IERE.L Regulatory News (IERE)

INVISTA EUROPEAN REAL ESTATE TRUST SICAF

("IERET" or the "Company')

ANNOUNCEMENT OF HALF YEARLY RESULTS AND UNAUDITED NAV

Report for the six month period ENDed 31 March 2015

Invista European Real Estate Trust SICAF today announces its results for the six month period ending 31 March 2015, including its unaudited adjusted Net Asset Value ("NAV") for the last quarter, calculated using International Financial Reporting Standards as adopted by the European Union and adjusted to add back the deferred taxation liability position at the period end.

Highlights

· Unaudited NAV per share decreased by 35% over the quarter and 42% over the six month period to €0.09 or £0.06 (30 September 2014: €0.15; 31 December 2014: €0.14) including the reduction in valuation of the Company's property portfolio by €7.4 million (2.64%) in the first six months of the financial year on a like for like basis.

· Including the effect of the sale of the Heusenstamm property, which was completed post quarter end, the property portfolio was valued at €235.1 million on 31 March 2015 (30 September 2014: €231.2 million; 31 December 2014: €234.4 million on a like-for-like basis) and comprised 27 properties.

· Successfully executed the sales of three assets for total net proceeds of €36.08 million, at a weighted average discount to valuation of 20.4% (including one sale completed post quarter end).

· A number of active management initiatives over the last six months have resulted in the signing of new leases on 47,416 sqm of space, representing 10.97% of total portfolio area, contributing an additional €1.98 million in annual gross rental income, equivalent to 10.16% of total portfolio rental income.

For further information:

Ludovic Bernard

Internos Global Investors 020 7355 8800

Financial highlights

v Unaudited NAV per share decreased by 35% over the quarter and 42% over the six month period to €0.09 or £0.06 (30 September 2014: €0.15; 31 December 2014: €0.14) principally from the reduction in valuation of the Company's property portfolio by €7.4 million (2.64%) in the first six months of the financial year on a like for like basis.

v Loss per share of €0.0673 (September 2014: €0.0733)

Sources: Internos Global Investors Ltd

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. IFRS NAV was €22.1m on 31 March 2015 and €39.4m on 30 September 2014.

2 As at 31 March 2015, deferred tax liabilities of €17.3 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 IAS 12. The Group has deferred tax assets of €18.5 million which also have not been recognised.

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

4 £:€ exchange rate used was €1.381 as at 31 March 2015, €1.284 as at 30 September 2014.

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

CHAIRMAN'S STATEMENT

Half year ended 31 March 2015

During the first half of the financial year, the Company has made further progress in its disposal programme of non-core properties, while working with its advisers on a strategic review in relation to the remaining portfolio of assets.

Adjusted net asset value decreased by 42% over the six month period from €40.1 million to €23.2 million, from €0.15 per ordinary share to €0.09. The valuation of the Company's property portfolio fell by €7.4 million (2.64%) during the period, a significantly slower rate of decline than in preceding periods, accounting for less than half of the reduction in NAV and with the balance arising principally from the deficit in operating income as a result of the increased financing costs since the refinancing of the Company's debt in April 2014.

Disposals of three properties were contracted during the period, notably that of the Company's largest asset, Campus Heusenstamm in Germany, which completed just after the end of the period. Although the sale price, generating net proceeds of €32 million, was at an 18.37% discount to its most recent valuation, the uncertain residual value of the property at the end of its current lease made it an unattractive property to hold (and difficult to finance); so the disposal represents an important step towards finding a strategic solution for the Company and its core portfolio. Further properties are under offer or being actively marketed.

The sale of Heusenstamm, conducted after close consultation with the Company's Mezzanine Lender, Blackstone Real Estate Debt Strategies ("BREDS"), led to an anticipated breach of certain interest cover covenants, in respect of which, the Mezzanine Lender has issued the Company with a Standstill letter, in which such breaches are not waived, but the Mezzanine Lender states that it will not take any action for the duration of the Standstill. The sale was part of the business plan originally agreed with BREDS and, while the Company is, as a result, relying on the support of BREDS, and also has very low levels of free cash, the Board believes that the continuing deleveraging and the consequential move towards the Step Down event are in the shareholders' interests.

New lettings on 47,416 sqm were completed in the six month period, an increase of 120% on the same period last year, at the same time as re-gearing existing leases on a further 38,401 sqm. This represents letting activity on 19.86% of the total portfolio by area, with new lettings increasing the Company's rental income by 10.16% on an annualised basis.

The progress on new lettings and lease extensions combined with the disposal of non-core properties, some of which have been vacant for long periods or have other negative features, contribute vitally towards achieving the plan announced at the time of the refinancing of the Company's debt a year ago.

As it has been previously indicated, the disposal programme will not enable the Company to reach the Step Down event on its own and thereby reduce the cost of its debt; as a result the leading real estate investment bank, Eastdil Secured LLC ("Eastdil"), was appointed in November of last year to undertake a strategic review.

Discussions have been initiated through Eastdil with a wide range of parties interested in acquiring or refinancing the core portfolio of properties. From these, a short list of proposals is being actively pursued and further information will be provided to shareholders as soon as there is more definitive news.

Tom Chandos

Chairman

Invista European Real Estate Trust SICAF

29 May 2014

INVESTMENT MANAGER'S REPORT

As at 31 March 2015 and including the effect of the sale of the Heusenstamm asset completed post quarter end, the Company's property portfolio was valued at €235.12 million and comprised 27 assets (€281.8 million and 30 assets: 30 September 2014). On a like for like basis, the portfolio value increased by €0.69 million or 0.29% during the quarter to 31 March 2015 and €3.91 million or 1.69% in the six months ending 31 March 2015. The increase in values was due both to stabilising European secondary property market conditions and letting activity.

