IERE.L Regulatory News (IERE)

7 Jan 2008 07:01

Invista European Real Estate Trust07 January 2008 7 January 2008 Invista European Real Estate Trust SICAF (the "Company") PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2007 INVISTA EUROPEAN REAL ESTATE SICAF DELIVERS ON IPO STRATEGY Invista European Real Estate Trust SICAF, the diversified continental Europeanreal estate investment Company, today announces preliminary results for the 12months to 30 September 2007. Highlights • Profit before tax €22.6 million • Earnings per share of €0.12 • Net Asset Value per share €3.11 up 1.4% since 30 June 2007 and 10.1% since IPO on 20 December 2006 • Total dividends per share of €0.1337 representing an annualised dividend yield of 6.19% on 30 September 2007 share price* • Total return per share of 11.8% or 15.2% on an annualised basis since IPO • Gearing at circa 54% with the portfolio loan-to-value limit set at 70% • Since IPO, €265 million deployed into the European real estate market positioning the company with a balanced and diversified portfolio of commercial properties in three sectors across seven countries • Real estate portfolio comprising 47 properties valued at €736.3 million (including committed assets) • Portfolio increased in value on a like-for-like basis by 0.8% in the three months to 30 September 2007 * •:£ exchange rate used: 1.4359 as at 30 September 2007 Tom Chandos, Chairman of Invista European Real Estate Trust said: "I am pleased to report that your Company has performed well during the firstyear following listing on 20 December 2006. This has been a very active periodfor the Company during which the strategy set down at IPO has been successfullyimplemented. "The European commercial property market still offers opportunities for positivereturns and the underlying fundamentals of the countries in which the Companyowns properties continue to support the income and capital growth strategy setout at IPO. Active management of the portfolio, including realising profits fromsales, will be an increasingly important component of future performance overthe year ahead and the Group is well positioned to benefit from suchinitiatives." -ENDS- For further information: Invista Real Estate Investment Management Limited +44 20 7153 9433Tony Smedley / Chris Ludlam Financial Dynamics +44 20 7831 3113Stephanie Highett / Dido Laurimore / Nicole Marino Company Summary As at 30 September 2007, Invista European Real Estate Trust SICAF (the "Company") and its subsidiaries (together the "Group") held a diversified real estateportfolio comprising 46 commercial properties across seven Continental Europeancountries and were committed to acquire one further property. The combinedaggregate value of these properties was €736.3 million (€724.3 million of whichwere owned). 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 Group remains the Western European countriesdue to pricing opportunities and the relative stability, transparency andliquidity of these markets Financial Highlights • Net Asset Value1 per share increased by 10.1% since IPO • Earnings per share of €0.12 • The Group has declared total dividends amounting to • 0.1377 per share equivalent to 6.0% yield off the IPO issue price on a annualised basis • Net Asset Value total return of 11.8% since IPO 30 September IPO pro forma as at 2007 20 December 2007 Net Asset Value ("NAV"1) €355.1m, €0.3mNAV per share €3.11 €2.82NAV per share 2 216p 191pShare price 199.75p 200pShare price (discount)/premium to NAV (7.5)% 4.7%NAV total return since IPO 10.1% -Total Group assets less current liabilities 3 €780.3m €555.4m Sources: Invista Real Estate Investment Management; Datastream 1 NAV is calculated using International Financial Reporting Standards and adjusted to add back deferred tax 2 •:£ exchange rate used 1.4359 as at 30 September 2007; 1.4784 as at IPO 3 Current liabilities excludes banking facilities Performance Summary Property performance 30 September 2007 Total •'mValue of Property Assets 724.3Current annualised rental income including rental guarantees 48.4Estimated open market rental value 48.3 Summary consolidated income statement Year ended 30 September 2007 •'mNet rental and related income 31.8Net valuation gains on investments 23.1Expenses (16.5)Net finance costs (15.8)Profit before tax 22.6Deferred tax (10.4)Other taxation (2.0)Profit for the year 10.2 Earnings and dividends Earnings per share (Euro) 0.12Dividends declared per share (Euro) 0.1377Annualised dividend yield on 30 September 2007 share price 1 6.19% Bank borrowings at 30 September 2007 Borrowings •'m 427.5Borrowings as % of total assets less current liabilities 54.8%Loan covenant of borrowings as % of market value of assets 70.0% Estimated annualised total expense ratio As % of total assets less current liabilities 2 1.72%As % of shareholders' funds 5.54% 1 Share price converted to euro at exchange rate of •:£ of 1.4359 prevailing at 30 September 2007 2 The Total Expense Ratio ("TER") for the year to 30 September 2007 excludes the performance fee of €2.2 million payable to the Investment Manager and IPO costs in respect of existing shares of €2.6 million. Including these fees, the TER calculation increases from 1.72% to 2.33% Chairman's Statement Results I am pleased to report that your Company has performed well during the firstfinancial year following listing on 20 December 2006. This has been a veryactive period for the Company during which the strategy set down at IPO has beensuccessfully implemented. The year to 30 September 2007 has seen continuedstrength in the Continental European commercial property markets and the Companyhas been the beneficiary of growth in rents and property values which is in linewith its income and total return focus. The Group's audited Net Asset Value adjusted to add back deferred tax ("NAV"),increased by €0.28 per share to €3.11 or 10.1% over the period since IPO to 30September 2007. Including the first interim dividend totalling €0.049 per share,the Group's NAV total return per share over the period was 11.8% and 15.2% on anannualised basis. These results include a provision for a performance feepayable to Invista Real Estate Investment Management (the "Investment Manager"or "Invista") in accordance with the Investment Management Agreement. Theunderlying NAV total return per share prior to the performance fee accrual was12.5%. Such performance is a reflection of the strong growth of the ContinentalEuropean commercial property market in recent years, although such growth is notuniform across all countries, regions and property sectors. The Group owns abalanced and well diversified portfolio of commercial properties in threesectors and in seven countries. This country, sector, tenant, asset size andlease/income diversification provides a sound basis from which to capture growthfrom the different cycles which exist across these markets. The Frenchcommercial property market has out performed many other Continental Europeanmarkets both in terms of capital growth and rental growth and the Group'sincreased exposure to this market has enhanced performance. Since listing theInvestment Manager has deployed €265 million in this market, notably includingthe acquisition of a €215 million logistics portfolio in April 2007 which waspartly financed through an additional €33 million equity raise. Notwithstandingthis performance and the current positive fundamentals in the French propertymarket, the Investment Manager continues to identify attractive investmentopportunities in other markets and regions of countries where good real estateperformance can be achieved. Recent market sentiment has, however, prevented this performance at the propertylevel from being fully reflected in the Company's share price. As credit marketshave tightened and commentators have become more cautious about the short termoutlook for commercial property, share prices in our sector have moved from apremium to NAV to a discount. Since IPO, the Company's share price has rangedfrom a 23.3% premium in March 2007 to a 3.0% discount to the NAV as at 30September 2007. As at the date of this document this discount has increasedfurther to 28.9%. The Company's share price did however weather this shift insentiment better than the sector in general and fell to a discount at a slowerrate than many of its peers. This demonstrates confidence in the anticipatedfuture performance of the Company and its ability - through investing in adiversified and balanced portfolio with active management opportunities - tolimit its exposure to underperforming sectors or countries. Dividends have been paid or declared during the year representing a 6.0%annualised yield off the IPO price of 200p in Euros. It is unlikely however thatdividends will be fully covered by Net Cash Income in the current financial yearending 30 September 2008. This is principally due to debt higher financing coststhan anticipated at the time of the IPO. It remains the Directors' intentionhowever to achieve full dividend cover in the medium term. Borrowings As at 30 September 2007 the Group had total drawn down borrowings of €427.5million representing 54.8% of total assets less current liabilities. It is stillthe intention of the Group to borrow up to 60% of the Group's gross assets valuewith the portfolio loan-to-value limit set at 70% at any time. The currentborrowings comprise a senior debt facility of €460 million with the Bank ofScotland ("BoS") which expires in December 2008. All of the debt has been hedgedwith regard to Euro interest rate movement. Governance The Board meets on a quarterly basis in Luxembourg to discuss portfolioactivity, review quarterly independent valuations, clarify the financialposition of the Group, receive presentations from the Investment Manager on theoutlook for the Continental European property markets/wider economicenvironment, approve NAV announcements and dividend payments as appropriate.This also provides the opportunity to review the Investment Manager'sperformance, resources and process. The Board meetings are an importantdiscipline and provide a regular forum for discussion, debate and decisionmaking as to the future of the Company. We were delighted to appoint Robert DeNormandie to the Board as a non-executivedirector with effect from 26 April 2007. Mr DeNormandie is a Luxembourgresident and has over 20 years of audit experience at PricewaterhouseCoopers inthe USA. Following the year end Robert Kimmels stood down as a non-executivedirector on 16 November 2007. I would like to thank Mr Kimmels for hiscontribution to the Company since its incorporation in 2005. In his place wewere delighted to appoint Jaap Meijer, a Luxembourg resident, who has worked infinance and administration for over 14 years and most recently at Mourant inLuxembourg. Mr Meijer's