IERE.L Regulatory News (IERE)

17 May 2007 07:01

Invista European Real Estate Trust17 May 2007 Invista European Real Estate Trust SICAF Invista European Real Estate Trust announces its interim results for the six-month period ending 31 March 2007 17 May, 2007 Highlights: • Adjusted NAV* per share up to €3.00 (204p) - growth of 4.5% in quarter to 31 March 2007 • Adjusted NAV* of €311.5 million as at 31 March 2007 • Adjusted NAV* growth since IPO** on 20 December of 6.4% • Real estate portfolio increased to €528m (including committed assets) as at 31 March 2007 • Completed €143m committed transactions since IPO and new €17.7m German retail asset commitment • Interim dividend declared of €0.049 - prorated 6% yield off IPO price • Real estate capital value uplift since 30 September 2006 of 4.4% • Yield gap between real estate yields and financing rates still evident in certain markets Significant events post 31 March 2007: • €215m French portfolio acquisition • €33m equity placing • Almost fully invested at €743m - limiting cash drag * Adjusted net asset value ("NAV") is calculated using International FinancialReporting Standards adjusted to add back deferred tax ** Adjusted NAV at IPO is a pro-forma figure of €2.82 •:£ exchange rate used: 1.4719 at 31 March 2007 Tom Chandos, Chairman of Invista European Real Estate Trust said: "We are makinggood progress in delivering on our strategy outlined at the time of flotation.To date, we have built a diversified, high quality Continental Europeanportfolio of €743 million. We see further attractive opportunities across ourtarget markets and look forward to continuing to generate value for ourshareholders." Contacts: Invista Real Estate Investment Management:Tony Smedley/Chris Ludlam +44 20 7153 9343 M:Communications:Edward Orlebar +44 20 7153 1523Louise Hatch +44 20 7153 1516 CHAIRMAN'S STATEMENT The Listing The IPO of the Company on 20 December 2006 was a success with subscriptionsabove the available capacity. The funds raised at launch continue to be deployedin the Continental European real estate markets in accordance with the strategyset down by the Company - targeting well located properties let to good qualitytenants with opportunities to enhance growth through active management. This hasenabled the business to achieve both scale and the desired level of exposure tothe markets. Creating Value The business has performed strongly since launch and I am pleased to reportpositive results for the six month period ended 31 March 2007. Since the IPO theNet Asset Value (NAV) adjusted to add back deferred tax has increased by €0.18per share or 6.4% on a pro-forma basis. We are recommending the payment of ourfirst dividend of €0.049 per share on 25 May 2007, covering the period from IPOto 31 March 2007. The business model of the Company is working well and the markets in which thebusiness is operating remain strong. The underlying real estate portfolio hasdriven NAV performance through a combination of capital value and rental growth. During the period the Group has acquired over €225 million in the ContinentalEuropean real estate markets, making 8 acquisitions and, following a large €215million logistics portfolio transaction in France completed on 3 April 2007 (the"French Portfolio Acquisition"), investing the capital raised at IPO ahead ofschedule. This transaction increases exposure to the French real estate marketand produces a net rental income of 6.47%. The portfolio comprises propertieswhich the Investment Manager believes will deliver growth through active assetmanagement in the medium term. To complete this purchase the Company raised anadditional €33m equity through a placement of 10.4 million shares. On 31 March2007 the total real estate assets (including commitments to purchase) stood at€528 million and, following the post half year end transaction now amount toover €743 million. The European Real Estate Market Investment performance strengthened across Continental Europe in 2006 with allreal estate total returns generally in excess of 10 to 15% in developed WesternEuropean real estate markets. Retail markets continued to benefit from capitalvalue growth and accelerating rental increases, while office markets moved intoa phase of growth across Europe. Lettings in 2006 reached record levels.Logistics properties continue to perform well, supported by active tenant demandand sustained investor interest. As mentioned in the IPO Prospectus the Company is currently focusing on the moreestablished, liquid and transparent real estate markets principally in WesternContinental Europe. The Company remains cautious about investing in CentralEurope as real estate income returns available in those markets no longerreflect the additional risks associated with these relatively less establishedand illiquid markets. Borrowings As at 31 March 2007 the Group had total drawn down borrowings of €261.6 millionrepresenting 45.9% of total assets less current liabilities. It is still theintention of the Company to borrow up to 60% of the Group's gross assets valuewith the limit set at 70% at any time. These borrowings comprise a senior debtfacility of €460 million (increased from €420 million with effect from 3 April2007 in order to fund the French Portfolio Acquisition). The Investment Managerhas commenced the process of securing a more attractive form of long termfinancing which the Company would expect to be in place during the second halfof 2007. The Company has hedged its exposure to changes in European interest rates. As at31 March 2007 it had hedged €207.2 million of debt at a weighted average swaprate of 3.78%. Since that time, following the French Portfolio Acquisition, alloutstanding debt was hedged to January 2013 to give a weighted average swap rateof 4.00%. Corporate Responsibility The Board of the Company is functioning well since the launch in December.Corporate governance is very important and the Board members have dealt withwhat is a large and relatively complex workload relating to activities such ascross border accounting, administration of Luxembourg and locally domiciledcompanies and ongoing acquisitions. Post interim end, Robert DeNormandie hasbeen appointed to the Board and will take the Chair of the Audit Committee. I am very grateful to my colleagues on the Board for their continued commitmentto our Company. Prospects The Investment Manager continues to review attractive opportunities forinvestment in the core European markets which evidence that the real estatemarket remains extremely active and continues to perform well, both relative tothe peer group but also against other asset classes such as equities and bonds.The yield premium that exists in Continental Europe - where real estate incomereturns are higher than the cost of debt - means that returns on equity remainattractive. The outlook is robust with an office recovery taking place in manymarkets and GDP edging up in most countries. The Board continues to work withthe Investment Manager to pursue an investment strategy which maximises NAVreturns to shareholders without taking high risks. The Company monitors marketcycles and will remain focused on real estate fundamentals such as location,flexibility, accommodation quality, income security and opportunities to delivervalue through asset management. Summary We are making good progress in delivering on our strategy outlined at the timeof flotation. To date we have built a diversified, high quality ContinentalEuropean portfolio of €743 million. We see further attractive opportunitiesacross our target markets and look forward to continuing to generate value forour shareholders. Tom ChandosChairmanInvista European Real Estate Trust SICAFDate 16 May 2007 INVESTMENT MANAGER'S REPORT Portfolio Overview As at 31 March 2007, the Group owned a real estate portfolio valued at €528.4million comprising 21 assets (including 6 assets conditionally committed toacquire). Post interim end, on 3 April 2007, the Group acquired a large Frenchlogistics portfolio valued at €215.0 million, which has now taken the value ofthe real estate portfolio to €743.4 million, very close to full investment. Thiswas accompanied by a placing of 10.4 million additional shares at 220p and anextension of the Bank of Scotland senior debt facility from €420 million to €460million. This portfolio acquisition is not reflected in the financial statementsof the interim accounts. However, it is a significant event for the Group thatwe wish to report and one which is cash flow accretive. This means that following the French Portfolio Acquisition the Group (afterworking capital provisions) has surplus investment capacity of approx €30million. We are considering a number of suitable investment and activemanagement opportunities with which to deploy this capital. The real estate portfolio including committed assets is well diversified by bothcountry and sector and benefits from good quality, relatively long incomecharacteristics. These portfolio characteristics are fully consistent with theobjective of the fund to provide an attractive level of income return with thepotential for capital growth. In addition, there are a number of assetmanagement initiatives currently being pursued to optimise returns which,together with the benefits of lease indexation, positions the portfolio well forfuture value growth. It has been a busy period for acquisitions. We have completed purchases of anoffice building in Lyon valued at €23.8 million (let on a 9 year lease toMerial) and a retail property in Roth, Germany valued at €21.5 million. Roth islocated in Bavaria which is a highly sought after region of Germany for retailinvestment properties. The Group has also purchased a 52,000 square metre retailpark in Riesa, Germany and a brand new logistics property let to DHL inLutterberg, Germany. The current portfolio income is €28.3 million, reflecting a net rental incomeyield of 6.30%. The French Portfolio Acquisition completed on 3 April 2007 at anet initial yield of 6.47% comprises logistics properties developed by a familybusiness over many years, principally located in the well establisheddistribution areas of Amiens (north of Paris) and in the Provence Alpes Cotesd'Azur (PACA) region along the Rhone valley distribution corridor. The principaltenants representing over 52 per cent. of the French logistics portfolio bygross rent are group subsidiaries of Norbert Dentressangle, the French logistics/distribution company. The rents payable are a low base for future growth and insome cases generate income returns of in excess of 9%. With selective capitalexpenditure and active management we would expect to be able to improve theinvestment performance of these properties over the medium term. Thistransaction is excellent for the Company and means that capital raised at IPO inDecember has been substantially deployed 6 months ahead of schedule. The Group remains committed to purchase 6 properties valued at €82.7 million in4 countries. Subject to various closing conditions we expect to complete thesetransactions during the first half of 2007. Top 10 Properties Value • %*-------------------------------- --------- ------Campus Heusenstamm, 54-64 Jahnstrasse, Heusenstamm,Germany 93,880,000 16.2%Riesapark 2, 01587 Riesa, Germany 60,850,000 10.5%Le Delta, 95800 Cergy, France 41,075,000 7.1%Vor der Hecke, 34355 Lutterberg, Germany 36,500,000 6.3%21 Chemin de la Sauvegarde, 69130 Ecully, Lyon, France 34,250,000 5.9%Plot 14A&B, Avenida Rio Henares, Alovera, Guadalajara,19208 Madrid, Spain 27,900,000 4.8%13 Avenue Albert Einstein, 69100 Villeurbanne, Lyon,France 23,800,000 4.1%Sieh-Dich-Fuer-Weg, 91154 Roth, Germany 21,550,000 3.7%Sun, 180 Avenue de l'Europe, 38330 Montbonnot St Martin,Grenoble, France 21,540,000 3.7%Fos-Distriport Logistics Park, 13270 Fos sur Mer,Marseille, France 20,900,000 3.6%-------------------------------- --------- ------Total 382,245,000 65.8%-------------------------------- --------- ------*Percentage of aggregate asset value plus cash (excluding committed assets) asat 31 March 2007 Top 10 Tenants* Rent pa • %**-------------------------------- -------- ------Deutsche Telekom 5,311,003 18.8%DHL 2,253,657 8.0%Tech Data 1,709,620 6.1%Valeo 1,640,900 5.8%Merial 1,464,279 5.2%Sun Microsystems 1,457,456 5.2%AVA Marktkauf 1,136,888 4.0%Real 1,051,425 3.7%Strauss Innovation 1,002,600 3.5%Toom 935,195 3.3%-------------------------------- -------- ------Total 17,963,023 63.6%-------------------------------- -------- ------*Following the French Portfolio Acquisition the weighting to NorbertDentressangle would be 16.1% which would in turn reduce the other tenantweightings **Percentage of aggregate gross rent (excluding committed assets) PROPERTY PORTFOLIO STATISTICS Sector Spread Sector March 2007 (%) April 2007* (%)Office 46% 33%Logistics 32% 52%Retail 22% 15%Total 100% 100% * April figures included to show impact of the French Portfolio Acquisition postinterim end on 3 April 2007. Geographic Spread Country March 2007 (%) April 2007* (%)Germany 49% 35%France 30% 51%Spain 7% 5%The Netherlands 5% 3%Belgium 4% 3%Czech Republic 3% 2%Poland 2% 1%Total 100% 100% * April figures included to show impact of French Portfolio Acquisition postinterim end on 3 April 2007 The sector and geographical spread of the portfolio is kept under constantreview to ensure we are optimising performance from the properties undermanagement. The recent €215 million French Portfolio Acquisition has taken theGroup to a higher weighting in France and in the logistics sector, a strategywhich is supported by the healthy outlook for the French real estate market andthe accretive rental income. In addition there are a number of asset managementopportunities in the portfolio which will, over time, contribute positively toNAV performance. Asset Management Lease re-negotiations are taking place at a number of the Group's propertieswhich are expected to have a positive effect on valuation; however suchnegotiations may take a few months to complete. Selected capital improvementswill be made where these have a positive effect on rental levels and capitalvalue. The portfolio is 99% income producing and negotiations are advancing tolease the last unit of the logistics asset in Marseille which will furtherincrease the Group's income. We are also actively managing the leasing campaignin Cergy, Paris and, in accordance with asset business plans, pursuing a numberof additional investment management initiatives across the portfolio, includinginvestigating the potential use and value of the surplus land in the portfolio. The capital growth of a selection of the key assets in the portfolio is set outbelow with reference to the September 2006 and March 2007 independentvaluations. Property 30 Sept.06 31 March 07 % Independent Independent growth Valuation Valuation (•'000) (•'000)Campus Heusenstamm, 54-64 Jahnstrasse, Heusenstamm, Germany 88,900 93,880 5.6%21 Chemin de la Sauvegarde, 69130 Ecully, Lyon,France 32,100 34,250 6.7%Plot 14A&B, Avenida Rio Henares, Alovera,Guadalajara, 19208 Madrid, Spain 26,750 27,900 4.3%Fos-Distriport Logistics Park, 13270 Fos sur Mer,Marseille, France 19,700 20,900 6.1% European Capabilities We continue to grow our Continental European team which now consists of 13people, 9 of whom have lived and/or worked in the target markets. We expect toopen our Paris office soon which will be an integral part of building upon ourEuropean capability. As stated at the time of flotation we plan to openadditional offices to further extend our reach and better service the markets weare operating in. It is expected that offices in Germany will be established inthe next 12 months. Summary The performance of the property portfolio since launch has been good. Buyinginto growth markets and actively managing the assets in the portfolio is key toachieving strong returns. Investment markets remain competitive and thechallenge to source good quality product continues. We have reach and ability tosource transactions directly and ahead of market. We will continue to leveragethese relationships for the benefit of the Company's shareholders. Outlook Capital flows into Continental European real estate markets grew strongly during2006 and with investors seeking to diversify their real estate portfolios weexpect yields to remain under downward pressure throughout 2007. Marketinefficiencies continue to present opportunities across all sectors, markets andasset types. The different cycles in each of these areas of the market mean thatactive investors and managers find opportunities to out perform. Against the background of a competitive investment market in Continental Europe,the Company has been successful in sourcing and executing transactions in linewith the strategy. We continue to favour mature western European real estatemarkets which are well positioned to deliver above-trend total returns in 2007and 2008. We expect to see divergence of performance at regional, city andsub-market level and therefore continue to focus on opportunities in France,Germany and Spain as well as new opportunities in Scandinavia. These markets areexpected to benefit from capital value and rental growth. Our key target marketsfor stronger medium-term performance are Belgium, Italy and The Netherlandswhich we believe are 12 to 24 months behind in terms of rental recovery. Wecontinue to track the performance of the markets to identify opportunities andavoid sectors or markets which may be ex-growth. Interest rate movements have not yet had a significant impact on investmentmarket activity in Continental Europe and with a healthy gap between propertyrental yield and the cost of debt, we expect both equity and debt buyers toremain very active during 2007. We continue to hedge interest rate fluctuationsto protect returns to shareholders. Our progress since launch re-affirms our confidence in the positive outlook forthe Company and we look forward to another period of good growth. Tony SmedleyHead of European FundsInvista Real Estate Investment Management LimitedDate 16 May 2007 CONSOLIDATED INCOME STATEMENT Unaudited for the period from 1 October 2006 to 31 March 2007. The period from 6 June 2005 (date of incorporation) to 30 September 2006represents the last full fiscal period of the Group, which is audited andoccurred prior to the IPO on 20 December 2006 1 October 2006 6 June 2005 to to 31 March 2007 30 September 2006 •'000 •'000 Rent receivable 10,548 9,988Other income 93 -Property operating expenses (875) (355)------------------------ --------------- -------------Net rental and related income 9,766 9,633------------------------ --------------- ------------- Net valuation gains on investment property 10,244 17,850------------------------ --------------- ------------- ExpensesInvestment management fee (2,257) (1,520)Performance fee provision (750) -Valuers' and other professional fees (987) (2,223)Administrative fee (594) (667)Audit fees (60) (258)Directors' fees (68) (20)Goodwill impairment - (4,604)Other expenses (48) ------------------------- --------------- -------------Total expenses (4,764) (9,292)------------------------ --------------- ------------- Net operating profit before net financecosts 15,246 18,191 Interest receivable 1,151 14Interest payable (5,274) (5,360)Finance expenses (1,849) (5,970)------------------------ --------------- -------------Net finance costs (5,972) (11,316)------------------------ --------------- ------------- Profit before tax 9,274 6,875 Current income tax - (451)Net wealth tax (198) (133)Capital taxes - (315)Deferred taxes (7,786) (5,984)------------------------ --------------- -------------Total taxation (7,984) (6,883)------------------------ --------------- ------------------------------------- --------------- -------------Profit/(Loss) for the period attributableto the equity holders of the parentcompany 1,290 (8)------------------------ --------------- ------------- Basic and diluted earnings per share 0.02 (0.01)------------------------ --------------- ------------- All items in the above statement are derived from continuing operations. CONSOLIDATED BALANCE SHEET Unaudited as at 31 March 31 March 30 September 2007 2006 •'000 •'000 Investment properties 445,765 210,590Future commitment for investment - 21,275PropertyDeferred tax assets 8 813------------------------ --------------- -------------Non-current assets 445,773 232,678------------------------ --------------- ------------- Trade and other receivables 8,087 4,671Prepayments 1,504 1,065Cash and cash equivalents 134,755 4,257------------------------ --------------- -------------Current assets 144,346 9,993------------------------ --------------- ------------- Total assets 590,119 242,671------------------------ --------------- ------------- Issued capital and reserves 285,024 7,767------------------------ --------------- -------------Equity 285,024 7,767------------------------ --------------- ------------- Interest-bearing loans and borrowings 257,910 50,218Deferred tax liabilities 26,471 11,759------------------------ --------------- -------------Non-current liabilities 284,381 61,977------------------------ --------------- ------------- Interest-bearing loans and borrowings - 144,166Investment property commitment - 21,275PayablesTrade and other payables 20,710 7,423Swap interest payable 4 63------------------------ --------------- -------------Current liabilities 20,714 172,927------------------------ --------------- ------------- Total liabilities 305,095 234,904------------------------ --------------- ------------- Total equity and liabilities 590,119 242,671------------------------ --------------- ------------- Net Asset Value per Ordinary Share 2.74 11.22------------------------ --------------- ------------- This Interim Report was approved by the Board of Directors on (16 May 2007) andsigned on its behalf by: Tom Chandos Michael ChidiacChairman Chair of Audit Committee CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Unaudited for the period from 1 October 2006 to 31 March 2007 Share Capital Hedge Revenue Total & Share Premium Reserve Reserve •'000 •'000 •'000 •'000 Balance as at 30 September 2006 6,921 853 (7) 7,767 Retained earnings - - 440 440Profit for the period - 2,902 1,290 4,192Deferred tax on hedging reserve - (1,117) - (1,117)Shares issued in the period 273,742 - - 273,742 ----------------------- -------- -------- -------- --------Equity at 31 March 2007 280,663 2,638 1,723 285,024 CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited for the period from 1 October 2006 to 31 March 2007 1 October 2006 6 June 2005 to to 31 March 2007 30 September 2006 •'000 •'000Operating ActivitiesProfit / (loss) for the period 1,290 (8)Adjustments for:Net valuation gains on investment (10,244) (17,850)propertyNet finance cost 6,003 11,295Taxation 7,984 6,883Impairment of goodwill 4,604----------------------------- ------------ -------------Operating profit before changes in workingcapital and provisions 5,033 4,924 Decrease /(Increase) in trade and otherreceivables (1,328) (4,509)(Decrease)/Increase in trade and otherpayables 18,371 4,739 ----------------------------- ------------ -------------Cash generated from operations 22,076 5,154 Interest paid (1,890) (4,014)Interest received 1,151 14Tax paid (34) (315)----------------------------- ------------ -------------Cash flows from operating activities 21,303 839----------------------------- ------------ ------------- Investing Activities Acquisition of investment property (224,931) (192,740)----------------------------- ------------ -------------Cash flows from investing activities (224,931) (192,740)----------------------------- ------------ ------------- Financing ActivitiesProceeds on issue of Ordinary Shares 223,524 6,921Loan to associate - 50,218Cost of issue of conversion - -Draw down of long term loans 114,614 146,942Finance costs paid on arrangement of longterm loan (4,012) (8,936)----------------------------- ------------ -------------Cash flows from financing activities 334,126 195,145----------------------------- ------------ ------------- Net (decrease) / increase in cash and cashequivalents for the period / year 130,498 3,244----------------------------- ------------ ------------- Opening cash and cash equivalents 4,257 -Opening acquisitions - 1,013----------------------------- ------------ -------------Closing cash and cash equivalents 134,755 4,257----------------------------- ------------ ------------- NOTES TO THE INTERIM REPORT Significant accounting policies Statement of compliance INVISTA EUROPEAN REAL ESTATE TRUST SICAF ("the Company") was incorporated as a"societe anonyme" under the laws of Luxembourg on 6 June 2005. On 17 November2006 the Company was converted into an investment company with fixed capital"societe d'investissement a capital fixe". Through its subsidiaries (together"the Group") its main activity is to evaluate, make and actively manage directand indirect investments in real estate in Continental European countries.During the period the Group has increased its investment portfolio throughacquisitions in Germany, Poland and France. The Company is a public limited liability company incorporated for an unlimitedterm. The registered office of the Company is established at 25B, BoulevardRoyal, L-2449 Luxembourg. These interim consolidated financial statements have been approved for issue bythe Board of Directors on 16 May 2007 and have been prepared in accordance withInternational Financial Reporting Standard (IFRS) IAS 34 Interim FinancialReporting. They do not include all of the information required for the fullannual financial statements, and should be read in conjunction with theconsolidated financial statements of the Group as at and for the financialperiod ended 30 September 2006. Basis of preparation The consolidated financial statements are presented in Euro (rounded to thenearest thousand), which is the Group's functional and presentation currency. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgment in the process of applying the Company's accountingpolicies. The comparative figures for the previous financial year reflect an extendedperiod from the date of incorporation, 6 June 2005 to 30 September 2006 as thiswas the first financial year of the company as mentioned in the articles ofassociation. Basis of consolidation Subsidiaries are all entities over which the Company has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. Subsidiaries are fully consolidated from thedate on which control is transferred to the Company. They are de-consolidatedfrom the date control ceases. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterests. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwill.If the cost of acquisition is less than the fair value of the net assets of thesubsidiary acquired, the difference is recognised directly in the incomestatement. The assets and liabilities of the subsidiaries and their results are fullyreflected in the consolidated financial statements. Intercompany transactions,balances and unrealised gains on transactions between group companies areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Accounting policiesof subsidiaries have been changed where necessary to ensure consistency with thepolicies adopted by the Company. Investment property Property that is held for long-term rental yields or for capital appreciation orfor both, and that is not occupied by the Group, is classified as investmentproperty. Investment property comprises freehold land, freehold buildings, landheld under operating lease and buildings held under finance lease. Investment property is initially recognised at cost, including relatedtransaction costs. After initial recognition, investment property is carried atfair value. Fair value is based on active market prices, adjusted, if necessary,for any difference in the nature, location or condition of the property.Valuations are performed by an independent expert, DTZ Debenham Tie Leung, inaccordance with the guidance issued by the Royal Institution of CharteredSurveyors (the "RICS"). Market valuations are carried out on a quarterly basis. Property acquisitions are recognised in the balance sheet at their contractualvalue where unconditional commitments have been entered into prior to thebalance sheet date. Any gain or loss arising from changes in fair value is recognised in the incomestatement. At 31 March 2007, all properties of the portfolio were subject to registeredmortgages in order to secure bank loans. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Certain bank accounts have been pledged in favour of Bank of Scotland under theterms of account pledge agreements. These are related to loan agreementsconcluded by subsidiaries of the Company and Bank of Scotland for the purposesof financing acquisitions of investment property. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure tointerest rate risks arising from operational, financing and investmentactivities. Derivatives that do not qualify for hedge accounting are accountedfor as trading instruments. Derivatives are initially recognised at fair value. Subsequent to initialrecognition, derivative financial instruments are remeasured at fair value. Thegain or loss on remeasurement to fair value is recognised immediately in theincome statement. However, where derivatives qualify for hedge accounting, therecognition of any resultant gain or loss depends on the nature of the itembeing hedged. Share capital Ordinary shares are classified as equity. External costs directly attributableto the issue of new shares, other than on a business combination, are shown as adeduction, net of tax, in equity from the proceeds. Share issue costs incurreddirectly in connection with a business combination are included in the cost ofacquisition. Dividends are recognised in the period in which they are paid. Provisions A provision is recognised in the balance sheet when the Group has a legal orconstructive obligation as a result of a past event, and it is probable that anoutflow of economic benefits will be required to settle the obligation and theamount can be reliably estimated. If the effect is material, provisions aredetermined by discounting the expected future cash flows at a pre-tax rate thatreflects current market assessment of the time value of money and, whereappropriate, the risks specific to the liability. Income Rental income Rental income from investment properties is accounted for on a straight-linebasis over the term of the ongoing leases and is shown gross of any income tax.Any material premiums or rent-free periods are spread evenly over the leaseterm. Interest income Interest receivable derives from cash held in current and deposit accountsthroughout the period and is accounted for on an accruals basis. Expenses All expenses are accounted for on an accruals basis. The Group's investmentmanagement and administration fees, finance costs (including interest on thelong term borrowings) and all other expenses are charged through theConsolidated Income Statement. Attributable transaction costs incurred inestablishing the Group's credit facilities are deducted from the fair value ofborrowings on initial recognition and are amortised over the lifetime of thefacilities through the Consolidated Income Statement. Taxation Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nortaxable profit or loss. Deferred income tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realisedor the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries, except where the timing of the reversal of the temporarydifference is controlled by the Group and it is probable that the temporarydifference will not reverse in the foreseeable future. Investment property Deferred income tax is provided on all temporary differences arising on fairvalue of buildings and land held by the Group as investment properties even whenthey are located in special purpose entities, which are themselves held by acompany based in Luxembourg. Each special purpose entity is established to holdone specific project. Segmental reporting The Group's investment objective is across various property sectors andContinental European countries, but the Group is managed on a single, European,basis. Loans and borrowings Profit participating loans that had been obtained from the Company'sshareholders are classified as long term debt because of their repayment andremuneration features Borrowings are recognised initially at fair value of the consideration received,less attributable transaction costs. Subsequent to initial recognition, interestbearing borrowings are stated at amortised cost with any difference between costand redemption value being recognised in the income statement over the period ofthe borrowings. Investment Management Agreement and performance fee The Investment Manager is entitled to a base fee and a performance fee togetherwith reasonable expenses incurred by it in the performance of its duties. Thebase fee from 1 October 2006 to 17 November 2006 was calculated at a rate of0.25% of gross assets pro rated from the acquisition date of the assets. Thisrate was changed to 0.2375% after 17 November 2006. In addition, and subject to the conditions below, the Investment Manager isentitled to an annual performance fee where the total return per Ordinary Shareduring the relevant financial period exceeds an annual rate of 10% (the"performance hurdle"). Where the performance hurdle is met, a performance feewill be payable in an amount equal to 15% of any aggregate total return over andabove the performance hurdle. The performance hurdle is calculated on a threeyear rolling basis. This requires that the annualised total return over theperiod from IPO on 20 December 2006 to the end of the relevant financial periodin the first three year period, and on a rolling three year basis thereafter, isequal to or greater than 10% per annum. The performance fee can be paid in eachof the first two years on the to-date performance. The Board considers that the conditions laid out in the management agreementregarding the Investment Managers qualification for receipt of a performance feemay be met for the year. Accordingly, the Board considers it would be prudent toaccrue a provision of €750,000 to the income statement in respect of thispotential fee. Basic and diluted earnings per ordinary share The basic and diluted earnings per share for the Group is based on the netprofit for the period of €1,289,969 and the weighted average number of ordinaryshares in issue during the period of 58,831,853. Net asset value per ordinary share The net asset value per ordinary share is based on the net assets of€285,024,456 and 103,875,705 ordinary shares in issue at the Balance Sheet date. Notes to editors About Invista Real Estate Investment Management Invista Real Estate Investment Management is the largest UK listed real estatefund management group and was voted Property Fund Manager of the Year at the2007 Property Awards. The Group manages both commercial and residential propertyacross the UK and continental Europe, and has a total of £9.5 billion of assetsunder management as at the 31 March 2007. Invista Real Estate currently managesa total of 17 funds, some of which are for the largest UK providers of savingsand investment products such as Clerical Medical, Halifax and St. James's Place.Invista Real Estate also manages a number of collective investor funds,including real estate investment trusts and open ended funds such as InvistaFoundation Property Trust and Invista European Real Estate Trust which arelisted on the main market of the London Stock Exchange as well as the fund ofspecialist funds, the Invista Property Portfolio Fund. Invista Real Estate hasover 90 employees and in 2006 transacted over £3.5billion of real estate assets. For more information on Invista Real Estate or the funds it manages visitwww.invistarealestate.com. Invista Real Estate Investment Management Limited is authorised and regulated bythe Financial Services Authority. About Invista European Real Estate Trust The Company's objective is to provide shareholders with an attractive level ofincome return together with the potential for income and capital growth throughinvesting in diversified commercial real estate in Continental Europe. Thecurrent geographical focus of the Company remains the Western European countriesdue to pricing opportunities and the relative stability, transparency andliquidity of these markets. The Company's website is www.ieret.eu. This information is provided by RNS The company news service from the London Stock Exchange