The Company's portfolio generated gross income of €19.4 million per annum as at 31 March 2015 from 163 individual leases. The portfolio had a Gross Income Yield ("GIY") of 8.27% and a Net Initial Yield ("NIY") of 7.02%.

As at 31 March 2015, the portfolio vacancy rate measured by rental value was 18.7%. On a like for like basis the portfolio vacancy rate has improved over the six months to 31 March 2015, falling from 19.6% as at 30 September 2014. During the six month period the Company has successfully agreed new leases on a total area of 47,416 sqm, generating an additional €1.98 million of rental income. Leases covering an additional 38,401 sqm have been regeared, representing 8.89% of total portfolio area.

As noted in its announcement on 1 May 2014, the Company's Mezzanine loan facility included €85 million of prepayable principal to allow the Company to pursue its ongoing disposal program. Since that date, the Company has sold four properties, enabling the repayment of €38.1 million of Mezzanine debt.

The Company maintains a relatively stable weighted average lease length profile, which at 31 March 2015 was 3.8 years to first break and 5.8 years to lease expiry. This is compared to 3.9 years to break and 5.5 years to expiry as at 31 December 2014.

The Company's credit rating, as measured by Investment Property Databank M-IRIS credit analysis system as at May 2015, stood at 63 out of 100, remaining within the "Low to Medium risk band". 

As at 31 March 2015 the portfolio composition was as follows:

Sector Weightings

*Percentage of aggregate asset value as at 31 March 2015

Country Weightings

*Percentage of aggregate asset value as at 31 March 2015

Top 10 Properties

*Percentage of aggregate asset value as at 31 March 2015

Top 10 Tenants

* Percentage of aggregate gross rent as at 31 March 2015

http://www.rns-pdf.londonstockexchange.com/rns/6919O_1-2015-5-29.pdf 

Data Table for RNS (Regulatory News Services)

Break dates of lease contracts

Please follow the link to PDF page 7 for relevant graph

http://www.rns-pdf.londonstockexchange.com/rns/6919O_1-2015-5-29.pdf 

Data Table for RNS (Regulatory News Services)

Expiry dates of lease contracts

Property Market Performance

Economy

The ongoing negotiations between Greece and the Eurogroup over terms attached to the next tranche of financial assistance has created uncertainty in the capital markets. Following a conditional agreement in March, investors appeared to be optimistic that a formal agreement could be reached. However, as negotiations continue, it appears that Greece is quickly running out of time and money to prevent a default event occurring which may ultimately lead to the country leaving the euro.

The commencement of QE by the ECB was one of many actions taken by central banks in first quarter with the aim of preserving/achieving currency and inflation targets with the Dansmark NationalBank, Sveriges Riksbank, National Bank of Poland and the Swiss National Bank all cutting policy rates in the quarter. The easing in monetary policy created unprecedented conditions in the bond markets where a wide range of bonds are trading at historically low and often negative yields. However, a sharp correction in bond market pricing occurred mid-May (10 year Bunds widened 60bps) with improved economic data and higher oil prices easing fears of outright deflation combined with investors rebalancing portfolios and realising gains. 

The euro depreciated 6% on a trade weighted basis and 13% against the US dollar in Q1 and was trading at the lowest level against the US dollar for over 12 years (BIS, Bloomberg). This should provide support to the Eurozone's export sector and attract investors on a relative value basis to assets denominated in the currency.

Despite the political concerns equity indices continued on a bull run on the back of extremely loose monetary policy with continental European indices experiencing a particularly strong performance in 2015. 

Occupier Market

The depreciation of the euro, lower oil prices and implementation of QE appear to have had a positive effect on the French economy with GDP growth of 0.6% q/q recorded in Q1 (Eurostat). This improvement was reflected in the French logistics market with take-up volume of 700,000 sqm recorded in Q1, an increase of 39% y/y (BNP Paribas). Supply of grade A stock remains tight along the North-South axis with many occupiers turning to build-to-suit solutions to fulfil requirements.

In the German retail sector schemes/areas providing strong tenant mix and diversity in retail offering continue to outperform the wider market in attracting consumers/retailers. The structural consolidation driven by online sales remains a key trend in occupier activity with evidence that productivity of physical stores has improved with retail sales per sqm reportedly back to the level recorded in 2006 (CBRE). Demand from retailers to establish a physical presence within the top destinations in Germany remains strong with international brands accounting for 63% of inner city lease transactions in Q1 2015 (JLL). The imbalance between supply and demand in prime city centre pitches has placed upwards pressure on rental values with the low availability in prime locations also creating some stability for rental values in good secondary locations. In the discount/retail park market occupiers remain focused on securing assets benefitting from large, flexible floor plates, a positive demographic outlook and excellent accessibility/parking to maximise economies of scale.

Investment Market

European real estate investment continued on an upward trend during the past 6 months with CBRE reporting investment turnover of €54.8bn in Q1 2015, an increase of 30% on Q1 2014. The UK experienced a strong Q1 with £16.8bn of transactions completed to record the highest Q1 volume since 2006 (Costar). Investment in the Spanish 'recovery' remained strong with a total of €2.9bn transacted, an increase of 153% on Q1 2014. Significantly, Italy also experienced a substantial rise in activity with turnover of €1.9bn recorded in the quarter of which €0.9bn targeted assets outside of the three traditional commercial sectors. This uptick in turnover suggests that capital has started to target Italy as the next market to recover during this cycle.

