRS 5 (amendment), 'Non-current assets held for sale and discontinued operations': The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.

2.5 Changes in accounting policy and disclosures (continued)

(c) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2010 and not early adopted.

The Group's and the Company's assessment of the impact of these new standards and interpretations is set out below.

IFRS 9, 'Financial instruments', issued in November 2009. This standard is the first step in the process to replace IAS 39, "Financial instruments: recognition and measurement". IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Group's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU.

The Group is yet to assess IFRS 9's full impact. However, initial indications are that it may affect the group's accounting for its available-for-sale debt financed assets, as IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss.

Revised IAS 24 (revised), 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. However, the standard has not yet been endorsed by the EU.

The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Group will apply the revised standard beginning 1 October 2011. When the revised standard is applied, the group and the Company will need to disclose any transactions between its subsidiaries and its associates. The Group is currently putting systems in place to capture the necessary information. It is, therefore, not possible at this stage to disclose the impact, if any, of the revised standard on the related party disclosures.

'Classification of rights issues' (amendment to IAS 32), issued in October 2009: The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors'. The Group will apply the amended standard beginning 1 October 2011.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments', effective 1 July 2010. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The Group will apply the interpretation beginning 1 October 2011, subject to endorsement by the EU. It is not expected to have any impact on the Group or the parent entity's financial statements.

2.5 Changes in accounting policy and disclosures (continued)

'Prepayments of a minimum funding requirement' (amendments to IFRIC 14): The amendments correct an unintended consequence of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The Group will apply these amendments for the financial reporting period commencing on 1 October 2011.

On 20 December 2010, the IASB issued amendments to IAS 12, 'Income Taxes', effective from 1 January 2012. IAS 12 requires that deferred tax relating to an asset is measured depending on whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment provides guidance by introducing a presumption that recovery of the carrying amount will, normally, be through sale. However, the standard has not yet been endorsed by the EU.

On 12 May 2011, the following standards were published, applicable to accounting periods beginning on, or after 1 January 2013:

IFRS 10, 'Consolidated financial statements'

IFRS 11, 'Joint arrangements'

IFRS 12, 'Disclosure of interests in other entities'

IFRS 13, 'Fair value measurement'

The Group is currently assessing the impact of the new and revised IFRS standards as adopted by the EU.

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 2.5, which addresses changes in accounting policies.

3.1 Basis of consolidation

The consolidated financial statements comprise the financial statements 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 owning property. 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 27.

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.

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.

Transactions in currencies other than the presentational currency of the group 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 income" or "finance expense" (see Notes 13 and 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".

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 are included in the Consolidated Income Statement under the heading "net valuation gains / (losses) on investment property" in the period in which they arise. 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 cost, less any impairment losses.

3.7 Financial instruments

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 financial instruments.

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 recognised in Other Comprehensive Income, or (ii) determined to be impaired, at which time the cumulative loss 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 recognised 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 has 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 28). 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.

Derivatives are initially recognised at fair value with related transaction costs recognised in the Consolidated Income Statement 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 the Consolidated Income Statement. 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 Consolidated Income Statement. Amounts taken to equity are transferred to the Consolidated Income Statement 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 Income Statement 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.

Non Financial assets

The carrying amounts of the Company's non financial assets 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 as the hedged item affects profit or loss.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a 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 28) 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 consolidated financial statements.

3.13 Non current assets held for sale

Investment property is transferred to non-current assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property and its sale must be highly probable. On reclassification, investment property that is measured at fair value continues to be so measured.

3.14 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.

3.15 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.

3.16 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.

3.17 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 shares 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.

3.18 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.

3.19 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.

3.20 Taxation and deferred taxation

According to the Luxembourg regulations concerning SICAF companies, the Company is not subject to income taxes in Luxembourg. It is, however, liable to an annual subscription tax 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.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax base 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 which at the time of the transaction affects neither accounting nor taxable profit nor loss. The aggregate amount of such deferred income tax is disclosed as unrecognised deferred income tax (note 25). 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.

3.21 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.

3.22 Deferred income

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

3.23 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.

3.24 Finance income and expenses

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

Finance expenses comprise interest expense on borrowings, amortisation of debt transaction costs 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.

3.25 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.

3.26 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.

3.27 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 29).

3.28 Subsequent events

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

3.29 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. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

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

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. The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. These estimates are based on local market conditions existing at the reporting date. The experts also used their market knowledge and professional judgment and did not rely solely on historical transactional comparables.

Valuations typically reflect all the market and operational risks as described in Note 28.1 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.