appointment took effect from 16 November 2007. Market prospects The Continental European commercial property market produced a total return of9.8% for the year to December 2006, representing the latest published statisticsfrom the IPD Eurozone Annual Index (which excludes the UK). The 2007 return tobe recorded by IPD, which will only formally be published in June 2008, isestimated by the Investment Manager to be 11%. As highlighted above, theperformance between the sectors and geographical regions of Continental Europeis diverging and the Company has benefited from its relatively high weighting tothe French and German property markets. Recent pricing corrections in the UK commercial property have not become asignificant feature of the Continental European markets in which the Group isoperating. The markets will not however be immune from wider market activity andnegative price movements are expected in some parts of Continental Europe. TheInvestment Manager expects certain locations within Continental Europe to underperform as a result of reduced investment demand driven principally by highercosts of financing and general capital market uncertainty. The fact that averageproperty yields in certain markets in Continental Europe still exceed financingcosts and that income returns are inflation proofed through lease indexationsuggest that returns are likely to be less prone to downside which may resultfrom a market correction. In the view of the Investment Manager these factors,together with the fact there remains a large amount of equity available fordeployment in Continental European property, means it is unlikely that the coreWestern European markets will experience price corrections of the magnitude ofthose currently being experienced in the UK markets. Strong investment flows from institutional and private investors have supportedthe property market over the past few years. Although tightening debt capitalmarkets will reduce these investment flows the market should remain underpinnedby relatively sound fundamentals with sustained gross domestic product andrelatively low long term interest rates and inflation. The principal risk tothis positive outlook would come from any sustained increase in inflationarypressures leading to sustained higher interest rates. Against this background,the opportunity and challenge for our Investment Manager will be to concentrateon the active management of assets with specific growth potential and to realisethose assets which have become ex growth. Despite the more challenging market conditions the Board still expects theInvestment Manager to continue to recycle capital from weaker markets/sectors tothose areas of Continental Europe with a more robust outlook and in assets withopportunities to add value through active management. One of the advantages ofthe Group being balanced and well diversified across Continental Europe is theability that this gives to operate a flexible strategy and redistribute capitalaround such markets in order to capture value. The Investment Manager seeks toidentify trends and directions in the key Continental European markets andtarget areas of potential out performance. The ability to spot suchopportunities is important to ensure the Group continues to perform well. European Property Vehicles The growth of European property investment vehicles has had a highly positiveeffect on the market, improving transparency, liquidity and the relativematurity of what has historically been considered to be a relatively illiquidasset class without consistent benchmarking on a cross border basis. The growth,development and success of advisory bodies such as EPRA (European Public RealEstate Association) and IPD (Investment Property Databank) in Continental Europecontinues to improve the quality of reporting and analysis of property companieswhich can only be of benefit in establishing consistent industry standards toallow easier comparison between funds. We are highly supportive of such trendsand will continue to contribute to these initiatives as appropriate. Conclusion The Group has had an active and successful year with good performance from theproperty portfolio. The fall in share price as a result of weak capital marketsis somewhat in contrast with an active occupational property market which hasseen rental and capital growth during 2006-7. The Continental Europeancommercial property market still offers opportunities for positive returns andthe underlying fundamentals of the countries in which the Group owns propertiescontinue to support the income and capital growth strategy set out at IPO.Active management of the portfolio, including realising profits from sales, willbe an increasingly important component of future performance over the year aheadand the Group is well positioned to benefit from such initiatives. Viscount Tom Chandos, ChairmanInvista European Real Estate Trust4 January 2008 Investment Manager's Report Introduction As detailed in the Chairman's Statement, the Company has continued to provideshareholders with an attractive level of income return together with positiveNAV growth during the year ended 30 September 2007. The performance of theunderlying property portfolio has been good across all areas of the market,however a major driver of this performance has been the Company's tacticalweighting to the more liquid and transparent markets of France and Germany. Objective and Strategy The Company's objective over the longer term is to maximise NAV total returnthrough owning and actively managing a balanced Continental European propertyportfolio. In its role as Investment Manager, Invista's investment philosophyis to purchase properties with strong fundamental investment characteristicsoffering an above average income return with longer term income and capitalgrowth potential. During the financial year Invista has continued to target the largest and mostliquid investment markets in Western Europe. These markets have historicallydemonstrated the greatest levels of transparency and have the deepestoccupational and investment markets. This in turn provides the right conditionsin which to implement an active asset management strategy. Proprietary researchundertaken by Invista (as well as independent external service providers) acrossthese markets supports this strategy and concludes that income growthexpectations in the largest markets in which the Company is invested, inparticular France, remain positive. The Company continues to be well diversified across the main commercial propertysectors of office, retail and logistics. There is currently an increasedweighting to the logistics sector following the acquisition of a €215 millionportfolio in April 2007. This acquisition was undertaken in off marketnegotiations and was a tactical decision to purchase income accretive assetswith the potential to grow value further from a low base through activemanagement. Some of the smaller properties in the portfolio generate asset levelcash on cash returns of in excess of 7.5% and are capable of medium term growththrough lease stabilisation and selective capital improvements. Futureacquisitions and asset allocation decisions will increasingly be assetmanagement-led rather than specific sector-led as focus is given to thoseopportunities which have the potential to deliver on the income and capitalgrowth objectives of the Company. The Market Invista is anticipating that the IPD Eurozone Annual Index total return forcalendar 2007 will be approximately 11% however this statistic will not bepublished until June 2008 and remains an estimate. This compares with a totalNAV return of the Company of 15.2% annualised in respect of the trading periodfrom IPO on 20 December 2006 to 30 September 2007. In contrast to the last few years where different parts of the property marketperformed very similarly, there is increasing divergence between country andsector performance across Europe. In the near term Invista expects yield drivencapital growth to slow due to the less liquid capital markets environment andnegative sentiment towards some sectors of the property market. However weexpect that any negative impact on capital values will be largely offset bycontinued income growth across those countries, regions and markets targeted byInvista on behalf of the Company. This is due mainly to the relatively highoccupational demand in these key markets (notably France) and the controlledsupply side pipeline of new developments coming to market. In moving from an interest rate cycle to a rental growth cycle, properties withthe best fundamental investment characteristics such as good location andspecification will benefit most from this income growth. Invista's challengewill be to protect the Group against any possible slowdown by making tacticaloverweight positions in the growth markets and avoiding those markets likely tounder-perform. In this context, the Group's allocations to France and Germanyprovided benefit to the overall portfolio performance up to 30 September 2007.France is expected to benefit from healthy lease indexation (where rents areincreased every year generally in line with the Cost of Construction Index) andunderlying market rental growth, while leasing markets in more stable, defensivemarkets such as Germany, Belgium and the Netherlands are well positioned todeliver continued growth in 2008. The Portfolio As at 30 September 2007, the Group owned a portfolio of 47 assets (including thecommitted asset at Girona in Spain) valued at €736.3 million reflecting anaverage lot size of €15.7 million. This compares with a property portfolio valueof €488.3 million and 20 assets as at 30 September 2006. Since the year end theGroup has initiated the sale of a number of assets where the inherent value hasbeen maximised. Following these disposals we expect to recycle such capital intohigher growth opportunities. The Group completed in September 2007 the purchase of logistics assets in Tieland Amsterdam, in the Netherlands and Prague in the Czech Republic for a totalof €40.5 million. In addition due diligence has commenced in respect of theclosing of the logistics asset which the Group is committed to purchase inGirona, Spain. The Company purchased a portfolio of five office properties inBrussels, Belgium on 19 December 2007, valued at acquisition at €33.1 million.The portfolio provides the opportunity to benefit from upside in leasing vacantaccommodation in two of the properties whose purchase was underwritten off a lowrental level. The table below shows the Group's ten largest properties by value. Thepercentages are calculated as a proportion of the open market value of theportfolio as at 30 September 2007 including cash. Top 10 Properties by value Sector %Heusenstamm, Germany Office 11.6%Riesa, Germany Retail 7.6%Cergy, France Office 5.1%Lutterberg, Germany Logistics 4.5%Ecully, France Office 4.3%Alovera, Guadalajara, Madrid, Spain Logistics 3.6%Monteux, France Logistics 3.1%Marseille, France Logistics 2.9%Villeurbanne, France Office 2.9%Grenoble, France Office 2.8%Total 48.4% The ten largest properties by value account for 48.4% of the portfoliovaluation. While Heusenstamm comprises 11.6% of portfolio value, it is fully letto Deutsche Telekom with over 14 years remaining on the lease. Riesa -accounting for 7.6% of portfolio value - is a retail park which was purchased inOctober 2006. It benefits from a diverse tenant base of over 60 tenants andoffers significant potential for lease re-negotiation, reconfiguration of theretail units, development of surplus land and capital enhancement. As InvestmentManager we are comfortable with the size, weighting, sector and geographicaldistribution of the top ten assets by value. The table below shows the Group's ten largest tenants by income. The percentagesare calculated as a proportion of the gross annual rental income receivable bythe group as at 30 September 2007. Top 10 tenants by income %Norbert Dentressangle 14.3%Deutsche Telekom 9.9%DHL 6.4%Tech Data Espana 3.1%Valeo 3.0%Merial SAS 2.7%Sun Microsystems 2.7%Carrefour 2.5%AVA Marktkauf 2.1%Coppal Logistics 2.0%Total 48.7% The Norbert Dentressangle group in France generated 14.3% of portfolio rentalincome. The tenant is of medium-low risk (Source: Experian) and occupies a totalof 11 assets with varying lease terms and durations - with a weighted averageunexpired term of 2.7 years. This is normal practice for logistics propertieswhere lease terms are generally shorter as they are linked to distributioncontracts. By contrast Deutsche Telekom accounts for 9.9% of portfolio incomeand is located in one single asset with 14 years remaining on the lease.Deutsche Telekom has a low risk credit rating (Source: Experian). DHL, thelogistics and distribution company now owned by Deutsche Post, accounts for 6.4%of the portfolio income and is located in two properties in Germany andNetherlands. DHL also has a low risk credit rating (Source: Experian). The average (weighted by gross rent) covenant strength of the tenants in theportfolio is low - medium risk (as measured by Experian, a leading globalprovider of credit reports, in December 2007). This is consistent with thestrategy and objective of the Company to produce a robust income stream. As at 30 September 2007 the Group had approximately 161 tenancies with aweighted average lease term to expiry of 4.8 years. This highlights both thesignificant diversification of the tenancy base of the Group and also therelative security (duration based) of the leases in place across the Group'sportfolio. The table below shows the expiry profile of the Group's properties. Thepercentages are calculated as a proportion of the Group's annual gross rentalincome (receivable as at 30 September 2007) which expires within the time periodas indicated. Rent expiry profile %< 1 year 10.2%1 - 3 years 24.4%3 - 6 years 33.4%6 - 9 years 9.4%9 - 15 years 22.5%15 years+ 0.1%Total 100.0% The table below shows the Group's weighting to each property sector. Thepercentages are calculated as a proportion of the open market value of theproperties within the Group as at 30 September 2007. Sector weightings %Retail 13.9%Office 33.2%Logistics 52.9%Total 100.0% As at 30 September 2007, the Group's portfolio was weighted positively towardsthe logistics sector - largely due to the portfolio acquisition in April 2007 atan income return which was accretive to the portfolio yield at the propertylevel. Such properties also offer significant potential for future income andcapital growth through the implementation of an active asset management strategye.g. lease stabilisation, undertaking selective capital improvements, developingsurplus land and investigating changes of use where this will positively impactvalue. The table below shows the Group's weighting to each country in ContinentalEurope. The percentages are calculated as a proportion of the open market valueof the properties within the Group as at 30 September 2007. Country weightings %France 51.6%Germany 33.8%Spain 5.6%Netherlands 3.5%Belgium 2.5%Czech Republic 1.8%Poland 1.2%Total 100.0% As at 30 September 2007, the portfolio was positively weighted towards theFrench market which is in line with the Group's strategy to target the largestand most liquid Western European markets offering short/medium-term growthpotential. Invista's office in Paris enables the Group to benefit from on theground expertise in France in delivering on asset management initiatives andsecuring potential new business on an off market basis. Selective acquisitions Invista receives investment opportunities with a total approximate value of €3billion per month (average over last 12 months) and continues to reviewpotentially attractive investment opportunities on behalf of the Group. Newtransactions will be considered in the context of the more challenging capitalmarkets environment and the optimum use of the equity within the Group. TheGroup seeks a balance of longer term, secure income and shorter term growthopportunities. Invista recognises the need to enhance constantly the creditquality and duration of the portfolio income. Transactions having a positiveimpact on NAV through rental or capital growth will be favoured providing therisks being taken e.g. leasing vacancy are able to be properly underwritten. Performance From IPO on 20 December 2006 to 30 September 2007 the Group produced a total NAVreturn per share of 11.8% (15.2% on an annualised basis) which compares with anannual return for the Group in 2006 of 17.7% (as independently measured by IPD).The Group's portfolio benefited from a strong income return of 6.5% (as atend-2006, measured by IPD) and has a current property level income return basedon net valuation of 6.1% as at 30 September 2007. Financing The Company has a senior debt facility of €460 million with BoS which expires inDecember 2008. In accordance with the terms of the facility, the bank feeincreased to a margin of 1.2% per annum on the Euro inter bank lending rate(i.e. EURIBOR). This was due to take effect from 1 September 2007 but theCompany was able to delay this to 1 December 2007. A summary of the Group's balance sheet debt finance arrangements as at 30September 2007 is referred to in Note 17 of the Financial Statements. TheCompany has hedged its exposure to changes in Euro interest rates. As at 30September 2007 it had hedged all of its debt to January 2013 at a weightedaverage swap rate of 4.035%. Re-financing On behalf of the Company, Invista has been reviewing a number of methods tosecure a more attractive, even lower cost form of long term financing althoughthe credit market volatility in 2007 has so far prevented such a refinancing.However it remains the Company's intention to refinance once the credit marketshave improved and stabilised and to do so on a long term cost effective basiswhich does not unduly limit portfolio flexibility. Invista will continue tomonitor the debt markets in 2008 to determine the optimum timing and structurefor such a refinancing. Asset Management As well as the major initiatives, examples of which are set out below, theportfolio is being proactively managed to minimise voids and maximise potentialfor income and capital growth. Against the background of an uncertain capitalmarkets environment the NAV performance of the Company will increasingly bedriven by improving property level returns. This is achieved by leasing upvacant accommodation and undertaking selective capital improvements where thisresults in higher rents or longer, more secure leases. It is also important tomanage actively tenant relations and be pro active in implementing asset levelbusiness plans. As a result of such an active approach the portfolio had a lowvoid rate of 1.4% as at 30 September 2007 (calculated as a percentage of totalpassing plus ERV on vacant spaces). Activity within the Office Sector In Lyon, France negotiations are underway with one of the major tenants tore-gear their existing lease with a view to securing longer term income atmarket rental levels. In Paris, France a marketing campaign is in place to lease the current vacantspace (3,936 sqm or 24.3% of the property) and negotiations have commenced withan existing occupier to increase the amount of space they currently occupy. TheCompany is also undertaking a feasibility study to determine the rationale forconstructing restaurant facilities within the property to improve both theattractiveness and income profile of the property. In Grenoble, France negotiations are underway to rationalise the occupation ofthe property by the current tenants through effecting lease re-negotiations onmarket terms. Activity within the Logistics sector Norbert Dentressangle represents the largest tenant in the Group's propertyportfolio and occupies 11 logistics assets in France. Invista is workingtogether with Norbert Dentressangle on a number of asset management initiativeswhich will have the effect of improving asset value for the Group. This is animportant relationship and one which Invista believes will offer synergiesacross the portfolio. The logistics properties in the portfolio provide an above average income returnwhich is accretive to cash flow. Over time we expect that the weighting to thelogistics sector will reduce by virtue of effecting sales and undertakingpurchases in other growth sectors. A number of the logistics properties in the portfolio have the potential toextend onto adjoining lands - potential upside which we continue to review withoccupational tenants. Whilst there are no active negotiations to undertake suchextensions at the present time, these options do have inherent value which wewould seek to exploit in the medium term. We are also investigating a potentialchange of use in one of the older logistics warehouses in the portfolio where,subject to planning consent, there could be significant value appreciation fromconversion to retail warehousing. Given the large roof spans of the logistics warehouses we have also undertaken apreliminary feasibility study to determine the cost/benefit of installing solarpanels on top of the roofs as an efficient way of producing electricity,particularly in those warehouses located in Southern France and Spain. The powergenerated by the panels may be used by the unit itself and/or sold to the localelectricity grid. Initial indications suggest that these facilities operate moreeffectively in new build situations and may be prohibitively expensive toinstall in existing buildings however we continue consider ways in which to beenvironmentally alert and secure alternative income streams from the propertiesin the portfolio. In Amiens, France leasing agents have been appointed to market a warehousingproperty vacated in December 2007. The property has reversionary potential asthe good quality/location of the warehouse means a significant increase inrental income could be achieved, thereby increasing value. Potential re-development opportunities exist at properties in Avignon and Paris,France. Planning consents have been granted and meetings with the respectivetown halls have been scheduled to determine the feasibility of short-termdevelopment. In addition, the potential development of surplus land at Amiens isalso being investigated. Activity within the Retail sector In Riesapark, Germany discussions are ongoing with local retail specialists whowill assist the Group in implementing an active strategy to enhance theperformance of the centre. The Group may appoint a local partner in early 2008with the objective of substantially increasing the net property income over aperiod of two to three years by reducing non-recoverable costs in existingleases and re-configuring the centre to maximise use of the accommodation andbetter serve the requirements of the local catchment. Portfolio Statistics ** France Germany Netherlands Czech Republic Poland Spain Belgium TotalNumber of 41 103 2 1 1 2 11 161Tenants Ten Largest 47.9% 83.2% 100% 100% 100% 100% 95.0% 48.7%Tenants (in %) ERV (•''000) 25,600 15,873 1,688 812 615 2,504 1,185 48,277Market Rent 25,709 15,711 1,711 918 618 2,447 1,249 48,363(•''000) Over/Under 0.4% -0.1% 1.4% 13.0% 0.5% -2.3% 5.4% 0.4%Rent * AverageOccupancy Rate 97.7% 99.6% 100.0% 100.0% 100.0% 100.0% 100.0% 98.7%(in %) * Number of 34 6 2 1 1 2 1 47Properties Average Lot 11,181 41,402 12,850 13,480 9,145 20,535 18,360 15,666Size (•'000) Net Equivalent 6.5% 5.6% 5.6% 5.6% 6.2% 5.3% 6.2% 6.1%Yield (%) * Net Initial 6.4% 5.8% 6.2% 6.8% 6.7% 5.5% 6.7% 6.1%Yield (%) * Lettable Floor 444,295 198,080 30,082 17,147 16,030 48,398 10,230 764,262Space (sqm) Lettable Floor 58.1% 25.9% 3.9% 2.2% 2.1% 6.3% 1.3% 100%Space (%) Sector Spread (%)Logistics 65.1% 21.1% 100.0% 100.0% 100.0% 100.0% 0.0% 53.0%Office 34.9% 37.8% 0.0% 0.0% 0.0% 0.0% 100.0% 33.0%Retail 0.0% 41.1% 0.0% 0.0% 0.0% 0.0% 0.0% 14.0% Notes * - weighted average by property ** - includes committed property in Girona, Spain Outlook and Future Strategy The commercial property market in Continental Europe is moving into a morechallenging phase as a result of negative UK investor sentiment towardscommercial property. Whilst the current outlook is therefore relativelyuncertain, such capital market sentiment has not yet affected the occupationalmarkets in which the Group is invested. The strategy of the Company to diversifyits investments across sector and country/region and capture growth in differentcycles has made a positive contribution to NAV total returns. We will continueto implement this strategy and also seek to realise profits from some of theGroup's investments. The Company is expected to benefit from its tactical overweight position inFrance and to a lesser extent Germany which are both markets that Invistabelieves will benefit from relatively strong income returns during 2007-8. Thestrategy will constantly evolve in response to the slowing market and Invistawill continue to recycle capital from mature investments to higher growthopportunities or more defensive markets such as Belgium and the Netherlands tooptimise returns to shareholders. Tony Smedley, Head of European FundsInvista Real Estate Investment Management4 January 2008 CONSOLIDATED INCOME STATEMENT For the year ended 30 September 2007 Notes 30 September Period 2007 6 June 2005 •'000 to 30 September 2006 •'000Rental income 33,491 9,988Other income 56 7Property operating expenses 4 (1,708) (355)Net rental and related income 31,839 9,640 Change in value of investments 23,071 17,850 ExpensesInvestment management fees 5 (5,916) (1,520)Performance fees 5 (2,201) -Professional fees 6 (3,050) (2,481)Administrative fees (1,694) (667)Directors' fees (158) (20)IPO expenses relating to existing shares (2,591) -pre IPO Goodwill impairment - (4,604)Other expenses 7 (888) (29)Total expenses (16,498) (9,321) Net operating profit 38,412 18,169 Finance income 2,807 14Finance expenses (18,579) (11,308)Net finance costs 8 (15,772) (11,294) Profit before tax 22,640 6,875 Deferred taxation (10,481) (5,984)Other taxation (1,959) (899)Total taxation 9 (12,440) (6,883)Profit/(loss) for the year/periodattributable to the equity holders of the 10,200 (8)Company Basic and diluted earnings per share(euro) 19 0.12 (0.01) All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements. CONSOLIDATED BALANCE SHEETAs at 30 September 2007 Notes 30 September 30 September 2007 2006 •'000 •'000AssetsInvestment properties 10 724,270 210,590Future commitment forinvestment 10 - 21,275propertyDeferred tax assets 16 727 813Total non-current assets 724,997 232,678 Trade and other receivables 11 14,985 4,198Interest rate swaps 12 7,619 1,212Cash and cash equivalents 13 68,687 4,257Total current assets 91,291 9,667 Total assets 816,288 242,345 Share capital 142,829 6,921Reserves 175,696 854Retained earnings 10,192 (8)Total equity attributable to 14 328,717 7,767equity holders of the Company LiabilitiesInterest-bearing loans and 15 424,500 50,218borrowings Deferred tax liabilities 16 27,098 11,759Total non-current liabilities 451,598 61,977 Interest-bearing loans and 15 - 144,166borrowings Investment property commitment 10 - 21,275payableTrade and other payables 17 31,861 6,347Taxation payable 4,112 813Total current liabilities 35,973 172,601 Total liabilities 487,571 234,578 Total equity and liabilities 816,288 242,345Net Asset Value per share 18 2.88 11.22(euro) The financial statements were approved by the Board of Directors on 4 January2008 and signed on its behalf by: Viscount Tom Chandos Robert DeNormandieChairman Chair of Audit Committee The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 September 2007 Share capital Share premium Hedging Restricted Retained Total reserve reserves earnings equity •'000 •'000 •'000 •'000 •'000 •'000Balance as at - - - - - -incorporation6 June 2005 Effectiveportion ofchanges infair value ofcash flowhedges, netof tax - - 854 - - 854Total incomeand expenserecogniseddirectly inequity 854 854Loss for theperiod - - - - (8) (8)Issue of shares 6,921 6,921Balance as at30 September2006 6,921 - 854 - (8) 7,767 Issue expenses - (6,662) - - - (6,662)Effectiveportion ofchanges infair value ofcash flowhedges, netof tax - - 4,526 - - 4,526Restrictedreserve - - - 101 - 101Total incomeand expenserecogniseddirectly inequity - (6,662) 4,526 101 - (2,035)Profit forthe year - - - - 10,200 10,200Totalrecognisedincome andexpense - (6,662) 4,526 101 10,200 8,165Issue of shares 135,908 182,480 - - - 318,388Dividends toequity holders - (5,603) - - - (5,603)Balance as at30 September2007 142,829 170,215 5,380 101 10,192 328,717 The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 30 September 2007 30 September Period 2007 6 June 2005 to 30 September 2006 •'000 •'000Operating ActivitiesProfit/(loss) for the year/period before taxation 22,640 (8)Adjustments for:Net valuation gains on investment (23,071) (17,850)Net finance costs 14,732 11,295Unrealised foreign currency exchange (67) - Taxation - 6,883Impairment of goodwill - 4,604Operating profit before changes in working capital andprovisions 14,234 4,924 Increase in trade and other receivables (10,476) (4,509)Increase in trade and other payables 26,804 4,739 Cash generated from operations 30,562 5,154 Interest paid (11,815) (4,014)Interest received 2,807 14Tax paid (1,340) (315)Cash flows from operating activities 20,214 839 Investing Activities Acquisition of investment properties (491,348) (192,740)Cash flows from investing activities (491,348) (192,740) Financing ActivitiesProceeds on issue of shares 318,388 6,921Dividends (5,603) -IPO expenses paid relating to new shares (6,662) -Loan from Shareholders (50,218) 50,218Draw down of long term loans 280,614 146,942Finance costs paid on arrangement of long term loan (955) (8,936)Cash flows from financing activities 535,564 195,145 Net increase in cash and cash equivalents for theyear/period 64,430 3,244Opening cash and cash equivalents 4,257 -Opening acquisitions - 1,013Closing cash and cash equivalents 68,687 4,257 The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements COMPANY INCOME STATEMENTFor the year ended 30 September 2007 Notes Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000 ExpensesInvestment management fees 5 (2,516) (682)Performance fees 5 (2,201) -Professional fees 6 (538) (1,522)Administrative fees (539) (555)Directors' fees (158) (10)IPO expenses relating to existing sharespre IPO (2,591) -Other expenses 7 (269) (16)Total expenses (8,812) (2,785) Net operating loss (8,812) (2,785) Finance income 2,937 4Finance expenses (67) (4,199)Net finance income/(cost) 8 2,870 (4,195) Loss before tax (5,942) (6,980) Other taxation (147) (151)Total taxation (147) (151)Loss for the year/period attributable tothe equity holders of the Company (6,089) (7,131)Basic and diluted earnings per share(euro) (0.05) (10.30) All items in the above statement are derived from continuing operations. The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements COMPANY BALANCE SHEET As at 30 September 2007 Notes 30 September 30 September 2007 2006 •'000 •'000AssetsInvestment in subsidiaries 276,005 52,446Non-current assets 276,005 52,446 Amount due from subsidiaries 10,610 1,116Trade and other receivables 11 1,747 480Interest rate swaps 12 7,619 1,212Cash and cash equivalents 13 30,471 60Current assets 50,447 2,868 Total assets 326,452 55,314 Share capital 142,829 6,921Reserves 175,595 853Retained earnings (13,220) (7,131)Total equity attributable toequity holders of the Company 14 305,204 643 LiabilitiesDeferred tax liabilities 16 2,238 359Interest-bearing loans andborrowings - 50,218Non-current liabilities 2,238 50,577 Amount due to subsidiaries 12,462 1,900Trade and other payables 17 6,548 2,194Current liabilities 19,010 4,094Total liabilities 21,248 54,671Total equity and liabilities 326,452 55,314 Net Asset Value per Share(euro) 2.67 0.93 The financial statements were approved by the Board of Directors on 4 January2008 and signed on its behalf by: Viscount Tom Chandos Robert DeNormandieChairman Chair of Audit Committee The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements COMPANY STATEMENT OF CHANGES IN EQUITYFor the year ended 30 September 2007 Share capital Share premium Hedging Retained Total reserve earnings equity •'000 •'000 •'000 •'000 •'000Balance as at - - - - -incorporation6 June 2005 Effective portionof changes infair value ofcash flow hedges,net of tax - - 854 - 854Total income andexpenserecogniseddirectly inequity 854 854Loss for theperiod - - - (7,131) (7,131)Issue of shares 6,921 6,921 Balance as at 30September 2006 6,921 - 854 (7,131) 644 Issue expenses - (6,662) - - (6,662)Effective portionof changes infair value ofcash flow hedges,net of tax - - 4,526 - 4,526 Total income andexpenserecogniseddirectly inequity - (6,662) 4,526 - (2,136)Loss for the year - - - (6,089) (6,089)Total recognisedincome andexpense - (6,662) 4,526 (6,089) (8,225)Issue of shares 135,908 182,480 - - 318,388Dividends toequity holders - (5,603) - - (5,603)Balance as at 30September 2007 142,829 170,215 5,380 (13,220) 305,204 The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements COMPANY STATEMENT OF CASH FLOWSFor the year ended 30 September 2007 Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000Operating ActivitiesLoss for the year/period before taxation (5,942) (6,980)Adjustments for:Net finance cost (3,460) 4,265Unrealised foreign currency exchange (67) -Operating profit before changes in workingcapital and provisions (9,469) (2,715) Increase in trade and other receivables (10,761) (1,596)Increase in trade and other payables 14,860 3,942 Cash generated from operations (5,370) (369) Interest paid (112) (2,010)Interest received 4,907 1,081Tax paid (21) -Cash flows from operating activities (596) (1,298) Investing Activities Acquisition of subsidiary properties (224,437) (50,382)Cash flows from investing activities (224,437) (50,382) Financing ActivitiesProceeds on issue of shares 318,388 6,922Dividends (5,603) -IPO expenses paid relating to new shares (6,662) -Loan from Shareholders (50,218) 50,218Finance costs paid on arrangement of long termloan (461) (5,400)Cash flows from financing activities 255,444 51,740 Net increase in cash and cash equivalents for theyear/period 30,411 60Opening cash and cash equivalents 60 -Closing cash and cash equivalents 30,471 60 The accompanying notes 1 to 27 form an integral part of these consolidatedfinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2007 1. 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" ("SICAF"). Through its subsidiaries(together "the Group") its main activity is to evaluate, make and activelymanage direct and indirect investments in real estate in Continental Europeancountries. During the year ended 30 September 2007 the Group has increased itsinvestment portfolio through acquisitions in France, Germany, The Netherlands,Poland and The Czech Republic. 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 consolidated financial statements have been approved for issue by theBoard of Directors on 4 January 2008 and have been prepared in accordance withInternational Financial Reporting Standard (IFRS) issued by, or adopted by, theInternational Accounting Standards Board (the 'IASB'), interpretations issued bythe International Financial Reporting Interpretations Committee. Basis of measurement The consolidated financial statements have been prepared on the historical costbasis except for the following: • Derivative financial instruments measured at fair value • Investment properties measured at fair value The methods used to measure fair values are discussed further in note 3. Basis of preparation These consolidated financial statements are presented in euro, which is theCompany's functional currency. All financial information presented in euro hasbeen rounded to the nearest thousand. The accounting policies have been consistently applied to the results, assets,liabilities and cash flows of the entities included in the financial statementsand are consistent with those of the previous year. Use of estimates and judgements The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of accounting policies and the reported amounts of assets,liabilities, income and expenses. Actual results may differ from theseestimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisionsto accounting estimates are recognised in the period in which the estimates arerevised and in any future periods affected. In particular, information about significant areas of estimation uncertainty andcritical judgements in applying accounting policies that have the mostsignificant effect on the amounts recognised in the financial statements isincluded in the note 3 'Determination of fair values'. The comparative figures for the previous financial period 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 The consolidated financial statements comprise the accounts of the Company andall of its subsidiaries drawn up to 30 September each year. Subsidiaries arethose entities over which the Company has the power to govern the financial andoperating policies generally accompanying a shareholding of more than one halfof the voting rights. Subsidiaries are fully consolidated from the date on whichcontrol is transferred to the Company. They are de-consolidated from the datecontrol 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 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 Investment property is property that is held to earn rental income together withpotential for capital growth. Investment property comprises freehold land,freehold buildings and land held under operating leases. Investment property is initially recognised on completion of contracts at cost,including related transaction costs associated with the investment property.After initial recognition, investment properties are measured at fair value,with unrealised gains and losses recognised in the Consolidated IncomeStatement. (see note 2) Property acquisitions are recognised in the Balance Sheet at their contractualvalue where unconditional commitments have been entered into prior to theBalance Sheet date. Financial Instruments Non derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cashand cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair valueplus, for instruments not at fair value through the Consolidated IncomeStatement, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments aremeasured as described below. 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. 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 on an effective interest basis. Financing costs incurred in obtaining a debt facility are capitalised andamortised over the period of the facility using the effective interest ratemethod. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure tointerest rate risks arising from operational, financing and investmentactivities. Derivatives are initially recognised at fair value; attributable transactioncosts are recognised in the Consolidated Income Statement when incurred.Subsequent to initial recognition, derivative financial instruments are measuredand stated at fair value, and changes therein are accounted for as describedbelow: Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as acash flow hedge are recognised directly in equity to the extent that the hedgeis effective. To the extent that the hedge is ineffective, changes in fair valueare recognised in the Consolidated Income Statement. If the hedging instrument no longer meets the criteria for hedge accounting,expires or is sold, terminated or exercised, then hedge accounting isdiscontinued prospectively. The cumulative gain or loss previously recognised inequity remains there until the forecast transaction occurs. When the hedged itemis a non-financial asset, the amount recognised in equity is transferred to thecarrying amount of the asset when it is recognised. In other cases the amountrecognised in equity is transferred to the Consolidated Income Statement in thesame period that the hedged item affects profit or loss. 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. The holders of ordinary shares are entitled to receive dividends as declaredfrom time to time and are entitled to one vote per share at meetings of theCompany. IPO Costs Costs relating to issue of new shares are deducted from the share premiumaccount. Impairment Financial assets A financial asset is assessed at each reporting date to determine whether thereis any objective evidence that it is impaired. A financial asset is consideredto be impaired if objective evidence indicates that one or more events have hada negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost iscalculated as the difference between its carrying amount, and the present valueof the estimated future cash flows discounted at the original effective interestrate. Individually significant financial assets are tested for impairment on anindividual basis. The remaining financial assets are assessed collectively ingroups that share similar credit risk characteristics. All impairment losses arerecognised in the Consolidated Income Statement. An impairment loss is reversed if the reversal can be related objectively to anevent occurring after the impairment loss was recognised. For financial assetsmeasured at amortised cost, the reversal is recognised in the ConsolidatedIncome Statement. Non-financial assets The carrying amounts of the Group's non-financial assets, other than investmentproperty, are reviewed at each reporting date to determine whether there is anyindication of impairment. If any such indication exists, then the asset'srecoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of itsvalue in use and its fair value less costs to sell. In assessing value in use,the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time valueof money and the risks specific to that asset. For the purpose of impairment testing, assets are grouped together into thesmallest group of assets that generates cash inflows from continuing use thatare largely independent of the cash inflows of other assets or groups of assets(the "cash-generating unit"). An impairment loss is recognised if the carrying amount of an asset or itscash-generating unit exceeds its estimated recoverable amount. Impairment lossesare recognised in the Consolidated Income Statement. Revenue 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. Finance income and expenses Finance income comprises interest income on funds invested and gains on hedginginstruments that are recognised in the Consolidated Income Statement. Interestincome is recognised on an accruals basis. Finance expenses comprise interest expense on borrowings, and losses on hedginginstruments that are recognised in the Consolidated Income Statement. Expenses Operating Expenses All expenses are accounted for on an accruals basis. The Group's investmentmanagement and administration fees and all other expenses are charged throughthe Consolidated Income Statement. Attributable transaction costs incurred in establishing the Group's creditfacilities are deducted from the fair value of borrowings on initial recognitionand are amortised over the lifetime of the facilities through the ConsolidatedIncome Statement. Taxation According to the Luxembourg regulations regarding SICAF companies the Group isnot subject to capital gains taxes in Luxembourg. It is, however, liable to anannual subscription of 0.05% (taxe d'abonnement) of its total net assets,payable quarterly, and assessed on the last day of each quarter. Real estate revenues, or capital gains derived thereon, may be subject to taxesby assessment, withholding or otherwise in the countries where the real estateis situated. The subsidiaries of the Group are subject to taxation in the countries in whichthey operate. Current taxation is provided for at the current applicable rateson the respective taxable profits. 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. Deferred income tax is not accounted for if it arises from initial recognitionof an asset or liability in a transaction other than a business combination thatat the time of the transaction affects neither accounting nor taxable profit orloss. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the Balance Sheet date and are expectedto apply when the related deferred income tax asset is realised or the deferredincome 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. Earnings per share The Group presents basic and undiluted earnings per share (EPS) data for itsordinary shares. EPS is calculated by dividing the profit or loss attributableto ordinary shareholders of the Company by the weighted average number ofordinary shares outstanding during the period. 2. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are notyet effective for the reporting period of the Group and have not been applied inpreparing these consolidated financial statements: IFRS 7 on Financial Instruments: Disclosures and the Amendment to IAS 1 onPresentation of Financial Statements: Capital Disclosures require extensivedisclosures about the significance of financial instruments for an entity'sfinancial position and performance, and qualitative and quantitative disclosureson the nature and extent of risks. IFRS 7 and amended IAS 1, which becomemandatory for the Company's 30 September 2008 financial statements, will requireextensive additional disclosures with respect to the Company's financialinstruments and share capital. IFRS 8 on Operating Segments, IFRIC 7, 8, 9 and 10 on Interim FinancialReporting and Impairment, and IFRIC 11 on Group and Treasury Share Transactionsare not expected to have an impact on the Company's consolidated financialstatements. 3. Determination of fair values A number of the Group's accounting policies and disclosures require thedetermination of fair value, for both financial and non financial assets andliabilities. Fair values have been determined for measurement and / ordisclosure purposes based on the following methods. When applicable, furtherinformation about the assumptions made in determining fair values is disclosedin the notes specific to that asset or liability. Investment property Fair value is based on the open market valuations of the properties as providedby an independent expert, DTZ Debenham Tie Leung, in accordance with theguidance issued by the Royal Institution of Chartered Surveyors (the "RICS").Market valuations are carried out on a quarterly basis. The fair values are based on market values, being the estimated amount for whicha property could be exchanged on the date of the valuation between a willingbuyer and a willing seller in an arm's length transaction after proper marketingwherein the parties had each acted knowledgeably, prudently and withoutcompulsion. In the absence of current prices in an active market, the valuations areprepared by considering the aggregate of the estimated cash flows expected to bereceived from renting out the property. A yield that reflects the specific risksinherent in the net cash flows is then applied to the net annual cash flows toarrive at the property valuation. Valuations reflect, when appropriate the type of tenants actually in occupationor responsible for meeting lease commitments or likely to be in occupation afterletting vacant accommodation, and the market's general perception of theircreditworthiness, the allocation of maintenance and insurance responsibilitiesbetween the Group and the lessee and the remaining economic life of theproperty. When rent reviews or lease renewals are pending with anticipatedreversionary increases, it is assumed that all notices, and when appropriatecounter-notices, have been served validly and within the appropriate time. Derivatives The fair value of the Group's derivatives is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. 4. Property operating expenses Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000Insurance 349 165Property management fees 352 69Property service charge 135 -Property maintenance 185 -Property tax 254 115Other miscellaneous expenses 433 6 1,708 355 5. Investment management and performance fees 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 of1.00% per annum of gross assets pro rated from the acquisition date of theassets. This rate was changed to 0.95% per annum, after 17 November 2006. In addition, and subject to the conditions below, the Investment Manager isentitled to an annual performance fee where the total NAV per share during therelevant financial period exceeds an annual rate of 10.0% (the "performancehurdle"). Where the performance hurdle is met, a performance fee will be payablein an amount equal to 15.0% of any aggregate total return over and above theperformance hurdle. The performance hurdle is calculated on a three year rollingbasis. This requires that the annualised total return over the period from IPOon 20 December 2006 to the end of the relevant financial period in the firstthree year period, and on a rolling three year basis thereafter, is equal to orgreater than 10.0% per annum. The performance fee can be paid in each of thefirst two years on the to-date performance. As the conditions for receipt of a performance fee were met during the year, acharge of €2,201,062 has been recognised in the Consolidated Income Statement. 6. Professional fees Included in professional fees are auditors' remuneration of €481,000 (2006:€258,000) for the year ended 30 September 2007. 7. Other expenses Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000GroupOrganisational expenses 615 29Currency exchange 273 - - 888 29 CompanyCurrency exchange 269 16 269 16 8. Net finance costs Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000GroupFinance incomeInterest income 2,742 14Swap interest income 65 -Total finance income 2,807 14 Finance expensesAmortised finance costs (2,878) (3,957)Debt interest expenses (14,850) (5,089)Other interest expenses (112) (271)Commitment fees and other financing fees (739) (1,991) Total finance expenses (18,579) (11,308) Net finance cost (15,772) (11,294) Company Finance income Interest income 2,937 4 Finance expenses Amortisation allocated debt fees 1,970 1,077 Interest payable (112) - Finance expenses (1,925) (5,276) Total finance expenses (67) (4,199) Net finance income/(cost) 2,870 (4,195) 9. Taxation Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000Current tax expenseCurrent period 1,959 899 Deferred tax expenseChange in unrecognised temporary difference 10,481 5,984 Total taxation 12,440 6,883 Period 6 June 2005 to 30 September 30 September 2007 2006 •'000 •'000Reconciliation of effective tax rateProfit/(loss) for year/(period) 10,200 (8)Add back goodwill impairment - 4604Total income tax expense 12,440 6,883Profit excluding income tax 22,640 11,479 Income tax using the Company's domestic tax rate 6,909 3,423Tax adjustments 3,804 2,649Minimum taxable net margin 252 68Differences in tax rates 857 (272)Capital taxes - 316Other taxes 618 699 12,440 6,883 10. Investment properties 30 September 30 September 2007 2006 •'000 •'000At beginning of year/period 210,590 - Acquisitions 490,609 192,740Net change in value of investmentproperties 23,071 17,850 At end of year/period 724,270 210,590 At 30 September 2007, all properties of the portfolio were subject to registeredmortgages in order to secure bank loans. The carrying amount of investment property is the market value of the property,as determined by DTZ Debenham Tie Leung, a registered independent appraiserhaving appropriate recognised professional qualifications, and experience in thelocation and category of the properties being valued. Market values weredetermined having regards to recent market transactions for similar propertiesin the same location as the Group's investment property. Investment property comprises a number of commercial properties that are leasedto third parties. A property interest under an operating lease is classified and accounted for asan investment property on a property-by property basis when the Group holds itto earn rentals or for capital appreciation or both. Any such property interestunder an operating lease classified as an investment property is carried at fairvalue. The balance sheet as at 30 September 2006 contained a future commitment of€21,275,000 representing the contractual value of the French Villeurbanneproperty recognised by virtue of an unconditional commitment being entered intoby the Group prior to the balance sheet date. 11. Trade and other receivables 30 September 30 September 2007 2006 •'000 •'000GroupRent receivable 9,177 1,483VAT receivable 2,374 1,725Security deposits 466 -Prepayments 413 739Other receivables 2,555 251 14,985 4,198 Company Rent receivable - 67 VAT receivables 344 10 Prepayments 105 403 Loan interest receivable -Affiliate/subsidiary 628 - Other receivables 670 - 1,747 480 Prepayments represent fees that have been charged to the Group for futurecommitted acquisitions. These fees will eventually be added to the capitalisedacquisition cost of the properties once acquired. 12. Interest rate swaps The Company entered into Euro interest-rate swaps with notional amount of€427,527,250 (2006: €131,626,000) to manage the exposure to changes in interestrates arising from interest-bearing liabilities. As at 30 September 2007, the fair value of the interest-rate swaps were€7,618,726 (2006: €1,212,052). The weighted average swap rate on Group debt was 4.035% per annum (2006: 3.42%). 13. Cash and cash equivalents 30 September 30 September 2007 2006 •'000 •'000GroupBank balances 68,687 4,257 68,687 4,257CompanyBank balances 30,471 60 30,471 60 Certain bank accounts have been pledged in favour of Bank of Scotland (BOS)under the terms of account pledge agreements. These are related to loanagreements concluded by subsidiaries of the Company and BOS for the purposes offinancing acquisitions of investment property. No restrictions on theutilisation of these pledged bank accounts have been imposed. 14. Issued capital and reserves Share capital The Company has an issued share capital of €142,829,093.75 consisting of114,263,275 shares with a par value of €1.25 per share, all of which have beenfully paid up. On 17 November 2006 a shareholders meeting agreed to convert the 692,151existing A shares and B shares (with a par value of €10 each) to a total of5,537,209 ordinary shares, each with a par value of €1.25. During the year 108,726,066 ordinary shares (each with a par value of €1.25)were issued (€135,907,582.50). The holders of ordinary shares are entitled to receive dividends as declaredfrom time to time and are entitled to one vote per share at meetings of theCompany. All shares rank equally with regard to the Company's residual assets. Share premium During the year share premium of €182,480,000 was paid in. Authorised capital The Company has an authorised capital of €938,463,133.75 consisting of750,770,507 shares of a par value of €1.25 per share. Interim dividends On 2 May 2007 the Board of Directors declared a dividend of €0.0490 per sharegiving a total dividend of €5,603,346, paid out of share premium on 25 May 2007. On 29 November 2007 a second interim dividend of €0.0887 per share was declaredgiving a total dividend of €10,135,610. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net changein the fair value of cash flow hedging instruments related to hedgedtransactions that have not yet occurred, net of deferred taxation. Restricted reserve A legal reserve subject to profit of the Subsidiaries and the Company has beenallocated in the different jurisdictions where applicable. This reserve is notavailable for dividend distributions. 15. Interest bearing loans and borrowings The Company contracted a debt facility with BOS for €450,000,000 in July 2005.Amounts drawn down under the agreement are secured against the Group'sinvestment properties. At IPO on 20 December 2006 the facility was decreased to €420,000,000 in orderto reduce loan to value gearing and the maturity was extended to 31 December2008. In April 2007 the facility was increased to €460,000,000, in part to finance andsecure the acquisition of the portfolio of 27 logistics properties located inFrance. As at 30 September 2007 an amount of €427,527,250 had been drawn down. During the year the Company repaid amounts borrowed from its shareholders underProfit Participating Loan arrangements. 30 September 30 September 2007 2006 •'000 •'000Non-currentProfit participating loans - 50,218Bank borrowings 427,527 -Less: Finance costs incurred (9,891) -Add: Amortised finance costs 6,835 -Add: Liability to property vendor 29 - 424,500 50,218 CurrentBank borrowings - 146,942Less: Finance costs incurred - (6,733)Add: Amortised finance costs - 3,957 - 144,166 All borrowings are denominated in Euro. The weighted average interest rate at 30 September 2007 on the bank borrowingswas 4.9 per cent. Finance costs include debt arrangement, structuring andutilisation fees paid in arranging the debt facility. These fees are amortisedover the life of the debt facility. Terms and debt repayment schedule 30 September 2007 30 September 2006 Currency Nominal interest Date of Face Carrying Face Carrying Rate maturity Value Amount Value Amount •'000 •'000 •'000 •'000Securedbank loan Euro 3M Euribor + 0.7% 31/12/2008 427,527 427,527 146,942 146,942 16. Deferred tax liabilities Deferred tax assets and liabilities are attributable to the following: Assets Assets Liabilities Liabilities Net Net 2007 2006 2007 2006 2007 2006 •'000 •'000 •'000 •'000 •'000 •'000Investment 727 813 (24,860) (11,400) (24,133) (10, 587)propertiesInterest-rate swaps - - (2,238) (359) (2,238) (359)Net taxassets/(liabilities) 727 813 (27,098) (11,759) (26,371) (10,946) Movement in temporary differences during the year Balance at 30 Recognised in Recognised in Balance at 30 September profit or loss equity September 2006 •'000 •'000 2007 •'000 •'000Investmentproperty (10,587) (10,481) (3,065) (24,133)Interest rateswaps (359) - (1,879) (2,238)Tax Losscarry-forwards 441 (229) - 212 17. Trade and other payables 30 September 30 September 2007 2006 •'000 •'000GroupAccounts payable 4,094 1,105Accruals and other creditors 12,151 2,351Deferred income less than 1 year 5,491 870Interest payable on bank loans 4,430 1,346Tenant deposits 5,695 675 Total 31,861 6,347 Company Accounts payable 365 235Accruals and other creditors 3,326 1,211Deferred income less than 1 year 2,649 666Taxes payable 208 82 Total 6,548 2,194 18. Net asset value per ordinary share The net asset value per ordinary share is based on the net assets of€328,716,823 (2006: €7,766,653) and 114,263,275 (2006: 692,151) ordinary sharesin issue at the Balance Sheet date. 19. Earnings per ordinary share The calculation of basic earnings per share at 30 September 2007 was based onthe profit/(loss) attributable to ordinary shareholders of €10,199,164 (2006:(€7,779)), and a weighted average number of ordinary shares outstanding of86,940,035 (2006: 692,151), calculated as follows: Weighted average number of ordinary shares 2007 2006 Balance at beginning of the period 692,151 - Issue of new ordinary shares during the year/period 114,263,275 692,151 Weighted average number of ordinary shares per year at30 September 2007 86,940,035 692,151 20. Financial instruments Financial risk factors The Group holds cash and liquid resources as well as having debtors andcreditors that arise directly from its operations. The Group has entered intointerest-rate swaps which are used to manage the exposure to interest rate risksbut does not have any other derivative instruments. The main risks arising from the Group's financial instruments and properties aremarket price risk, credit risk, liquidity risk and interest rate risk. The Boardregularly reviews and agrees policies for managing each of these risks assummarised below. Market price risk Rental income and the market value for properties are generally affected byoverall conditions in the local economy, such as changes in gross domesticproduct, employment trends, inflation and changes in interest rates. Changes ingross domestic product may also impact employment levels, which in turn mayimpact the demand for premises. Furthermore, movements in interest rates mayalso affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factorsspecific to the real estate market, such as competition from other propertyowners, the perceptions of prospective tenants of the attractiveness,convenience and safety of properties, the inability to collect rents because ofbankruptcy or the insolvency of tenants or otherwise, the periodic need torenovate, repair and re-lease space and the costs thereof, the costs ofmaintenance and insurance, and increased operating costs. Credit risk Credit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. In theevent of default by an occupational tenant, the Group will suffer a rentalincome shortfall and incur additional costs, including legal expenses, inmaintaining, insuring and re-letting the property. The Investment Managerreviews reports prepared by Experian, or other sources, to assess the creditquality of the Group's tenants and aims to ensure there are no excessiveconcentrations of risk to minimise the impact of any default by a tenant. Investments are allowed only in liquid securities and only with counterpartiesthat have a credit rating equal to or better than the Group. Transactionsinvolving derivatives are with counterparties who have sound credit ratings.Management does not expect any counterparty to fail to meet its obligations. At the reporting date there were no significant concentrations of credit risk.The maximum exposure to credit risk is represented by the carrying amount ofeach financial asset, including derivatives in the balance sheet. Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise raising funds to meet financial commitments. The Group's investments comprise continental European commercial property.Property and property related assets are inherently difficult to value due tothe individual nature of each asset. As a result, valuations are subject touncertainty. There is no assurance that the estimates resulting from thevaluation process will reflect the actual sales price even where such salesoccur shortly after the valuation date. Investments in property are relativelyilliquid. However, the Group has endeavoured to mitigate this risk by investingin properties let to good quality tenants with the potential for income andcapital growth. It is the Company's intention to refinance its debt facility or extend thematurity of the loan during the financial year ending 30 September 2008 to atleast 2013. Interest rate risk The Group's exposure to market risk for changes in interest rates relatesprimarily to the Group's interest-bearing loans. The Group manages its cash flow interest rate risk by using floating to fixedinterest rate swaps. Such interest rate swaps have the economic effect of converting borrowings fromfloating rate to fixed rate. Weighted average interest rates and reprising analysis In respect of income-earning financial assets and interest -bearing financialliabilities, the following table indicates their effective interest rates at thebalance sheet date and the periods in which they re-price. GroupAs at 30 September 2007 Weighted Total 6 months 6 months 1 - 5 Average •'000 or less to 1 year years Interest •'000 •'000 •'000 rateCash and cash equivalents - 68,687 68,687 - -Interest-bearing loans andborrowings 4.933 (424,500) - - (424,500) (355,813) 68,687 - (424,500) As at 30 September 2006 Cash and cash equivalents - 4,257 4,257 - -Interest-bearing loans andborrowings 4.624 (194,384) - (144,166) (50,218) (190,127) 4,257 (144,166) (50,218) CompanyAs at 30 September 2007 Weighted Total 6 months 6 months 1 - 5 Average •'000 or less to 1 year years Interest •'000 •'000 •'000 RateCash and cash equivalents - 30,471 30,471 - - 30,471 30,471 - - As at 30 September 2006 Cash and cash equivalents - 60 60 - -Interest-bearing loans andborrowings - (50,218) - - (50,218) (50,218) 60 - (50,218) Foreign exchange risk The Group's exposure to foreign exchange risk is minimal. There are only a smallnumber of transactions which are not in the Group's reporting currency. 21. Operating leases The Group leases out its investment property under operating leases. The futureminimum lease receipts under non-cancellable leases are as follows: 30 September 30 September 2007 2006 •'000 •'000Less than one year 46,108 13,488Between one and five years 112,970 50,860More than five years 80,471 80,757 239,549 145,105 22. Related party transactions The Company and the Group has related party transactions with its subsidiaries,shareholders and directors. Directors of the Company and its subsidiaries were paid a total of €157,681 indirectors' fees during the period. Invista Real Estate Investment Management Limited (Invista REIM) acts as theInvestment Manager of the Group. Invista REIM has received an investmentmanagement fee of €5,915,948. In addition as disclosed in note 5 and as theconditions for payment of a performance fee to the Investment Manager were metduring the year, a provision of €2.2m was made. As disclosed in note 15, The Company has obtained a credit facility from TheGovernor and Company of the Bank of Scotland and has entered into interest swaptransactions with Halifax Bank of Scotland Treasury Services Plc. The Company also operates an inter-group trading account facility with itssubsidiaries whereby it may receive income on behalf of its subsidiaries or payexpenses on their behalf. These balances are non-interest bearing and aresettled on demand. 23. Segment reporting Geographical segments Segment information is presented in respect of the Group's geographicalsegments. This primary format is based on the Group's management and internalreporting structure. Business segments Business segment reporting has not been prepared because the Group investpredominantly in one business segment which is property investment of commercialproperties. Geographical segments The Group's business is investing commercial properties. All the existingproperties are located in the continental European region. France Germany Other Europe Total •'000 •'000 •'000 •'000Gross rental income 17,183 12,522 3,786 33,491Other income 47 8 1 56Gross revenue 17,230 12,530 3,787 33,547 Property operating expenses (874) (570) (264) (1,708) Segment gross profit 16,356 11,960 3,523 31,839 Change in value of investmentproperties 7,741 7,187 8,143 23,071 Finance income 322 81 2,404 2,807Finance expenses (12,209) (6,077) (293) (18,579)Unallocated net expense (4,001) (2,657) (9,840) (16,498)Profit before tax 8,209 10,494 3,937 22,640Taxation (7,529) (1,442) (3,469) (12,440)Profit after tax 680 9,052 468 10,200 France Germany Other Europe Total •'000 •'000 •'000 •'000Assets and LiabilitiesSegment assets 425,336 266,041 124,911 816,288Segment liabilities (excluding equitycomponents) 263,945 149,770 73,856 487,571 24. Commitments As at 30 September 2007 the Group was conditionally contracted to acquire aninvestment property in Girona (Spain) for an estimated total gross cost of €11.3million. 25. Contingencies Certain subsidiaries of the Group are involved in litigation resulting fromoperating activities. These legal disputes and claims for damages are routineresulting form the normal course of business. None of these legal disputes andclaims are expected to have a material effect on the balance sheet, profits orliquidity of the Group. 26. Post Balance Sheet Events Robert Kimmels resigned as a non-executive director as of 16 November 2007. Inhis place Jaap Meijer was appointed with effect from 16 November 2007. Mr.Meijer does not hold any shares in the Company. The Company purchased a portfolio of five office properties in Brussels, Belgiumon 19 December 2007, valued at acquisition at €33.1 million. The portfolioprovides the opportunity to benefit from upside in leasing vacant accommodationin two of the properties whose purchase was underwritten off a low rental level. 27. List of the fully consolidated subsidiaries Subsidiary Domicile Ownership interest 2007 Invista European Real Estate Holdings S.a r.l., Luxembourg 100% Invista European Real Estate Finance S.a.r.l. Luxembourg 100% Invista European RE Heusenstamm Propco S.a.r.l. Luxembourg 100% Invista European RE Marseille Propco S.a.r.l. Luxembourg 100% Invista European RE Lyon Propco S.a.r.l Luxembourg 100% Invista European RE Solingen Propco S.a.r.l. Luxembourg 100% Invista European RE Nanteuil Propco S.a.r.l. Luxembourg 100% Invista European RE Monheim Propco S.a.r.l. Luxembourg 100% Invista European RE Lutterberg Propco S.a.r.l. Luxembourg 100% Invista European RE Lutterberg Logistics GmbH Germany 100% Invista European RE Villeurbanne Holdco S.a r.l. Luxembourg 100% Invista European RE Villeurbanne Propco S.a r.l. Luxembourg 100% Invista European RE Villeurbanne Propco II S.a r.l. France 100% Invista European RE Delta Holdco S.a r.l. Luxembourg 100% Invista European RE Delta Propco S.a r.l. Luxembourg 100% Invista European RE Delta Propco II S.a r.l. France 100% Invista European RE Grodzisk Sp.zo.o. Poland 100% Invista European RE Riesapark Propco S.a r.l. Luxembourg 100% Invista European RE Roth Propco S.ar.l. Luxembourg 100% Invista European RE Monbonnot Holdco 1 S.ar.l Luxembourg 100% Invista European RE Monbonnot Holdco 2 S.ar.l France 100% Invista European RE Dutch Holdings B.V. The Netherlands 100% Canal Business Park N.V. Belgium 100% Centaurus Logistics Holdings S.ar.l. Luxembourg 100% Invista European RE Pocking Propco S.ar.l. Luxembourg 100% Invista European RE Sun Propco SARL France 100% Invista European RE Nova Propco SARL France 100% Invista European Real Estate Spanish Propco S.L. Spain 100% Invista European Bel-Air RE Holdings S.ar.l. Luxembourg 100% Invista European Bel-Air France S.A.S. France 100% Cofisul S.A. Luxembourg 100% Compagnie Francesca SARL France 100% Fonciere Vauclusienne Fova SARL France 100% Jerry SCI France 100% Anjoly Affretement Stockage (Anjolyas) SARL France 100% Juleo SCI France 100% Cabrimmo SARL France 100% Malabar Societe de Manutention Logistique SARL France 100% Cemga Logistics SARL France 100% Les Merisiers SARL France 100% Mirasud SARL France 100% Compagnie Fonciere de Fos Coffos SARL France 100% Nelson SARL France 100% Compagnie frigorifique et immobilere Cofrinor France 100% Montowest SARL France 100% Pole Logistique Vanclusien Poloval SARL France 100% Societe du Pole Nord SAS France 100% Compagnie Vauclusienne Covadis EURL France 100% Prolog SARL France 100% DBA Czech SRO Czech Republic 100% Hades Logistics BV The Netherlands 100% Atena Logistics BV The Netherlands 100% Glossary Adjusted Gross Assets is the aggregate value of all of the assets of the Group,including net distributable but undistributed income, less current liabilitiesof the Group (excluding from current liabilities any proportion of moniesborrowed for investment whether or not treated under accounting rules as currentliabilities), as shown in the consolidated accounts of the Group. Earnings per share (EPS) is the profit after taxation divided by the weightedaverage number of shares in issue during the period. Estimated rental value (ERV) is the Group's external valuers' reasonable opinionas to the open market rent which, on the date of valuation, could reasonably beexpected to be obtained on a new letting or rent review of a property. Gearing is the Group's net debt as a percentage of adjusted net assets. Group is Invista European Real Estate Trust SICAF and its subsidiaries. IPD is the Investment Property Databank Ltd, a Company that produces anindependent benchmark of property returns. IPO is the Initial Public Offering, on 20 December 2006 at which the offer forsale and for subscription of shares at the Offer Price. Listing Rules are rules made by the UK Listing Authority under section 74 of theUK Financial Services and Markets Act 2000. Net asset value (NAV) are shareholders' funds, plus the surplus of the openmarket value over the book value of both development and trading properties,adjusted to add back deferred tax. Net Cash Income is the Group's net rental income calculated after deduction offinance costs and management and administration expenses and other actualexpenses of the Group including actual taxation suffered but taking no accountof any provisions for deferred taxation or of any fair value adjustments to thevaluation of assets within the property portfolio which may be made in theincome statement of any member of the Group. Net rental income is the rental income receivable in the period after payment ofground rents and net property outgoings. Regulated Market is a market referred to in article 1, point 13 of the CouncilDirective 93/22 EEC on investment services in the securities field, as amended. Independent Auditors' Report To the Shareholders ofInvista European Real Estate Trust SICAF25b, boulevard RoyalL-2449 Luxembourg REPORT OF THE REVISEUR D'ENTREPRISES Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of InvistaEuropean Real Estate Trust SICAF (the Company) and its subsidiaries (the Group),which comprise the consolidated balance sheet of the Group and the balance sheetof the Company as at 30 September 2007 and the consolidated income statement,the consolidated statement of changes in equity and the consolidated statementof cash flows of the Group as well as the income statement, the statement ofchanges in equity and the cash flow statement of the Company for the year thenended, and a summary of significant accounting policies and other explanatorynotes. Board of directors' responsibility for the consolidated financial statements The board of directors is responsible for the preparation and fair presentationof these consolidated financial statements in accordance with InternationalFinancial Reporting Standards. This responsibility includes: designing,implementing and maintaining internal control relevant to the preparation andfair presentation of consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that arereasonable in the circumstances. Responsibility of the Reviseur d'Entreprises Our responsibility is to express an opinion on these consolidated financialstatements based on our audit. We conducted our audit in accordance withInternational Standards on Auditing as adopted by the Institut des Reviseursd'Entreprises. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether theconsolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the consolidated financial statements. The proceduresselected depend on the judgement of the reviseur d'entreprises, including theassessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, thereviseur d'entreprises considers internal control relevant to the entity'spreparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theentity's internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates madeby the board of directors, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair viewof the financial position of Invista European Real Estate Trust SICAF and itssubsidiaries as of 30 September 2007, and of the financial performance of theGroup and the Company and of the consolidated cash flows of the Group and thecash flows of the Company for the year then ended in accordance withInternational Financial Reporting Standards. Report on other legal and regulatory requirements The consolidated management report, which is the responsibility of the board ofdirectors, is in accordance with the consolidated financial statements. Luxembourg, 4 January 2008 KPMG Audit S.a r.l. Reviseurs d'Entreprises D.G. Robertson END This information is provided by RNS The company news service from the London Stock Exchange