The higher prices and lack of available core product has pushed some investors into seeking higher risk markets/assets particularly in the UK, Germany and Nordics where macro-economic trends are more conducive to implementing these types of strategies.

Turnover in France also increased by 7% y/y in Q1 with a total of €4.6bn completed. In regards to sectors 73% of investment targeted the office market compared to 3% for industrial and logistics assets whilst geographically the Île-de-France region accounted for 83% of Q1 transactions.

Disposals

Over the six month period ended 31 March 2015, the Company successfully achieved disposals of two office assets in Belgium and post quarter end completed the disposal of one office asset in Germany. The two Belgian properties represented 100% of the Company's investments in Belgium, and this disposal also contributed to the further consolidation of the Company's remaining portfolio of investment properties located mainly in France and Germany, and, following the liquidation of the relevant Belgian holding entity, this sale will also result in a reduction of corporate costs.

The sale of the German office property generated net disposal proceeds of €32 million, representing a discount of 18.37% compared to the latest valuation of the asset (dated 31 March 2015). An amount of €1.9 million was held back in escrow from the total proceeds, composed of two parts: 1) €1.152 million reserved to cover German tax risks; and 2) €0.765 million reserved to cover any potential adjustments to the closing balance sheet.

In addition the Company signed an agreement on 17 March 2015 to sell its remaining Spanish asset, located in Girona, for a net price of €3 million, representing a discount to the latest valuation of 2.28% (dated 31 March 2015). The contract has a long stop date of 30 June 2015, after which, if the transaction has not completed, the purchaser will lease the full space of the asset. Since this property was 100% vacant at the time of signing, this sale represents a reduction in operating costs and overall portfolio vacancy, as well as enabling the Company to reduce its corporate costs by exiting the Spanish market and further consolidating its core property portfolio.

The Company has entered into exclusivity to dispose of a German retail property and is actively marketing a further seven properties. The Company's sales activity demonstrates its stated commitment to deleveraging its Mezzanine loan, so far having repaid a total amount of €38.1 million of Mezzanine debt.

Active Asset Management

In line with an occupier market that has improved since the period of sluggish letting activity experienced by the Company in 2012-2013, IERET has completed new lettings on a total of 47,416 sqm over the last six months, an increase of 120% on the same period last year. The Company has also regeared leases on another 38,401 sqm, combined representing letting activity on 19.86% of the total portfolio area. New lettings signed in the last six months increased the Company's rental income by an additional 10.16% of the current annual rent, while adding a weighted average term to break of 4.78 years, and 8.66 years to expiry.

Finance

As at 31 March 2015, the Company had drawn down a total of €212.9 million of debt in respect of its combined senior and Mezzanine facilities with BREDS and BAML. Based upon the latest Savills valuation (as at 31 March 2015), the Company's property assets were valued at a total of €274.3 million, giving a Loan to Value (LTV) ratio of 77.61%. Following the sale of the German office asset post quarter end, the loan balance was reduced to €183.9 million, with a remaining valuation of €235.12 million, providing an LTV of 78.21%.

Under the terms of the Facility Agreement, LTV calculations for the purposes of covenant testing are based upon the CBRE valuations carried out for the Lenders at the origination of the loan facility. Based upon these valuations, the Company's LTV was 82.07% as at 31 March 2015, rising to 83.92% following the post quarter end realisation of valuation discount in the German office asset disposal.

Outlook

Following the sale of the office asset in Germany, the Company entered into a breach of the Interest Cover and Projected Debt Yield Covenants of the Mezzanine Loan Facility provided by Blackstone Real Estate Debt Strategies ("BREDS", or "the Mezzanine Lender"), an affiliate of the Blackstone Group LP ("Blackstone").

As it was noted in Note 2.2 (Going Concern) to the Annual Report and Accounts 2014, the largest threat that had been identified for the ability of the Group to continue as a going concern resulted from the sale of income producing assets. The Group sold its largest property following the end of 31 March 2015 because it represents a significant step towards reaching the Group's goal of deleveraging the portfolio to an extent that would trigger the Step Down rate of interest. Nevertheless, the sale of this property is not sufficient in and of itself to trigger the lower interest rate, and during the intervening period before other repayments can be made (through further asset disposals and/or an injection of equity or new debt) the Group will be in an ongoing event of Default in relation to its Projected Debt Yield Ratio and Projected Interest Cover covenants.

In respect of these ongoing events of Default, the Mezzanine Lender has issued the Group with a Standstill letter, in which the events of Default will not be waived, but the Mezzanine Lender states that it will not take any action as a result of them, until the earlier of 28 June 2015 or the occurrence of an additional event of Default. On the basis of the Mezzanine Lender's stated approval of and support for the Group's business plan, which requires time and stability to enable the successful sale of assets needed to achieve the Step Down, it is expected that further Standstills will be granted after the 28 June 2015.

If further Standstills are not granted, BREDS would have the following options:

a) Enforce their security over the Group, thereby taking effective control of the Group and possibly initiating a sale of the assets. It is likely that this course of action would result in a significant reduction in the proceeds received from the accelerated sale of the Group's property assets and consequently the amount of equity returnable to shareholders.

b) The Mezzanine Facility Agreement includes a provision for a Default Rate of interest, which can be applied in the event of such a breach, at the discretion of the Mezzanine Lender. This would mean (at current debt levels) an additional 538 basis points ("bps") of interest on top of the current margin of 770 bps. In the event that the Group is unable to support this additional interest cost, a mechanism exists whereby it is possible that the Mezzanine Lender may (but is not obliged to) allow unpaid interest to be treated as an accruing liability on the balance sheet of the Group, thereby reducing the Net Asset Value.

As it was stated in the Annual Report and Accounts 2014, the risk of such a breach was known in advance, and was considered at the time to be mitigated by a combination of potential waiver or standstill agreements from the Mezzanine Lender and the ongoing efforts to secure a capital investment that will bring about the Step Down interest rate (for a description of the terms of the Step Down, please refer to the Investment Manager's Report of the Group's Annual Report and Accounts 2014). These mitigating factors are still in existence, since the Mezzanine Lender has provided the Group with a Standstill letter, while the Group continues to pursue a long term solution that will repay the Mezzanine debt to the level that will unlock the Step Down interest rate.

Internos Global Investors Ltd ("the Manager") has been in discussions with several parties with regard to an injection of new capital, and in Q4 2014 the Board agreed to appoint a third party to conduct a strategic review to assess all options that remain open to the Group, including a sale of the core portfolio of assets. The adviser that was selected is Eastdil Secured, which already had experience of the portfolio, having successfully marketed the senior portion of the BREDS loan for syndication to BAML in the summer of 2014.

In February 2015 Eastdil approached potential investors to seek indications of interest in a sale of the entire portfolio or some form of refinancing. Following initial due diligence, serious expressions of interest have been received; the proposals being considered vary in structure and include a refinancing of a portion of the Mezzanine Loan with a new mezzanine facility, as well as the potential sale of subsidiaries which own the Group's underlying real estate portfolio. The Board of Directors is at present considering these alternative scenarios, the details of which are still subject to negotiation.

In line with previous expectations and as a result of recent asset sales the Group is now in Default in relation to its Projected Interest Cover and Projected Debt Yield Ratio covenants. Nevertheless, the existing Standstill that has been provided by the Mezzanine Lender demonstrates their support for the current strategy. However, if the Mezzanine Lender does not continue to support the Group, the existing event of Default could either lead to an acceleration of the Mezzanine Loan or the application of a Default Margin. It is considered that the optimal course for the Group is to seek the fastest and most secure route to reaching the Step Down Event, through continuing asset sales and pursuing the process with Eastdil.

Ludovic Bernard

Fund Manager

Internos Global Investors Ltd

29 May 2015

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed consolidated interim financial information for the six months ended 31 March 2015 has been prepared in accordance with International Accounting Standard (IAS) 34 - "Interim Financial Reporting" and give a true and fair view of the assets, liabilities, financial position and profit or loss of Invista European Real Estate Trust SICAF ("the Group");

(b) the interim Financial Information includes a fair review of:

i. important events having occurred during the six months ended 31 March 2015, together with their impact on the condensed consolidated interim financial information;

ii. the principal risks and uncertainties for the remaining six months of the financial year; and

iii. the information relating to related parties' transactions and changes therein.

By order of the Board,

Tom Chandos Robert DeNormandie

Chairman Chairman of Audit Committee

29 May 2015 29 May 2015

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

Unaudited for the six months ended 31 March 2015

The accompanying notes on pages 18 to 34 form an integral part of the condensed consolidated interim financial information. The figures of 31 March 2015 and 2014 are unaudited whilst the twelve months figures of 30 September 2014 are audited.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

Unaudited for the six months ended 31 March 2015

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

The accompanying notes on pages 18 to 34 form an integral part of the condensed consolidated interim financial information. The figures of 31 March 2015 and 2014 are unaudited whilst the twelve months figures of 30 September 2014 are audited.CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

Unaudited as at 31 March 2015

The accompanying notes on pages 18 to 34 form an integral part of the condensed consolidated interim financial information. The figures of 31 March 2015 and 2014 are unaudited whilst the twelve months figures of 30 September 2014 are audited. 

The condensed consolidated interim financial information was approved by the Board of Directors on 29 May 2015 and signed on its behalf by:

Tom Chandos Robert DeNormandie

Chairman Chairman of Audit Committee

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

Unaudited for the six months ended 31 March 2015

The accompanying notes on pages 18 to 34 form an integral part of the condensed consolidated interim financial information. The figures of 31 March 2015 and 2014 are unaudited whilst the twelve months figures of 30 September 2014 are audited.CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

Unaudited for the six months ended 31 March 2015

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (CONTINUED)

Unaudited for the six months ended 31 March 2015

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

The accompanying notes on pages 18 to 34 form an integral part of the condensed consolidated interim financial information. The figures of 31 March 2015 and 2014 are unaudited whilst the twelve months figures of 30 September 2014 are audited.

Reporting entity

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

The Company is a public limited liability company incorporated for an unlimited term. The registered office of the Company is established at 25C, Boulevard Royal, L-2449 Luxembourg. Information pertaining to the Company is included to the extent required by the London Stock Exchange listing rules. This information should not deem to represent statutory annual accounts, which are separately prepared in accordance with International Financial Reporting Standard ("IFRS") as adopted by the European Union.

2 Basis of preparation

2.1 Statement of compliance

The condensed consolidated interim financial information for the six months ended 31 March 2015 has been approved for issue by the Board of Directors ("the Board") on 29 May 2015 and has been prepared in accordance with IAS 34 Interim Financial Reporting and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

The condensed consolidated interim financial information does not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 30 September 2014.

2.2 Going Concern

The condensed consolidated interim financial information has been prepared on a going concern basis. It is the assessment of the Board of Directors that the Group will continue as a going concern for at least twelve months from the date of the issue of these condensed consolidated interim financial information. In forming this opinion, the Board of Directors has considered its ability to meet liabilities as they fall due and the continued availability of the Group's interest bearing loans and borrowings. As at the date of issue of the condensed consolidated interim financial information, there is no breach of any of the covenants of the Senior Facility provided by Bank of America Merrill Lynch International Limited ("BAML", or "the Senior Lender"), but the Group has been in breach of two covenants under terms of the Mezzanine Facility provided by Blackstone Real Estate Debt Strategies ("BREDS", or "the Mezzanine Lender"), an affiliate of the Blackstone Group LP ("Blackstone") since 28 April 2015, following the completion of the sale of the Heusenstamm property.

As it was noted in Note 2.2 (Going Concern) to the Annual Report and Accounts 2014, the largest threat that had been identified for the ability of the Group to continue as a going concern resulted from the sale of income producing assets. The Group sold its largest property following the end of 31 March 2015 because it represents a significant step towards reaching the Group's goal of deleveraging the portfolio to an extent that would trigger the Step Down rate of interest. Nevertheless, the sale of this property is not sufficient in and of itself to trigger the lower interest rate, and during the intervening period before other repayments can be made (through further asset disposals and/or an injection of equity or new debt) the Group will be in an ongoing event of Default in relation to its Projected Debt Yield Ratio and Projected Interest Cover covenants.

In respect of these ongoing events of Default, the Mezzanine Lender has issued the Group with a Standstill letter, in which the events of Default will not be waived, but the Mezzanine Lender states that it will not take any action as a result of them, until the earlier of 28 June 2015 or the occurrence of an additional event of Default. On the basis of the Mezzanine Lender's stated approval of and support for the Group's business plan, which requires time and stability to enable the successful sale of assets needed to achieve the Step Down, it is expected that further Standstills will be granted after the 28 June 2015.

2.2 Going concern (continued)

If further Standstills are not granted, BREDS would have the following options:

a) Enforce their security over the Group, thereby taking effective control of the Group and possibly initiating a sale of the assets. It is likely that this course of action would result in a significant reduction in the proceeds received from the accelerated sale of the Group's property assets and consequently the amount of equity returnable to shareholders.

b) The Mezzanine Facility Agreement includes a provision for a Default Rate of interest, which can be applied in the event of such a breach, at the discretion of the Mezzanine Lender. This would mean (at current debt levels) an additional 538 basis points ("bps") of interest on top of the current margin of 770 bps. In the event that the Group is unable to support this additional interest cost, a mechanism exists whereby it is possible that the Mezzanine Lender may (but is not obliged to) allow unpaid interest to be treated as an accruing liability on the balance sheet of the Group, thereby reducing the Net Asset Value.

As it was stated in the Annual Report and Accounts 2014, the risk of such a breach was known in advance, and was considered at the time to be mitigated by a combination of potential waiver or standstill agreements from the Mezzanine Lender and the ongoing efforts to secure a capital investment that will bring about the Step Down interest rate (for a description of the terms of the Step Down, please refer to the Investment Manager's Report of the Group's Annual Report and Accounts 2014). These mitigating factors are still in existence, since the Mezzanine Lender has provided the Group with a Standstill letter, while the Group continues to pursue a long term solution that will repay the Mezzanine debt to the level that will unlock the Step Down interest rate.

Internos Global Investors Ltd ("the Manager") has been in discussions with several parties with regard to an injection of new capital, and in Q4 2014 the Board agreed to appoint a third party to conduct a strategic review to assess all options that remain open to the Group, including a sale of the core portfolio of assets. The adviser that was selected is Eastdil Secured, which already had experience of the portfolio, having successfully marketed the senior portion of the BREDS loan for syndication to BAML in the summer of 2014.

In February 2015 Eastdil approached potential investors to seek indications of interest in a sale of the entire portfolio or some form of refinancing. Following initial due diligence, serious expressions of interest have been received; the proposals being considered vary in structure and include a refinancing of a portion of the Mezzanine Loan with a new mezzanine facility, as well as the potential sale of subsidiaries which own the Group's underlying real estate portfolio. The Board of Directors is at present considering these alternative scenarios, the details of which are still subject to negotiation.

In line with previous expectations and as a result of recent asset sales the Group is now in Default in relation to its Projected Interest Cover and Projected Debt Yield Ratio covenants. Nevertheless, the existing Standstill that has been provided by the Mezzanine Lender demonstrates their support for the current strategy. However, if the Mezzanine Lender does not continue to support the Group, the existing event of Default could either lead to an acceleration of the Mezzanine Loan or the application of a Default Margin. It is considered that the optimal course for the Group is to seek the fastest and most secure route to reaching the Step Down Event, through continuing asset sales and pursuing the process with Eastdil.

The combination of circumstances described above indicates the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. Nevertheless, in the light of the options which remain open to the Group for reaching the Step Down, as well as the Mezzanine Lender's support for the Group's present course, the Board has decided to continue to adopt the going concern basis of accounting in preparing the condensed consolidated financial information.

2.3 Basis of measurement

The condensed consolidated interim financial information has been prepared on the historical cost basis except for the following material items:

- Investment in properties has been revalued as at 31 March 2015 (note 5),

- Derivative financial instruments

The significant accounting estimates and judgment applied in the preparation of the condensed consolidated interim financial information are consistent with those applied in the preparation of the Company's annual consolidated financial statements for the year ended 30 September 2014.

2.4 New and amended standards and interpretations

The Group has adopted the following new and amended standards and interpretations issued by the International Accounting Standards Board ("IASB") or the IFRS Interpretations Committee (previously IFRIC) as of 1 October 2013:

i. IFRS 10, (Consolidated Financial Statements) - IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 (Consolidation - Special Purpose Entities). IFRS 10 establishes a single control model that applies to all entities including 'special purpose entities'. The changes introduced by IFRS 10 require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27.

ii. IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) on 31 October 2012. The amendments provide an exception to the consolidation requirements in IFRS 10 and require investment entities to measure particular subsidiaries at fair value through profit or loss. The amendments are effective from 1 January 2014 with early adoption permitted, which allow an investment entity to adopt the amendments at the same time as IFRS 10.

The Company does not qualify as an investment entity mostly from the fact that it has a separate business activity (property and asset management) which goes beyond earning returns from capital appreciation and/or investment income (IFRS 10.IE9 to IE11). The Company has assessed that the implementation of the standard will have no material impact on the condensed consolidated interim financial information. If the Company had qualified as an investment entity, no condensed consolidated interim financial information would have been prepared in subsequent years.

iii. IFRS 12, (Disclosure of Involvement with Other Entities) - IFRS 12 includes all of the disclosure requirements that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity's interests in subsidiaries, joint ventures, joint arrangements, associates and structured entities. A number of new disclosures are also required. The adoption of this standard did not have a material impact on the financial position or performance of the Group. Additional disclosures, where required, are provided in the individual notes relating to the assets and liabilities.

iv. IFRIC 21 (effective for accounting periods beginning on or after 1 January 2014 but only adopted on 13 June 2014 by the European Union) sets out the accounting for an obligation to pay a levy if the liability is within the scope of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. Following an assessment of the Group, this new requirement has been applied on the French portfolio with regards to the French Real Estate tax and the Office Tax which are due for the full year in case of ownership on the first day of the year. The application of IFRIC 21 on the interim accounts led to the recognition of additional property operating expenses of €0.3 million.

2 Basis of preparation (continued)

Standards and Interpretations recently issued but not yet effective

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective up to the date of issuance of the Group's condensed interim financial information, and have not been applied in preparing the condensed interim financial information.

Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early.

v. Amendment to IFRS 5, (Non-current Assets Held for Sale and Discontinued Operations) - This amendment provided clarification guidance in circumstances in which an entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa). An entity shall apply those amendments prospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to changes in a method of disposal that occur in annual periods beginning on or after 1 January 2016, subject to European Union endorsement.

vi. IFRS 9, (Financial Instruments: Classification and Measurement) - IFRS 9 reflects the first phase of the IASB's work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 32. IFRS 9 has three measurement categories: amortized cost, fair value through profit or loss and fair value through other comprehensive. All equity instruments are measured at fair value. A debt instrument is stated at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it should be measured at fair value through profit or loss. The adoption of the first phase of IFRS 9 will have no impact on classification and measurements of the Group's financial assets/financial liabilities. The Group will apply IFRS 9 retrospectively from 1 January 2018, subject to EU endorsement.

vii. IFRS 15, (Revenue from Contracts with Customers) - IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

The Group has considered the above new standards, interpretations and amendments to published standards and concluded that they are not expected to have a significant impact on the Group's condensed consolidated interim financial information, apart from additional disclosures.

3. Use of judgements and estimates

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 September 2014.

Measurement of fair values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes the Investment Manager that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the Board of Directors.

The Investment Manager regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Investment Manager assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Group Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

4 Seasonality of operations

Rental income, other revenues and costs are received and incurred smoothly over the accounting period. Therefore no additional disclosures need to be made in the condensed consolidated interim financial information as a result of seasonality.

5 Investment property

The decline in values can be attributed to the continued discount on vacant properties and assets with shortening lease lengths.

All of the above investment properties have been pledged as collateral on the interest bearing loans and borrowings disclosed in note 11.

Measurement of fair value

i. Fair value hierarchy

The fair value of the investment properties 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. In arriving at their estimates of market values, the experts have used their market knowledge and professional judgement and not only relied on historical transactional comparables.

The valuations were performed by Savills, 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.

5 Investment property (continued)

The fair value measurement for investment properties of €219,4 million has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see note 2.5 and note 5).

ii. Level 3 fair value

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.

* This amount excludes any change related to changes in value for disposals and assets already classified as held for sale in prior period.

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

5 Investment property (continued)

Investment property - valuation techniques and significant unobservable inputs

The following table provides a description of valuation techniques used and quantitative information about the significant unobservable inputs used by the independent valuers referenced above in determining the fair value of the investment properties for the period ending 31 March 2015 by geographical location.

5 Investment property (continued)

6 Assets held for sale

As at 31 March 2015, three non-current assets, Heusenstamm and Pocking in Germany and Girona in Spain, were classified as held for sale.

6. Assets held for sale (continued)

* The movement in investment properties fair values is reconciled in the below table:

7 Issued capital

Issuance of ordinary shares

The Company has issued share capital of €25,998,090 (30 September 2014: €25,998,090; 31 March 2014: €25,998,090) consisting of 259,980,909 shares (30 September 2014: 259,980,909 shares; 31 March 2014 259,980,909 shares) without indication of nominal value all of which have been fully paid up.

The net asset value per ordinary share is based on net assets of €22.1 million as at 31 March 2015 (30 September 2014: €39.4 million; 31 March 2014: €52.1 million) and 260.0 million ordinary shares outstanding at 31 March 2015 (30 September 2014: 260.0 million; 31 March 2014: 260.0 million).

(1) €:£ exchange rate of €1.38064 as at 31 March 2015; €1.28358 as at 30 September 2014; € 1.21013 as at 31 March 2014.

The calculation of the basic earnings per share for the financial period ended 31 March 2015 is based on the loss attributable to ordinary shareholders of €17.3 million (30 September 2014: loss of €19.1 million; 31 March 2014: loss of €6.3 million), and the weighted average number of ordinary shares outstanding during the period ended 31 March 2015. The calculation of diluted earnings per share at 31 March 2015 is based on a diluted loss attributable to ordinary shareholders of €17.3 million (30 September 2014: loss of €19.1 million; 31 March 2014: loss of €6.3 million), and a weighted average number of ordinary shares outstanding during the period ended 31 March 2015 after the adjustment for the effect of all dilutive potential ordinary shares.

10 Preference shares dividend

On 30 December 2009 the Company issued 29,137,134 redeemable preference shares with one warrant attached per preference share. The preference shares confer the right to a cumulative preference share dividend payable semi-annually. The holders of preference shares are entitled to receive a preferential cumulative dividend of 9% per annum of the preference share issue price of £1.00. The preference dividend is payable semi-annually in June and December each year from 2010 to 2016 inclusive.

The fair value of the preference shares issued as at the end of the reporting period was €38.0 million (30 September 2014: €34.9 million; 31 March 2014: €32.9 million)

Under the terms of the new loan, a cash sweep will be applied to the Company's income prior to the Step-Down Event (note 11). As a consequence, no distributions to ordinary or preference shareholders can be made for the duration of the cash sweep, with the preference share dividend therefore being accrued. The Company regards making the repayments necessary to eliminate the cash sweep as an objective of the highest priority. As a result, the accrued amount of preference share dividend as at 31 March 2015 was €4.5 million.

11 Interest bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest bearing loans and borrowings, which are measured at amortised cost.

The gross book value of the bank loans does not include any amount (30 September 2014: €nil; 31 March 2014: €35.4 million) classified under liabilities held for sale (note 6).

As reported in the audited year-end consolidated financial statements, the Loan Facility with Bank of Scotland ("BoS") reported in the previous interim period was replaced. This loan was replaced in full by a new €220 million credit facility provided by funds affiliated to Blackstone Real Estate Debt Strategies ("BREDS") on 30 April 2014. On 5 August 2014, BREDS undertook a syndication of the loan with Bank of America Merrill Lynch ("BAML") for the amount of €100 million ("Senior Loan") and converted the balance of €120 million into Mezzanine Debt ("Mezzanine"). An addition €2 million was lent further by BREDS towards the Mezzanine to increase this to €122 million. The weighted cost of Senior Debt and Mezzanine remained the same as per the original refinancing of 30 April 2014. Under the terms of the new facility, once the total amount of the unpaid principal balance has been reduced to €135 million and as long as the LTV is below 70%, the ("Step-Down Event"), the margin will be reduced from 770bp to 470bp over three month EURIBOR. The LTV covenant, which is set initially at 85%, falls to 80% following the Step-Down Event. The disposal program is intended to provide the majority of the requisite €85 million amortization payment that will trigger the Step-Down Event. In any case, the Step-Down Event will unlock an interest margin that would be favourable to the Company. The Company is incentivised to carry out the planned sales by the potential Step-Down in its financing costs, but there is no further penalty imposed by the Facility Agreement in the event that the Company does not reach this target. The maturity date for the new debt is 30 April 2017.

11 Interest bearing loans and borrowings (continued)

Transaction costs incurred in refinancing the above loans are initially deducted from the loan balance and are being amortised over the extended period of the loan. Amortisation of transaction costs recognised as finance costs amounted to €1.9 million for the period ended 31 March 2015 (30 September 2014: €1.4 million; 31 March 2014: €0.1 million). Finance costs include debt arrangement, structuring and utilisation fees paid in arranging the debt facility. All transaction costs related to the old loan with BoS were written off in full.

Tax expense is recognised based on management's best estimate of the applicable income tax rate expected in the year multiplied by the pre-tax income of the interim period.

According to the Luxembourg regulations concerning undertakings for collective investments, 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 condensed consolidated interim financial information.

The Company and the Group have related party transactions with its subsidiaries, shareholders and certain Directors.

There has been no material change in the related party transactions described on page 68 of the annual report for the year ended 30 September 2014.

Directors' fees

The Directors of the Company and its subsidiaries were paid a total of €79,000 (2014 six months: €86,000) in Directors' fees during the period.

The Group also operates an inter-group trading account facility with its subsidiaries whereby it may receive income on behalf of its subsidiaries or pay expenses on their behalf. These balances are non-interest bearing and are settled on demand. All these transactions are conducted at arms length.

Internos Global Investors Limited ("Internos") acted as the Investment Manager of the Group in the period under review. Internos received Investment Management fees of €0.5 million (2014 six months: €0.5 million). The conditions for payment of a performance fee to the Investment Manager were not met during the period under review and as such no performance fee has been recorded.

In addition the Group was charged by Internos for accounting fees of €0.2 million (2014 six months: €0.3 million) for the period.

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

i. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

ii. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or the liability, either directly (e.g. as prices) or indirectly (i.e. derived from prices);

iii. Level 3: inputs for the asset or liability that are not based on observable market data.

There were no transfers from Level 2 to Level 1 during the six months ended 31 March 2015 and no transfers in either direction during the six months ended 31 March 2014.

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 30 September 2014 except of those relating to the going concern. A detailed explanation with regards to this issue is provided in Note 2.2.

Under the new debt facility, the Group is required to conducted asset sales. The risks and uncertainties related to delayed asset sales mainly impact the borrowing costs. The borrowing margin would stay at 7.7% and covenants would reflect the pre step-down period. There is no time expiry on sale of assets and there is no linked penalty if the sales are not achieved.

The interest cost of the new debt facility continues to take up a greater portion of the Company's recurring revenues. The level of working capital held by the Company has reduced as a result of the costs of the refinancing. The cash position of the Company will therefore require careful management in the interim period before the Company reaches its objective of a lowered interest margin in accordance with the terms of the new loan facility (see note 2.2 Going Concern for more details).

A detailed explanation of the risks summarised below, together with the Group's objectives, policies and processes for measuring and managing them, can be found on pages 68 - 74 of the annual report and cover the following areas:

· market and operational risks;

· currency risk;

· credit risk;

· liquidity risk; and

· financial risk management.

The operating segments derive their revenue primarily from rental income from lessees. All of the Group's business activities and operating segments are reported within the segments below.

The segment information for the six months ended 31 March 2014 is as follows:

The segment information for the year ended 30 September 2014 is as follows:

Certain subsidiaries of the Group are involved in litigation resulting from operating activities. These legal disputes and claims for damages are routine resulting from the normal course of business. None of these legal disputes and claims are expected to have a material effect on the statement of financial position, the result or liquidity of the Group.

Montowest litigation

The Group is facing a potential claim from the Montowest litigation in France that was settled previously. The other party has started a claim and may request a repayment of the indemnity paid to Montowest three years ago. The decision from the "Court de Cassation" was unclear and subject to interpretation, and therefore the other party of this litigation used it to claim back the indemnity already paid. However the Group has blocked this claim by making an appeal to the decision of the "Court de Cassation" and the final decision will be rendered by the "Appeal Court" in the coming months. A provision of €2.5 million has been set aside to cover any potential liability in this regards.

The sale of the Heusenstamm property in Germany was completed on 20 April 2015 for a net sale price of €32 million, compared to the latest valuation of the property of €39.2 million (as at 31 March 2015). The sale of this property is not sufficient in and of itself to trigger the Step Down interest rate, and during the intervening period before other repayments can be made (through further asset disposals and/or an injection of equity or new debt) the Group will be in an ongoing event of Default in relation to its Debt Yield and Projected Interest Cover covenants under the terms of the Mezzanine Facility.

In respect of these ongoing events of Default, the Mezzanine Lender has issued the Group with a Standstill letter, in which the events of Default will not be waived, but the Mezzanine Lender states that it will not take any action as a result of them, until the earlier of 28 June 2015 or the occurrence of an additional event of Default. On the basis of the Mezzanine Lender's stated approval of and support for the Group's business plan, which requires time and stability to enable the successful sale of assets needed to achieve the Step Down, it is expected that further Standstills will be granted after the 28 June 2015. For further details see Note 2.2 (Going Concern).

Adjusted gross assets is the aggregate value of all of the assets of the Group, including net distributable but undistributed income, less current liabilities of the Group (excluding from current liabilities any proportion of monies borrowed for investment whether or not treated under accounting rules as current liabilities), as shown in the consolidated accounts of the Group.

CSSF, "Commission de Surveillance du Secteur Financier", which is responsible for the prudential supervision of credit institutions, other professionals of the financial sector, undertakings for collective investment, pension funds, SICARs, securitisation undertakings issuing securities to the public on a continuous basis, regulated markets and their operators, multilateral trading facilities and payment institutions. It also supervises the securities markets, including their operators.

Earnings per share (EPS) is the profit after taxation divided by the weighted average number of shares in issue during the period.

Net equivalent yield is the time weighted average yield between the net initial yield and the reversionary yield.

Estimated rental value (ERV) is the Group's external valuers' reasonable opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.

Gross rental income orgross rent is the annualised rental income receivable in the period prior to payment of non-recoverable expenditure such as ground rents, local taxes, insurance and property outgoings.

Gross initial yield (GIY) is the gross rent expressed as a percentage of the net valuation of property portfolio.

Group is Invista European Real Estate Trust SICAF and its subsidiaries.

Net asset value (NAV) are shareholders' funds, plus the surplus of the open market value over the book value of both development and trading properties, adjusted to add back the change in fair value of the warrants and deferred tax.

Net initial yield (NIY) is the net rental income expressed as a percentage of the gross valuation of the property portfolio.

Net rental income ornet rent is the annualised rental income receivable in the period after payment of non-recoverable expenditure items such as ground rents, local taxes, insurance and property outgoings.

Potential rent is the rent achievable if all the remaining vacant space is let at the estimated rental value and added to the current gross rental income.

Reversionary yield is the anticipated yield, which the Net initial yield will rise to once the rent reaches the estimated rental value.

RNS, Regulatory News Services (UK stock market), which is the service used by the London Stock Exchange to publish company results, share issues, changes in the board of directors and other items which may affect the price of shares.