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 28 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.

The primary objective of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintain a strong credit rating. No changes were made in the objectives, policies or processes during the years ending 30 September 2011 and 30 September 2010. The Group monitors capital primarily using a Loan to Value ratio (LTV), which is calculated as the amount of outstanding debt divided by the valuation of the investment property portfolio. The Group's policy is to keep the average LTV ratio of the Group lower than the LTV requirements in the banking covenants.

The banking covenants require the Group to have a LTV ratio of 85% until 31 December 2010, 82.5% until 31 December 2011, 80% until 30 June 2012, 75% until 31 December 2012, 72.5% until 30 June 2013 and 70% thereafter.

During the period the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreement.

For the financial year ended 30 September 2011, the LTV ratio disclosed to the lender was 66.07% (2010: 67.9%)

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. For the year ended 30 September 2011, €40.8 million was recognised as rental income in the Consolidated Income Statement (2010: €41.9 million).

Property operating expenses incurred during the year were attributed to:

Invista Real Estate Investment Management Limited (Invista REIM) as the investment manager during the financial year reported on was 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 was 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 was met, a performance fee would be payable in an amount equal to 15.0% of any aggregate total return over and above the performance hurdle. The performance hurdle was 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.

On 22 September 2011, the Board of Directors appointed Internos Real Limited (Internos) as their new investment manager, which took effect upon the final termination of the existing investment management agreement with Invista REIM on 14 December 2011. Under the new management agreement with Internos, the Company will pay a management fee of 1.25% per annum on the Net Asset Value attributable to the Company's shareholders, subject to a minimum of €1.0 million per annum. Additionally, the Company will pay Internos a realisation fee equal to 12.5% of the amount by which cash returned to ordinary shareholders exceeds €82.8 million, compounded at 10% per annum.

In addition to the above, the Company has also agreed to pay Internos a retention fee of €75,000 per month between 1 August 2011 and the date on which Internos assumes responsibility for the day to day management of the Company, in consideration for certain transitional services to be provided by Internos during this period.

The Company will also pay Internos a fee of £60,000 in connection with the transition of the entire Invista REIM Paris team.

The professional fee for audit services for the year ended 30 September 2011 amounted to €0.4 million (2010: €0.5 million). In 2011 the non-recurring remuneration to the auditors for services other than audit was €0.2 million (2010: €0.2 million).

Other expenses include the write off of non-recoverable VAT of €0.1 million (2010: €0.3 million), recoverable service charges of nil (2010: €0.4 million) and abortive transaction costs of €0.4 million (2010: nil).

The fair value of completed investment property has been determined on a market value basis in accordance with the appropriate sections of the current Practice Statements, and United Kingdom Practice Statements contained within the RICS Valuation Standards. The valuation is prepared on an aggregated ungeared basis. As set out in Note 4, in arriving at their estimates of market values, the experts have used their market knowledge and professional judgment and not only relied on historical transactional comparables.

The valuations were performed by DTZ Debenham Tie Leung, an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued.

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

On 10 November 2010, Fova S.à r.l. sold its warehouse property located in Entraigues sur la Sorgue, France for a price of €490,000 which enabled the repayment of bank debt of €0.3 million.

On 22 June 2011, the Company completed the sale of a warehouse property in Grodzisk, Poland for a price of €7 million, which enabled the repayment of bank debt of €5.5 million.

On 27 May 2011, the Company completed the sale of a warehouse in Fos Distriport, France for a price of €15.5 million, which enabled the repayment of bank debt of €13.8 million.

On 25 July 2011, SAS Trappes sold its warehouse property located in Trappes, Paris for a price of €20.7 million, which enabled the repayment of €9.5 million of bank debt from Crédit Foncier de France and € 10.6 million from Bank of Scotland.

On 1 August 2011, Anjolyas S. à r.l. sold its warehouse property located in Vitrolles, near Marseille, France for a price of €6.55 million which enabled the repayment of bank debt of €5.4 million.

The level of accounts receivable from tenants varies due to the timing of the invoices issued and receipt of cash. Of the €10.3 million (2010: €10.4 million) rent receivable included in the table above, €4.3 million (2010: €5.2 million) relate to the period after 30 September 2011 (see deferred income in the Consolidated Statement of Financial Position).

Trade and other receivables are analysed as follows:

As at 30 September 2011, the past due rent receivables includes €6.1 million (2010: €4.2 million) in relation to the Montowest property (refer to Note 31 for further details).

Movements on bad debt provision are set out below: