IERE.L Regulatory News (IERE)

Invista European Real Estate Trust SICAF Annual Report and Accounts 2014

Contents

Summaries

 Financial Summary

 Performance Summary

 Chairman's Statement

Investment Manager's Report

 Investment Manager's Report

Corporate Governance

 Report of the Directors

Financial Statements - Consolidated

 Consolidated Income Statement

 Consolidated Statement of Comprehensive Income

 Consolidated Statement of Financial Position

 Consolidated Statement of Changes in Equity

 Consolidated Statement of Cash Flows

Notes to the Financial Statements

 Notes to the Consolidated Financial Statements

Financial Statements - Separate

 Separate Income Statement

 Separate Statement of Comprehensive Income

 Separate Statement of Financial Position

 Separate Statement of Changes in Equity

 Separate Statement of Cash Flow

Notes to the Financial Statements

 Notes to the Separate Financial Statements

Auditor's Report

 Independent Auditor's Report - Consolidated Financial Statements

 Independent Auditor's Report - Separate Financial Statements

Further Information

 Glossary - Consolidated Financial Statements

 Glossary - Separate Financial Statements

Invista European Real Estate Trust Company Summary

As at 30 September 2014, Invista European Real Estate Trust SICAF ("IERET" or the "Company") and its subsidiaries (together the "Group") held a diversified real estate portfolio comprising 30 commercial properties located across five Continental European countries. The combined aggregate value of these properties was €281.8 million.

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

The Company is pursuing a structured realisation of its assets in line with the resolution approved by the Company's shareholders at the EGM on 14 October 2011, as an investment strategy under the Company's original investment policy. In the light of this, the Company has recently appointed the leading real estate investment bank Eastdil Secured LLC ("Eastdil"), part of Wells Fargo & Company, to undertake a strategic review and advise it on a range of options, including the sale of subsidiary undertakings owning the core portfolio. While there can be no certainty of a transaction resulting, the directors believe that the resources and experience of Eastdil will enhance the Company's capability of navigating through the current difficult waters.

A further announcement will be made in due course.

Financial Summary

v Adjusted Net Asset Value decreased during the year from €64.0 million to €40.1 million

v Net Asset Value per share decreased by 36.6% to €0.156

v Loss per share of €0.0723

Sources: Internos Global Investors; Datastream

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

2 As at 30 September 2014, deferred tax liabilities of €17.1 million, based upon temporary differences at the time of initial recognition arising from transactions treated as asset acquisitions, have not been recognised in accordance with IAS 12. The Group has deferred tax assets of €15.8 million which have also not been recognised.

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

4 £:€ exchange rate used was €1.284 as at 30 September 2014; €1.197 as at 30 September 2013.

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

6 Current liabilities exclude banking facilities and deferred tax liabilities arising from the existing portfolio and asset held for sale.

Performance Summary

Property performance

Summary consolidated income statement

Earnings and dividends

Bank borrowings 2

Estimated annualised total expense ratio 3

1 Share price converted to Euro at exchange rate of £:€ of 1.284 prevailing at 30 September 2014 and 1.197 prevailing at 30 September 2013. During the 2009, 2010, 2011, 2012 and 2013 financial years no ordinary dividend was paid.

2 See the 'Borrowings' section in the Investment Manager's Report for more information.

3 The Total Expense Ratio ('TER') reflects the total of all operating costs associated with running the Group, including the Investment Manager's annual management charge, but excluding any costs associated with the day to day maintenance of the assets. These calculations are presented as a percentage of average shareholder's funds over the period.

Chairman's Statement

In the financial year ended 30 September 2014, the Company successfully refinanced its debt facility, completed the sale of five properties (four of which were vacant) for nearly €20 million and negotiated lease extensions and leases for previously vacant properties accounting for over 15% of the Company's net rental income.

Progress has been made in the Company's plan to dispose of property which is vacant, peripheral or with completed asset management initiatives. Nonetheless, the full disposal programme agreed with the new lenders in order to facilitate the triggering of the step down event under the debt facilities, which would significantly reduce the cost of debt secured on the Company's core portfolio of assets, proved to be painfully slow and challenging to achieve.

Demand for secondary property in the Eurozone has remained thin, despite the stimulus being provided by the European Central Bank, with valuations on the Company's portfolio continuing to fall over the course of the financial year. As a result, adjusted net asset value declined in the year from €0.25 (21p) to €0.15 (12p) per share, reflecting a fall in property valuations on a like-for-like basis of 7.39%. Net losses (on an EPRA basis) were €2.4 million (€0.5 million in 2013).

The level of net debt as at 30 September 2014 was 73.1%, compared to 64.9% as at 30 September 2013, again partly as a result of the decline in property valuations. The gross loan-to-value ratio ("LTV") was 77.3%, compared to 70.6% at the end of the previous year.

Two of the fourteen properties in the agreed disposal programme have been sold so far and a further four are under offer, representing the largest part by value of the remaining programme. Likely aggregate net proceeds are likely to be below current valuation, since, even after extensive marketing, discounts in some cases may have to be conceded to reflect particular factors relating to the properties concerned, as well as there being tax and other transaction costs. As previously stated, therefore, the disposal programme is not expected to generate sufficient cash to repay the entire amount of debt needed to trigger the step down debt.

Furthermore, as more disposals of significant income generating properties are completed on the path to consolidating the Company's focus around its core portfolio, there will be transitional pressures on interest coverage and other covenants in the Company's debt facilities. The disposal programme and the overall business plan were agreed at the outset with the Company's new lenders and they are supportive of the steps being taken to implement them. It remains, however, a complex and uncertain process to achieve the desired result of a deleveraged core portfolio of German and French properties.

In the light of this, the Company has recently appointed the leading real estate investment bank Eastdil Secured LLC ("Eastdil"), part of Wells Fargo & Company, to undertake a strategic review and advise it on a range of options, including the sale of subsidiary undertakings owning the core portfolio. While there can be no certainty of a transaction resulting, the directors believe that the resources and experience of Eastdil will enhance the Company's capability of navigating through the current difficult waters.

The Company's investment managers, Internos Global Investors, have shown exceptional tenacity and commitment both in achieving the Company's debt refinancing and in the continuing asset management of the portfolio; I would like to thank them on behalf of the Board for all their efforts. The still difficult market environment and the complexity of the Company's capital and corporate structure established in an earlier era make it extremely challenging to deliver value for shareholders, but the Board, the investment manager and the Company's advisers are all committed to achieving the best possible outcome.

Tom Chandos

29 January 2015

Investment Manager's Report

Business review

The financial year ending 30 September 2014 saw a continuation of the trend in falling vacancy from the peak in Q4 2012 of 24.10% to 15.70% in Q3 2014, as a result of a combination of new lettings and disposals of vacant assets. During the period, the company sold five assets in total for overall net proceeds of €19.7 million, four of which were 100% vacant when sold.

Despite improving occupancy levels, valuations decreased by 7.39% on a like for like basis over the financial year, reflecting continued rises in secondary European property yields, particularly in the first half of the year. Valuations have stabilised in the second half of the year, reflecting both new letting activity and growing investor confidence in secondary European property: Q4 14 valuations showed a slight rise on a like for like basis by 0.01%, representing the first rise in portfolio valuation for the last 3.25 years.

The dominant concern of the Board and advisers of IERET during the last financial year was the maturity of the Company's existing debt facility ("the Loan") with Bank of Scotland PLC ("BoS" or "the Bank"), the economic interest of whose loans to IERET had been sold in November 2013 to funds affiliated to Cerberus Capital Management LP and which was due to mature on 31 December 2013. The Company succeeded in securing a short term extension to the maturity of the Loan, to 30 April 2014, during which time a new senior loan facility (the "New Loan") was agreed with Blackstone Real Estate Debt Strategies ("BREDS"), an affiliate of the Blackstone Group LP ("Blackstone"). Further details on the terms of the New Loan are included in the 'Borrowings' section of this report.

On 6 August 2014 the Board announced that the New Loan was refinanced with an additional €100 million of senior debt provided by Bank of America Merrill Lynch International Limited ("BAML") while BREDS retained the remaining balance as a mezzanine facility. The initial blended cost of debt to the Company remained unchanged from the original BREDS facility, at 770bp over three month EURIBOR, with a similar provision as existed in the earlier facility for the blended cost to be reduced to 470bp over three month EURIBOR once a total amount of at least €85 million has been repaid to the Mezzanine Lender, subject to the overall Loan to Value ("LTV") being below 70% (the "Step-Down Event").

Following the restructuring of IERET's debt capital, the priority for the Company is to deleverage its mezzanine loans to such an extent that the Step-Down rate of interest is reached.

Results

The Company's Adjusted NAV as at 30 September 2014 was €0.15 (£0.12) per share. This decreased over the financial year by 36.6% (40.8%) from €0.25 (£0.21) and is principally due to the combined effect of some asset sales completed below valuation and a fall in property valuations of 7.39% on a like for like basis.

The Company completed five sales of properties during the financial year. Sale proceeds of €19.7 million generated during the financial year have enabled the Company to amortize the Company's Loan as well as setting aside €10 million for capital expenditure projects at the Riesa and Roth assets in Germany.

Despite continued weaknesses in some occupier markets, the Company re-geared leases representing 11.33% of the portfolio's annualised gross rent as at 30 September 2014, and secured another 3.86% of annual rent in the form of new lettings.

The Market

Following a relatively benign start to 2014, the second half of 2014 was characterised by a heightened level of volatility across capital markets with European equity indices finishing the year broadly flat and 10 year bond yields down 75-150 bps in 'safe haven' markets of the US and Germany (Bloomberg). These trends reflect concerns that global and Eurozone economic growth is slowing, with political risks in Russia and Greece, lower growth in China and the threat of a prolonged period of Eurozone deflation all weighing on market expectations. However, the dramatic decline in energy prices over the same period could provide a timely boost to the global economy if the reallocation of resources stimulates demand in economies that are net importers of energy (i.e. Western Europe), as it has done in the US where growth has accelerated in recent quarters. However, given the higher structural cost of energy in Europe there is some debate as to whether Europe can expect a similar boost to real wages and subsequent domestic demand. Economic weakness and deflationary fears have prompted the ECB to further ease monetary policy with asset purchases commencing in December and the implementation of full quantitative easing in January. An easing in monetary policy has led to a depreciation in the Euro, which recently hit a 9 year low against the US Dollar and which should further support the Eurozone's export sectors.

The French economy continues to battle headwinds having barely escaped entering into recession in Q3 with growth of 0.3% q/q recorded (Eurostat). A stuttering economy has created an uncertain environment for businesses that have primarily adopted a wait-and-see approach. Take-up in the logistics sector totalled 1.8m sqm over the first nine months of 2014, a decline of 9% y/y (BNP Paribas Real Estate). Activity remains highly concentrated within the four main markets (Lille, Paris, Lyon, Marseille), with Paris and Lyon capturing 50% of national take-up volumes recorded in Q1-Q3 2014. Availability within 1 year increased by 7% over Q1-Q3 to 3.8m sqm with higher levels driven by the release of Grade B and C stock as occupiers seek opportunities to upgrade operational space where possible (BNP Paribas Real Estate).

Take-up in the eight largest German office markets totalled 2.1m sqm in the Q1-Q3 2014 period and represents a modest decline of 6% y/y (BNP Paribas Real Estate). Whilst unemployment levels reached new historical lows in December (6.5%, Destatis), a recent decline in business confidence has started to delay occupier commitments to new leases in the short term. Despite lower take-up volumes vacancy rates continue to decline across all of the major office market where the average vacancy rate currently stands at 7.8%, 50bps lower than in September 2013 (Savills). Vacancy rates have been on a downward trend since Q4 2010 although the pace of decline has started to slow. In the secondary office market, demand has improved for B locations with some agents reporting that rental values have started to increase for the assets benefiting from high specifications.

Rolling 12 month investment volumes for European real estate totalled €194bn as at the end of Q3 2014 (CBRE). This is the highest level reported since Q2 2008 and reflects the market momentum prevalent across many European markets as domestic and international investors continue to chase opportunities to deploy significant amounts of capital within the region. Investment in the recovery markets continues to strengthen particularly for Spanish and Irish assets where quarterly investment totalled €3.5bn and €1.6bn and brings year-to-date investment totals to €6.5 and €3.0bn respectively (CBRE). The UK and German markets experienced robust growth of approximately 20% q/q with €18.4bn and €8.5bn completed in Q3 (CBRE). The underlying trend within these markets has been for investors to widen the criteria for target investments to include assets/locations outside of prime assets in London and tier 1 German cities with investment outside of the top 6 German markets reportedly growing by 51% y/y in Q3 (Savills). The prevailing low interest rate environment and improving debt market conditions within core European countries has facilitated liquidity and attractiveness for these assets with portfolio sales becoming increasingly prevalent.

Property Portfolio

As at 30 September 2014, the Company's property portfolio was valued at €281.76 million and comprised 30 commercial property investments across five countries (€325.6 million, 35 assets and six countries as at 30 September 2013). On a like-for-like basis the portfolio value decreased by 7.39% during the year as investor and lender appetites for European secondary real estate exposures remained limited, particularly during the first 6 months of the financial year. Post year end, valuations had their first increase in 3.25 years, since the December valuation of the Company's property portfolio rose to €281.78 million. This increase mostly reflects improving occupier markets as well as specific rises at the Roth and Tiel properties where recent new lettings have added value.

Top 10 properties by value*- Table 1

* Percentage of aggregate asset value as at 30 September 2014.

Table 1 above shows the Company's ten largest properties by value calculated as a proportion of the open market value of the portfolio (as at 30 September 2014).

Click or paste the following link into your web browser to view the associated PDF document. Refer to page 7 for the relevant graph.

http://www.rns-pdf.londonstockexchange.com/rns/6030D_-2015-1-30.pdf

Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2014

Over 92% of the portfolio is located in the Company's key markets, France and Germany.

Click or paste the following link into your web browser to view the associated PDF document. Refer to page 8 for the relevant graph.

http://www.rns-pdf.londonstockexchange.com/rns/6030D_-2015-1-30.pdf

Note: percentages are calculated as a proportion of aggregate asset value as at 30 September 2014.

The portfolio is invested in the three main commercial property sectors, logistics, offices and retail.

Income Tenancies

As at 30 September 2014 the Company's portfolio generated a contracted gross income of €25.9 million per annum (net €22.8 million), with a valuation of €281.76 million. The weighted average lease length to expiry was 5.71 years as at 30 September 2014 (5.91 years as at 30 September 2013). The weighted average lease length to first break also declined to 3.77 years from 4.00 years as at 30 September 2013. The portfolio's credit rating, as measured by the Investment Property Databank's M-IRIS Credit Analysis System as at October 2014 rose to 73.7 out of 100 from 64.3 out of 100 as at October 2013, while remaining within the "low to medium risk" classification. 

Top 10 tenants by income**- Table 2

** Percentage of aggregate gross rent as at 30 September 2014

Table 2 above shows the Group's ten largest tenants by income, calculated as a proportion of the gross annual rental income receivable by the group as at 30 September 2014.

Click or paste the following link into your web browser to view the associated PDF document. Refer to page 9 for the relevant graph.

http://www.rns-pdf.londonstockexchange.com/rns/6030D_-2015-1-30.pdf

Click or paste the following link into your web browser to view the associated PDF document. Refer to page 10 for the relevant graph.

http://www.rns-pdf.londonstockexchange.com/rns/6030D_-2015-1-30.pdf

Source: Internos and Savills, valuation as at 30 September 2014

The charts above show the lease expiry and break profile of the Company's portfolio. The percentages represent the proportion of the Group's total annual rental income due to break or expire in each year, as at 30 September 2014. Income security has improved during the year as existing tenants representing 11.33% of annual contracted income as at 30 September 2014 have extended their leases by a weighted average lease term to next break by 3.85 years, and to expiry by 5.04 years.

1 As at 30 September 2014.

2 Source: Savills valuation as at 30 September 2014.

3 Estimated Rental Value ("ERV") based on leased and vacant area.

4 Calculated as ERV on vacant space as a percentage of total Potential Rent.

5 Weighted average by property.

Disposals

Over the last year, the Company has continued with the process of strategically assessing and actively managing the property portfolio in order to undertake a structured realisation of its assets to reduce the outstanding debt levels, while achieving maximum value for shareholders. Achieving this optimal sale strategy has not been without challenges given the parallel need to retain the most effective income producing assets in order to refinance at a high LTV and to service the Company's borrowings.

During the financial year, the Company has successfully implemented the disposal process on five assets, generating total net proceeds of €19.7 million. 

On 7th November 2013 the Company completed the sale of three logistics assets located in Amiens, France. The sale was achieved at a net sale price of €1.1 million which represented a 50% discount to 30 September 2013 valuation. The proceeds were used to reduce the Company's outstanding debt by €1.1 million and close the associated swap contract. Since the 9,626 sqm of logistics space was mostly vacant, this disposal reduced the Fund's overall void rate, calculated as vacant ERV expressed as a percentage of total potential rent, from 19.8% (as at 30 September 2013) to a figure of 18.9%. It also reduced non recoverable and debt service costs by €0.18m per year.

On 18th February 2014 the Company disposed of a logistics asset located in Modletice, Czech Republic. The sale was achieved at a 5.9% discount to the latest valuation of the property, at €6.4 million. The proceeds were used to pay down approximately €6.2 million in outstanding debt. As the 17,147 sqm of logistics space was entirely vacant, this disposal reduced the Company's overall void rate from 16.6% as at 31 December 2013 to a figure of 14.8%. The Modletice asset represented 100% of the Company's investment holdings located in the Czech Republic and so the transaction reduced non recoverable, debt service and associated corporate costs by an estimated €0.6m per year.

On 7th August 2014 IERET completed the sale of a logistics asset located in Alovera, Spain. The sale was achieved at a price that was 0.57% below the latest valuation of the property, at €12.2 million. €7 million of the sale proceeds were set aside in accordance with the Company's business plan to fund ongoing capital expenditure projects elsewhere in the Company's portfolio of real estate assets. The remaining proceeds were used to pay down the Company's outstanding mezzanine debt.

Asset Management Highlights

During the financial year, the Company has actively negotiated with existing tenants representing 11.33% of annual contracted income as at 30 September 2014 to extend those leases' weighted average lease term to next break by 3.85 years, and to expiry by 5.04 years. Approaching tenants ahead of lease break or expiry has helped secure a weighted average lease length to expiry across the portfolio of 5.71 years and to break of 3.77 years, although this figure has decreased since September 2013 (5.91 years on expiry and 4.00 years to break). As at 30 September 2014, 17.4% of existing portfolio income was under negotiation with existing and new tenants to secure income going forward and to improve asset liquidity.

As at 30 September 2014, 23.7% of portfolio income stood at risk of break in the succeeding financial year. Post year end, new leases were agreed on the logistics assets in: Tiel, Netherlands; Montauban, France; Amiens, France; and Louviers, France; combined representing 9.8% of rent as at 30 September 2014.

Offices

The portfolio's five office assets in France, Belgium and Germany remained relatively robust over the year with occupancy levels of 94.57% as at 30 September 2014. This declined from 94.89% as at 30 September 2013 on a like for like basis, as a result of increased vacancies on assets in Belgium.

The Company is in negotiations with existing tenants occupying office space in Belgium which represent 0.73% of portfolio office income.

The office portfolio generates an income return ("NIY") of 10.53%.

Logistics

Logistics vacancy measured as ERV on vacant space and expressed as a percentage of potential rent reduced from 27.52% as at 30 September 2013 to 26.53% at the end of the financial year on a like for like basis. As well as new lettings, IERET has also re-geared €1.3 million of logistics rental income in France, which accounts for 12.68% of the Company's logistics assets by annual rent as at 30 September 2014.

European logistics assets still faced a hesitant investor and occupier market for most of the financial year, and as a result, valuations on these assets declined by 6.73% on a like for like basis over the 12 months to 30 September 2014, notwithstanding the improvements made to vacancy levels during the course of the year. Despite a difficult market for logistics asset sales, the Manager of IERET completed the disposal of five logistics assets during the year, four of which were 100% vacant.

Retail

Occupancy on the three German retail assets has improved over the financial year, increasing from 82.05% on 30 September 2013 to 90.82% as at 30 September 2014. During the year, the Company began its planned capital expenditure projects to rejuvenate the properties at Riesa and Roth and secure the existing tenant base.

At Roth, a new anchor tenant was secured in 2014, which will occupy over 2,000 sqm of retail area and is expected to also attract new lettings on the remaining vacant space. Regarding Riesapark, the restructuring will strengthen tenant confidence, maintain the current rental level and increase the WALT. Based on discussions held with the involved tenants, the Company is of the opinion that it will be able to prolong existing lease contracts on a 10 years basis, increasing the WALT from 5.30 years at the start of the project to 7.88.

Borrowings

On 1 May 2014 the Board announced that it had entered into a new senior loan facility (the "New Loan") with Blackstone Real Estate Debt Strategies ("BREDS", or the "Mezzanine Lender"), an affiliate of the Blackstone Group LP ("Blackstone"). On 6th August 2014 the Board announced that the New Loan was refinanced with an additional €100 million of senior debt provided by Bank of America Merrill Lynch International Limited ("BAML") while BREDS retained the remaining balance as a mezzanine facility.

As at 30 September 2014, the Company had drawn down a total of €100 million of senior debt in respect of its €100 million facility with Bank of America Merrill Lynch, and €117.9 million of mezzanine debt in respect of its €120 million facility with Blackstone Real Estate Debt Strategies. At 30 September 2014 the Group had drawn down a total of €217.9 million, while the latest valuation of the properties held by the Group was €281.76 million. The Company's gross Loan to Value ("LTV") as at that date was 77.3%.

All debt is protected against changes in European interest rates by means of an interest rate cap agreement with a strike price of 1.00%.

The Company is currently pursuing a programme of targeted asset disposals, of which the sales of the property at Modletice in the Czech Republic and the Alovera asset in Spain have already been completed. The current facility has a flexible structure that will enable the Company to pursue its non-core disposal plan by providing €85 million of freely prepayable proceeds which can be repaid via asset sales or contributions of additional equity. Once the total amount of the loan has been reduced to €135 million and so long as the LTV is below 70%, the ("Step-Down Event"), the margin will be reduced to 470bp over three month EURIBOR. The LTV covenant, which is set initially at 85%, falls to 80% following the Step-Down Event.

Under the terms of the New Loan, a cash sweep will be applied to the Company's income prior to the Step-Down Event. As a consequence, no distributions to ordinary or preference shareholders can be made for the duration of the cash sweep, with the preference share dividend therefore being accrued. In addition, the Company has identified that its need to sustain the costs of its borrowings with limited amounts of working capital presents a significant risk to the Company's ability to continue operating. The Company therefore regards making the repayments necessary to eliminate the cash sweep and trigger the lower cost of capital as an objective of the highest priority.

The primary means of raising the capital required to reach the Step-Down will be the pursuit of the Company's ongoing disposal programme. The Company's Investment Manager (Internos Global Investors) has identified that there is likely to be a funding gap between sales proceeds and the repayment required to reach the lower interest rate, and is pursuing a number of options with the aim of securing additional funding for the gap. In the meantime the Company is continuing with the sale strategy that was outlined in the annual business plan provided to the Mezzanine Lender and reviewed 30 days before the end of the calendar year.

One of the consequences of pursuing the disposal programme will be the sale of income-producing assets, which, given the current cash constraints on the Company, is forecast to result in a breach of the Interest Cover and Projected Debt Yield Covenants of the Mezzanine Loan Facility. There is, therefore, a significant risk that as a result of sales expected to be completed during the next twelve months there will be a breach of covenants of the Mezzanine Facility Agreement during the coming financial year.

At the time of a breach of the Mezzanine Facility Agreement, BREDS would have the following options:

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

b) The Mezzanine Facility Agreement includes a provision for a Default Rate of interest, which can be applied in the event of such a breach, at the discretion of the Mezzanine Lender. This would mean an additional 300 bps of interest on top of the current margin of 770 bps. In the event that the Company is unable to support this additional interest cost, a mechanism exists whereby it is possible that the Mezzanine Lender may (but is not obliged to) allow unpaid interest to be treated as an accruing liability on the balance sheet of the Fund, thereby reducing the Net Asset Value.

The risks mentioned above are mitigated by a combination of potential waivers from the Mezzanine Lender and the ongoing efforts to secure a capital investment that will bring about the Step-Down. In the light of this, the Company has recently appointed the leading real estate investment bank Eastdil Secured LLC ("Eastdil"), part of Wells Fargo & Company, to undertake a strategic review and advise it on a range of options, including the sale of subsidiary undertakings owning the core portfolio. While there can be no certainty of a transaction resulting, the directors believe that the resources and experience of Eastdil will enhance the Company's capability of navigating through the current difficult waters.

On the basis of the Lender's stated approval of and support for the Company's business plan provided to the Mezzanine Lender and reviewed 30 days before the end of the calendar year, which requires time and stability to enable the successful sale of assets needed to achieve the Step-Down, it is expected that waivers will be granted in the event of a breach of the Mezzanine Facility Agreement. BREDS will not commit unconditionally to future waivers, although the ongoing process run by Eastdil, which has been initiated in close consultation with BREDS, is strongly in the interest of the Mezzanine Lender as it is designed to secure additional capital for the core portfolio, which, along with the expected disposal proceeds, would reduce leverage to the target level specified by the Step-Down. It is therefore anticipated that while the Company continues to pursue the current agreed Business Plan, temporary waivers should be granted to cover breaches brought about by asset disposals. If further waivers were not granted, the Company would be in breach of the Projected Debt Yield and Interest Cover Covenants.

The covenant breaches contemplated above would be a consequence of the pursuit of the business plan previously agreed with Lenders and the execution of which has the Mezzanine Lender's support. Therefore, although the Mezzanine Lender is unwilling to waive its rights unconditionally for an extended period of time, it is considered that following the agreed disposal strategy is the optimal course of action for the Company both in terms of maximising the opportunity of reaching the Step-Down interest rate, but also in terms of maintaining the support of the Mezzanine Lender.

Report of the Directors

The Directors of the Company (the "Directors" or the "Board") present their report and the Audited Separate Financial Statements of the Company and the Group Financial Statements for the year ended 30 September 2014.

Business review

Business of the Company

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

Invista European Real Estate Trust SICAF is an investment company with fixed capital (société d'investissement à capital fixe) under the form of a public limited company (société anonyme), registered under Part II of the Luxembourg law of 17 December 2010 and managed by Internos Global Investors ("Internos"). Additional information regarding the Company and Group's business during the year is contained in the Chairman's Statement and the Investment Manager's Report.

Investments

The independent valuation of the Company's property portfolio as at 30 September 2014 was €281.76 million and consisted of 30 properties located in France, Germany, the Netherlands, Spain and Belgium.

Disposals

There were five completed disposals during the year under review. Further details are set out in the Investment Manager's Report.

Strategic outlook

The Company announced on 28 May 2012 that it had concluded discussions with the Commission de Surveillance du Secteur Financier ("CSSF") and it may pursue a structured realisation of its assets in line with the resolution approved by the Company's shareholders at the EGM on 14 October 2011, as an investment strategy under the Company's original investment policy. The full text of the investment policy is available in the 2009 Prospectus on the Company's website: www.ieret.eu.

Following the restructuring of its debt capital during the financial year, the Company continues to pursue its strategy of structured realisations, focusing its efforts on the disposal of a pre-agreed portfolio of assets and on the strategic options for the core portfolio in the process being conducted by Eastdil. Further details can be found in the Investment Manager's Report.

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

Key performance indicator

The Board uses the absolute net asset value ('NAV') return of the Company to monitor and assess the performance of the Company. As at 30 September 2014, the Company's audited NAV (adjusted to add back deferred taxation) was €0.154 per share.

During the year ended 30 September 2014, the Company's audited adjusted NAV has decreased by €0.090 per share or 36.6%. The decline in NAV was primarily due to fall in investment property valuations and the gearing effect of the Company's borrowings.

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

Important events post year end

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

Capital Structure

At 30 September 2014 the Company's issued share capital consisted of 259,980,909 ordinary shares each allotted and fully paid, and 29,137,134of preference shares (800,000 of which were held by the Company as Treasury shares and which have now been derecognised).

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

(i) absorption of the (non consolidated) losses of the Company as at 30 September 2009 of €13,089,270 resulting in the reduction of share capital of the Company to €129,739,823.75; and

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

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

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

· 145,685,674 ordinary shares at £0.20 per ordinary share,;

· 29,137,134 preference shares priced at £1 per preference share, with a seven year term;

· one warrant per preference share giving the right to subscribe for an ordinary share at £0.29 exercisable in May and November of each year during the four year life of the Warrants as set out in the Instrument and the Prospectus of the Company dated 16 November 2009.

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

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

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

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

There was no conversion of warrants to Ordinary shares on 1 June 2012.

There was no conversion of warrants to Ordinary shares on 5 December 2012.

There was no conversion of warrants to Ordinary shares on 5 June 2013.

Since the warrants were issued on 16 November 2009, a total of 31,960 warrants have been converted to 31,960 of ordinary shares.

On 28 January 2014, the Company announced that as a result of the passing of the Final Subscription Date as described in the Prospectus of the Company, a request for cancellation of the listing of the Warrants on the main market of the London Stock Exchange has been submitted to the Financial Conduct Authority ("FCA") on 28 January 2014, and the warrants were subsequently delisted.

The Company purchased between 25 and 31 July 2012 in total 800,000 of its own preference shares at a price of 95p per share, which were held in treasury and have subsequently been derecognised.

Voting rights 

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

Authority to allot shares 

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

Pre-emption rights

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

Repurchase and redemption of own shares 

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

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

Dividend

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

The eighth semi-annual preference share dividend of £0.04488 per preference share was declared on 29 November 2013 in respect of the period from 22 June 2013 to 20 December 2013, which was paid on 20 December 2013 to preference shareholders on the Register on 6 December 2013. The shares were quoted ex-dividend on 4 December 2013.

On 23 June 2014, the Company declared (as previously announced in the Company's RNS dated 01 May 2014), that the ninth semi-annual preference dividend of £0.04488 per preference share in respect of the period from 21 December 2013 to 20 June 2014, would not be paid. This dividend will instead be accrued on the balance sheet of the Company.

Shareholders' agreements

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

Shares and warrants transferability

Shares of the Company (i.e., ordinary shares and preference shares, as such terms are defined in the Articles) are freely transferable subject to article 10 of the Articles. The warrants issued by the Company expired during the course of the financial year.

Special Control rights

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

Investment objective and policy

Investment objective

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

Investment strategy

At an EGM held on 14 October 2011, shareholders approved a proposed new investment objective and policy to realise the existing property portfolio and return capital to shareholders. The Company  concluded discussions with the Commission de Surveillance du Secteur Financier ("CSSF") enabling it to pursue a structured realisation of its assets in line with the resolution approved by the Company's shareholders at the EGM, as an investment strategy under the Company's original investment policy. Further details can be found in the Investment Manager's Report. The Board believes that the investment objective and policy under the Company's original investment policy is the most appropriate course of action for the Company at this time, and is expected to have the following benefits:

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

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

· the strategic management of the realisation strategy within the given market constraints, debt covenants and maturity and asset level liquidity limitations. It is proposed that all property assets will be sold as expeditiously as is consistent with the protection of value.

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

Diversification

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

Asset allocation

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

Investment restrictions

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

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

· The Company is subject to a limit on borrowing of 70% of gross assets which, in accordance with Luxembourg legal and regulatory requirements, applies at all times; and

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

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

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

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

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

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

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

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

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

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

Principal risks and Uncertainties

In addition to the various operating risks presented in note 2.2 of the Consolidated Financial Statements, the Board has set out and presented risks it considers to be critical to the Company in Note 28 to the Consolidated Financial Statements as at 30 September 2014. As the current strategy is executed, the portfolio is likely to become more concentrated with the consequence that diversification controls are no longer effective.

For a full discussion of the going concern and the key risks to the Company's ongoing operations over the next 12 months, see note 2.2 of the Consolidated Financial Statements.

Investment and strategy

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

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

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

The primary control is that no single property (including all adjacent or contiguous properties) shall represent more than 15% of the gross assets of the Group at the time of purchase.

Borrowings

The Group is subject to a limit on borrowing of 70% of gross assets that applies at all times in accordance with Luxembourg legal and regulatory requirements.

At 30 September 2014 the Group had access to a €220.0 million credit facility from Blackstone Real Estate Debt Strategies ("BREDS") and Bank of America Merrill Lynch International Limited (BAML) of which the Group had an unpaid principal balance of €217.9 million. The Company's gross Loan to Value ("LTV") as at that date was 77.3%.

The Group seeks to avoid significant exposure to unforeseen upward interest rate movements, with all third party debt currently hedged by means of interest rate cap agreements.

Accounting, legal and regulatory

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

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

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

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

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

Management

The Board has appointed Internos Global Investors Limited ("Internos") in replacement of Invista Real Estate Investment Management Limited ("Invista") to execute the investment objective and policy set out above pursuant to an investment advisory agreement dated 22 September 2011 (the "Internos IAA").

The appointment of Internos was approved by (i) the CSSF as the Company's regulator (in relation to Internos acting as manager and promoter of the Company); and (ii) Bank of Scotland in its capacity as former facility agent in connection with the credit facility provided by it to the Company at that time. The Company announced on 15 December 2011 that Internos has taken on the role of investment manager with effect from 15 December 2011 and that the proposed change of the Company investment objective and policy to implement a structured realisation of its portfolio of assets was subject to regulatory approval. The Company concluded discussions with the CSSF on this point and it may now pursue a structured realisation of its assets in line with the resolution approved by the Company's shareholders at the EGM on 14 October 2011, as an investment strategy under the Company's original investment policy.

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

Management fees

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

In addition, the Company will pay Internos a realisation fee equal to 12.5% of the amount by which cash returned to ordinary shareholders exceeds €82.8 million (the "Notional Market Cap" as defined in the Internos IAA), compounded thereafter at 10% per annum.

Significant contracts

Apart from the Internos IAA and Administration Agreements, other significant contracts are with the following parties:

· Citco Bank Nederland N.V. - Luxembourg Branch (Citco Bank) as Custodian Bank

· Citco REIF Services (Luxembourg) S.A. (Citco) as Central Administrator & Company Secretary & The Registrar & Transfer Agent

· Capita IRG Trustees Limited as Depository Agent

· Internos Global Investors Ltd. ("Internos") for accounting services

· KPMG Luxembourg, Société coopérative, for auditing and tax advisory services

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

Creditor payment policy

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

Donations

The Company made no political or charitable donations during the year

Directors

The Directors of the Company (who together with their beneficial interests in the voting rights of the Company's ordinary share capital as at 30 September 2014) are listed below:

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

Directors' Remuneration

The appointment dates and gross remuneration of the Directors (not including expenses) during the current and previous financial year was as follows:

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

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

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

Compensation in case of resignation, removal from office or takeover bid.

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

Disclosure of information to auditors

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

Substantial shareholdings - At 30 September 2014 the Board was aware that the following shareholders owned 3% or more of the issued shares of the Company:

Independent auditors

KPMG Luxembourg, Société coopérative ("KPMG") has been appointed as independent auditor of the Company with effect from 18 February 2014 and for a duration of one year. The decision on the re-appointment of KPMG will be submitted for approval of shareholders during the AGM to be held on 27 March 2015.

Amendment to the Articles

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

Status for taxation

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

Going concern

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

Related Party transactions

This is detailed in Note 27 in the consolidated financial statements.

Corporate governance

Principles statement

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

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

The relevant corporate governance rules are the statutory rules of the Luxembourg Companies Act, which are, in essence, reflected in the constitutional documents of the Company. The Company's application of the UK Corporate Governance Code (with which the Company complies, and which is available at (http://www.frc.org.uk/getattachment/a7f0aa3a-57dd-4341-b3e8-ffa99899e154/UK-Corporate-Governance-Code-September-2012.aspx) is discussed in the following paragraphs.

Composition and Balance of the Board

The Board currently consists of four Directors, all of whom are Non-Executive.

Tom Chandos is the Chairman of the Board.

All the Directors (Tom Chandos, Michael Chidiac, Robert DeNormandie, William Scott) are considered independent as they have no links with the Investment Manager, are not significant shareholders in the Company and all have other professional employment.

The Board believes that the Directors have a breadth of property investment, business and financial skills and experience relevant to the Company. Biographical details of all current Board members are set out on the Company's website (www.iere.eu).

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

Chairman

The Board considers the Chairman to have sufficient time to commit to the Company's affairs as necessary.

Senior Independent Director

The Board has considered the need to appoint a Senior Independent Director, but believes that this is not appropriate due to the size of the Board. (provision A 4.1)

The Role of the Board

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

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

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

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

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

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

Board decisions

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

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

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

Board performance evaluation

The Board continually reviews its performance and that of its Committees and individual members during the financial year. The Board's procedure for evaluating the performance of the Board, its Committees and the individual Directors in respect of the year ended 30 September 2014 has occurred primarily through discussion. The evaluation process is designed to show whether individual Directors continue to contribute effectively to the Board and to clarify the strengths and weaknesses of the Board's composition and processes. The Chairman takes the lead in acting upon the results of the evaluation process. Following the annual review the Board concluded it was operating effectively and that the Chairman and the members of the Board had the breadth of skills required to fulfil their role.

Accordingly, as the individual performance of the respective Directors continues to be effective and the attendance by all Directors at meetings of the Board during the last financial year (see 'Board meetings') demonstrates the continued commitment of all Directors to their respective roles, the Board therefore considers all Directors standing for re-election at the Annual General Meeting on 27 March 2015 should be re-elected for a period of one year.

Re-appointment of Directors and Directors' tenure

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

Directors Training

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

Conflicts of interest

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

Insurance

Directors' and Officers' insurance is currently in place. The Company maintains liability insurance for its Directors and Officers.

Board meetings

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

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

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

The table below shows the attendance at the Board's quarterly meetings during the financial year to 30 September 2014:

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

Committees of the Board

The Audit Committee

The Audit Committee is chaired by Robert DeNormandie with Michael Chidiac and William Scott as voting members. The Company considers that Robert DeNormandie's experience makes him suitably qualified to chair the Audit Committee. If required, meetings can also be attended by the Investment Manager, the Administrator and the Independent Auditor as well as with the Company's property appraiser to discuss the scope and conclusions of their work.

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

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

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

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

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

• periodic reporting to the Board on its activities.

During the year the Company's auditors were involved in reviews of the interim and year end financial statements. The external auditor also carried out tax advisory services for the Company during the year.

The Audit Committee is satisfied that KPMG Luxembourg, Société coopérative is independent of the Company.

Terms of Reference

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

Other Committees

The Company does not have a Remuneration Committee [provision D.2.1] or a Nominations Committee [provision B.2.1], since the Company does not have any executive Directors and also due to the small size of the Board, it is more efficient for any decisions relating to Board nominations to be taken directly by the Board rather than instituting a separate committee. New appointments to the Board and remuneration issues are considered by the Board as a whole from time to time.

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

Shareholder relations

Shareholder communications are a high priority for the Board. The Investment Manager produces a quarterly fact sheet which is posted on the Company's website at www.ieret.eu; the latest version can be

found at http://www.ieret.eu/quarterly-factsheets. The fund manager and other relevant members of the Investment Manager's Investment Committee make themselves available at all reasonable times to meet with brokers, shareholders and sector analysts. Feedback from these sessions is provided by the Investment Manager to quarterly Board meetings.

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

Details of the resolutions to be proposed at the Annual General Meeting on 27 March 2015 can be found in the Notice of the Meeting

Statement of Directors responsibilities

The Directors are responsible for ensuring proper preparation of the financial statements and Report of Directors for each financial period:

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

ii) which give a true and fair view of the development and performance of the business and the position of the Group as well as a true and fair description of the principal risks and uncertainties the Group may encounter.

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

In preparing such financial statements the Directors are responsible for:

· Selecting suitable accounting policies and applying them consistently.

· Making judgments and estimates that are reasonable and prudent.

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

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

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

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

Internal control

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

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

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

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

1. The Board has reviewed a report (the "Operating Memorandum") prepared by Internos' team on Internos (Investment Manager and Accountant), Citco REIF Services (Luxembourg Registrar and Administrator), Citco Bank Nederland N.V. (Custodian), and Capita Registrars (UK Registrar) and has been satisfied that their approach is appropriate for the Group.

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

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

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

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

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

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

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

Action has been taken to remedy any significant failings or weaknesses identified.

Responsibility statement

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

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

b) the Annual Report and Accounts 2014 includes a fair review of the development and performance of the business and the position of the Group for the financial year ended 30 September 2014, and their impact on the set of financial statements, together with a description of the principal risks and uncertainties for the next financial year.

Signed on behalf of the Board of Directors on 29 January 2015

Tom Chandos, Chairman

29 January 2015

Robert DeNormandie, Chairman of the Audit Committee

29 January 2015

Invista European Real Estate Trust SICAF Annual report and consolidated financial statements 2014

CONSOLIDATED INCOME STATEMENT

Invista European Real Estate Trust SICAF Annual report and consolidated financial statements 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2014

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

Invista European Real Estate Trust SICAF Annual report and consolidated financial statements 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2014

The consolidated financial statements were approved by the Board of Directors on 29 January 2015 and signed on its behalf by:

Tom Chandos Robert DeNormandie

Chairman Chairman of Audit Committee

Invista European Real Estate Trust SICAF Annual report and consolidated financial statements 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2014

The accompanying notes on pages 35 to 78 are an integral part of these consolidated financial statements

Invista European Real Estate Trust SICAF Annual Report and consolidated financial statements 2014

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2014

The accompanying notes on pages 35 to 78 are an integral part of these consolidated financial statements

Invista European Real Estate Trust SICAF Annual report and consolidated financial statements 2014

Notes to the Consolidated Financial Statements

For the year ended 30 September 2014

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

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

2.1 Statement of compliance

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

These consolidated financial statements are presented for the year ended 30 September 2014, with comparative figures for the year ended 30 September 2013.

The consolidated financial statements have been approved for issue by the Board of Directors on 29 January 2015.

2.2 Going concern

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

The Board of Directors has identified the Group's need to sustain the costs of its borrowings with limited amounts of working capital as one of the key risks to the going concern basis. The primary objective of the Group is therefore to reduce its debt costs. The new loan facilities entered into during the financial year with BAML and BREDS have a flexible structure that will enable the Group to reduce its borrowing costs from an interest rate margin of 770 bps above 3M EURIBOR to 470bps over 3M EURIBOR (the "Step-Down" event) in the event that the Group succeeds in paying down enough of the mezzanine facility that its outstanding BREDS indebtedness is reduced to €35m or below, among other conditions.

The primary means of raising the capital required to reach the Step-Down will be the pursuit of the Group's ongoing disposal programme. The Group's Investment Manager (Internos Global Investors) has identified that there is likely to be a funding gap between sales proceeds and the repayment required to reach the lower interest rate, and is pursuing a number of options with the aim of securing additional funding for the gap. In the meantime the Group is continuing with the sale strategy that was outlined in the annual business plan provided to the Mezzanine Lender and reviewed 30 days before the end of the calendar year.

One of the consequences of pursuing the disposal programme will be the sale of income-producing assets, which, given the current cash constraints on the Group, is forecast to result in a breach of the Interest Cover and Projected Debt Yield Covenants of the Mezzanine Loan Facility. There is, therefore, a significant risk that as a result of sales expected to be completed during the next twelve months there will be a breach of covenants of the Mezzanine Facility Agreement during the coming financial year.

At the time of a breach of the Mezzanine Facility Agreement, BREDS would have the following options:

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

d) The Mezzanine Facility Agreement includes a provision for a Default Rate of interest, which can be applied in the event of such a breach, at the discretion of the Mezzanine Lender. This would mean an additional 300 bps of interest on top of the current margin of 770 bps. In the event that the Group is unable to support this additional interest cost, a mechanism exists whereby it is possible that the Mezzanine Lender may (but is not obliged to) allow unpaid interest to be treated as an accruing liability on the balance sheet of the Fund, thereby reducing the Net Asset Value.

The risks mentioned above are mitigated by a combination of potential waivers from the Mezzanine Lender and the ongoing efforts to secure a capital investment that will bring about the Step-Down. In the light of this, the Company has recently appointed the leading real estate investment bank Eastdil Secured LLC ("Eastdil"), part of Wells Fargo & Company, to undertake a strategic review and advise it on a range of options, including the sale of subsidiary undertakings owning the core portfolio. While there can be no certainty of a transaction resulting, the directors believe that the resources and experience of Eastdil will enhance the Company's capability of navigating through the current difficult waters.

On the basis of the Lender's stated approval of and support for the Group's business plan provided to the Mezzanine Lender and reviewed 30 days before the end of the calendar year, which requires time and stability to enable the successful sale of assets needed to achieve the Step-Down, it is expected that waivers will be granted in the event of a breach of the Mezzanine Facility Agreement. BREDS will not commit unconditionally to future waivers, although the ongoing process run by Eastdil, which has been initiated in close consultation with BREDS, is strongly in the interest of the Mezzanine Lender as it is designed to secure additional capital for the core portfolio, which, along with the expected disposal proceeds, would reduce leverage to the target level specified by the Step-Down. It is therefore anticipated that while the Group continues to pursue the current agreed Business Plan, temporary waivers should be granted to cover breaches brought about by asset disposals. If further waivers were not granted, the Group would be in breach of the Projected Debt Yield and Interest Cover Covenants.

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

2.3 Functional and presentation currency

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

2 Basis of preparation (continued)

2.4 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the investment properties and derivative financial instruments that have been measured at fair value.

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

2.5 Use of estimates and judgements

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

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

Measurement of fair values

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

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

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

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

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

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

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

Further information about the assumptions made in measuring fair values is included in the notes to assets held for sale (note 30), investment property (note 12) and financial instruments (note 24 and 28).

2.6 Changes in accounting policy and disclosures

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

i. IFRS 13, (Fair Value Measurement) - IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. The requirements of IFRS 13 do not change when an entity is required to use fair value, but rather provide guidance of how to measure fair value under IFRS when fair value is required or permitted. The Group applied IFRS 13 prospectively from 1 October 2013 as adopted by the European Union. The adoption of this standard did not have a material impact on the financial position or performance of the Group. Additional disclosures, where required, are provided in the individual notes relating to the assets and liabilities.

Standards and interpretations recently issued but not yet effective

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

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

ii. IAS 28, (Investment in Associates and Joint Ventures), (as revised in 2011) - As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The standard defines significant influence as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. The Group will apply IAS 28 (revised 2011) prospectively from 1 October 2014. There are currently no investments in associates and joint ventures in the Group.

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

iv. IFRS 10, (Consolidated Financial Statements) - IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 (Consolidation - Special Purpose Entities). IFRS 10 establishes a single control model that applies to all entities including 'special purpose entities'. The changes introduced by IFRS 10 require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The Fund will apply IFRS 10 retrospectively except for certain provisions from 1 October 2014.

2 Basis of preparation (continued)

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

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

vi. IFRS 12, (Disclosure of Involvement with Other Entities) - IFRS 12 includes all of the disclosure requirements that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity's interests in subsidiaries, joint ventures, joint arrangements, associates and structured entities. A number of new disclosures are also required. The Group will apply IFRS 12 retrospectively from 1 October 2014.

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

The accounting policies set out below have been applied consistently to all the periods presented in these consolidated financial statements.

3.1 Basis of consolidation

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

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

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

3.2 Related parties

Related parties are defined as parties either directly or indirectly controlled, managed or owned by Invista European Real Estate Trust SICAF. A list of related party transactions is disclosed in note 27.

3.3 Foreign currency translation

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

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

Transactions in currencies other than the presentation currency of the Group are recorded at the rate in effect at the date of transaction. Monetary assets and liabilities denominated in such currencies are translated at the date of exchange ruling at the consolidated statement of financial position date. All differences are recognised in the consolidated income statement under 'finance income" or "finance expense" (see notes 13 and 14). The cumulative effect of exchange differences on cash transactions are classified as realised gains and losses in the consolidated income statement in the period in which they are settled. Exchange differences on transactions not yet settled in cash are classified as unrealised gains and losses under "finance income" or "finance expense".

3.4 Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes. Investment property comprises freehold land, freehold buildings and land held under operating leases. Investment property is initially recognised on completion of contracts at cost, including related transaction and borrowing costs associated with the investment property. Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property are capitalised as part of its costs.

Borrowing costs are capitalised while acquisition or construction is actively underway and cease once the asset is substantially completed, or suspended if the development of the asset is suspended.

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

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn income or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. This accounting policy is also applied for assets held for sale (note 30).

3.5 Financial instruments

Financial assets: Initial recognition

The Group determines the classification of its financial assets at initial recognition.

The Group's financial assets include cash and short term deposits, trade and other receivables and financial instruments.

Financial liabilities: Initial recognition

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

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

The subsequent measurement of financial liabilities depends on their classification:

- Financial liability at fair value recognised through profit and loss

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

- Fair value of financial instruments

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

- Amortised cost of financial instruments

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

3.6 Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities (refer to note 28). On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedge relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be "highly effective" in offsetting the changes in the fair value of cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125%.

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

The fair value of interest rate cap contracts is determined by reference to market values for similar instruments.

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

Cash flow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the consolidated income statement.

Amounts taken to equity are transferred to the consolidated income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when the related sale occurs.

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

3.7 Impairment

Financial assets (including receivables)

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

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognised in the consolidated income statement in an allowance account against loans and receivables.

Non-financial assets

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

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

3.8 Derecognition of financial instruments

Financial assets

A financial asset is derecognised when:

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

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

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

Financial liabilities

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

3.9 Trade receivables

Trade receivables are carried at amortised cost less provision for doubtful debts, if any. The Board of Directors of the Group assess specific provisions (refer to note 15) on a customer by customer basis throughout the period.

3.10 Current assets and liabilities

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

3.11 Assets held for sale

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

3.12 Cash and cash equivalents

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

3.13 Share capital

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

3.14 Issue costs

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

3.15 Preference shares

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

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

3.16 Interest bearing loans and borrowings

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

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

3.17 Tax and deferred tax

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

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

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

Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination which at the time of the transaction affects neither accounting nor taxable profit nor loss. The aggregate amount of such deferred income tax is disclosed as unrecognised deferred income tax (note 25). Deferred income tax is determined with regard to tax laws and rates that have been enacted or substantially enacted into law by the consolidated statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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

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

Unrecognised deferred tax assets are re-assessed at each consolidated statement of financial position date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

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

3.18 Provisions

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

3.19 Deferred income

Deferred income represents rental income which has been billed to customers at the consolidated statement of financial position date, but which relates to future periods.

3.20 Rental income

Rental income from investment properties is accounted for on a straight-line basis taking account of any rent free periods and other lease incentives, net of any sales taxes, over the term of the ongoing leases.

3.21 Finance income and expenses

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

Finance expenses comprise interest expense on borrowings, amortisation of debt transaction costs and losses on hedging instruments that are recognised in the consolidated income statement.

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

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

3.22 Operating expenses

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

3.23 Earnings per share

The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants.

3.24 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly to make decisions about resources to be allocated to the segment and to assess their performance (see note 29).

3.25 Subsequent events

Subsequent events are disclosed in the notes to the consolidated financial statements when significant.

3.26 Contingencies

Contingent liabilities are not recognised in the consolidated financial statements, unless there is a probable chance of an outflow for which a provision is made. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

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

4. Significant accounting estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements is included in:

Investment property

Fair value is based on the open market valuations of the properties as provided by an independent expert, Savills (UK) Limited, in accordance with the guidance issued by the Royal Institution of Chartered Surveyors (the "RICS"). Market valuations are carried out on a quarterly basis. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into

consideration when determining the fair value of investment properties under construction. These estimates are based on local market conditions existing at the reporting date. The experts also used their market knowledge and professional judgement and did not rely solely on historical transactional comparables. Valuations typically reflect all the market and operational risks as described in note 28.1. It should be noted that the valuation of property and property related assets is inherently subjective due to the nature of each property and the characteristics of local, regional and national real estate markets which change over time.

The current economic climate and volatility in the global capital markets creates additional uncertainty and there can therefore be no assurance valuations of the Group's assets will reflect actual sale prices even where such sales occur shortly after the valuation date.

Current and deferred taxes

The Group is subject to income and capital gain taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. The Group recognises liabilities for anticipated taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provision in the period in which the determination is made (refer to note 25).

Derivative financial instruments

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

The fair value of the Group's derivatives is the estimated amount that the Group would receive or pay to terminate the derivatives at the balance sheet date. The Group estimates the fair value of derivatives by reference to current market conditions compared to the terms of the derivatives agreement using the result of an external appraiser. Refer to note 28 for the related balances.

Classification of preference shares

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

5. Capital Management

The primary objectives of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. No changes were made in the objectives, policies or processes during the years ending 30 September 2014 and 30 September 2013. The Group monitors capital primarily using a Loan to Value ratio (LTV), which is calculated as the amount of outstanding debt divided by the valuation of the investment property portfolio. The Group's policy is to keep the average LTV ratio of the Group lower than the LTV requirements in the banking covenants.

The banking covenants require the Group to have a LTV ratio of 85% up to and including the occurrence of the Step-Down Event, 80% after the occurrence of the Step-Down Event. Under the terms of the new facility, once the total amount of the unpaid principal balance has been reduced to €135 million and as long as the LTV is below 70%, the ("Step-Down Event"), the margin will be reduced from 770bp to 470bp over three month EURIBOR. The LTV covenant, which is set initially at 85%, falls to 80% following the Step-Down Event. Under the terms of the new debt, a cash sweep will be applied to the Company's income prior to the Step-Down Event.

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

For the financial year ended 30 September 2014, the LTV ratio disclosed to the lender was 77.18%, (2013: 68.18% for Bank of Scotland ("BOS").

Rental income

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

For the year ended 30 September 2014, €26.6 million was recognised as rental income in the consolidated income statement (2013: €27.6 million).

6. Property operating expenses

The analysis of the Property operating expenses incurred during the year is as follows:

Property operating expenses incurred during the year were attributed to:

8. Other income

The analysis of the Other income earned during the year is as follows:

Included in other property income in the above table is insurance proceeds of €2.3 million received with regards to a claim on the Amiens properties in France.

9. Investment management and performance fees

Internos Global Investors Limited ("Internos") acted as the Investment Manager of the Group in the year under review. Internos received Investment Management fees of €1.0 million (2013: €1.0 million). The conditions for payment of a performance fee to the Investment Manager were not met during the year under review and as such no provision for performance fees was made.

In addition the Group was charged for the full year accounting fees of €0.4 million (2013: €0.3 million) in respect of the accounting services provided by Internos. This amount is included under accounting and administrative fees in note 11 below.

10. Professional fees and other expenses

The analysis of the Professional fees and other expenses incurred during the year is as follows:

11. Administration fees

The analysis of the Administration fees incurred during the year is as follows:

Measurement of fair value

i. Fair value hierarchy

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

The valuations were performed by Savills (UK) Limited, an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being valued.

The fair value measurement for investment properties of €237.7 million has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see note 2.5 and note 4).

Level 3 fair value

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

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

Investment property - valuation techniques and significant unobservable inputs

The following table provides a description of valuation techniques used and quantitative information about the significant unobservable inputs used by the independent valuers referenced above in determining the fair value of the investment properties for the period ending 30 September 2014 by geographical location.

The level of accounts receivable from tenants varies due to the timing of the invoices issued and receipt of cash. Of the €5.4 million (2013: €4.5 million) rent receivable included in the table above, €4.0 million (2013: €4.1 million) relate to the period after 30 September 2014.

Trade receivables (gross) are analysed as follows:

Movements on bad debt provision are set out below:

The bank deposits mentioned above at the Group level includes an amount of tenant deposits, held in a separate account, of €2.4 million (2013: €3.1 million). The tenant deposits may serve as collateral in case the rent receivables are not paid by the tenants.

The Group held €8.9 million in a capex reserve for strict use on approved capital expenditure by the bank. The Group has €0.3 million held in escrow account (2013: €2.4 million) which is not available for current use. This amount (2013: €0.3 million) relates to the disposal of the Rue Royal property. The amount of €2.4 million in 2013 was a deposit required by BOS with regards to the forward exchange contract (refer to note 28.5) to hedge the dividend payment of preference shares (refer to note 26) until 15 December 2014 but the Group exited from this hedge in April 2014.

As at the consolidated statement of financial position date, an amount of €17.4 million has been pledged in favour of funds affiliated to Blackstone Real Estate Debt Strategies ("BREDS") under the terms of various agreements (2013: €18.3 million was pledged to BOS). These relate to loan agreements concluded by subsidiaries of the Company and BREDS for the purposes of refinancing debt previously held by BOS on the acquisition of investment property. Restrictions on the utilisation of these pledged bank accounts have been imposed as the Group is operating under a cash pooling agreement.

Issuance of ordinary shares

The Company has an issued share capital of €25,998,090 (2013: €25,998,090) consisting of 259,980,909 shares (2013: 259,980,909 shares) without indication of nominal value all of which have been fully paid up.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company's residual assets.

The right to exercise warrants to ordinary shares expired in November 2013 in line with the deadline provided in the prospectus of 30 December 2009.

Restricted reserve

The non-distributable reserve of €3,416 (2013: €3,416) can be used to absorb losses incurred or to increase the Company's share capital.

During the year, no amount (2013: €65.8 million) of restricted reserve was used to absorb losses.

Authorised capital

The Company has an authorised capital of €920,980,852 represented by 9,209,808,522 ordinary shares without indication of nominal value.

Hedge reserve

The hedging reserve related to the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that had not yet expired.

On 12 January 2010 the Company finalised an agreement with the Bank of Scotland to extend the loan facility to 31 December 2013 bringing the maturity date in line with the swap agreements. Consequently, the swaps qualified as effective cash flow hedges. Until December 2012, the changes in the fair value of the swaps deemed to be effective were recorded in other comprehensive income. Thereafter, following a negative hedging effectiveness test made in accordance with IFRS, the hedge is no longer effective and all movements are going through the income statement. The hedged transactions expired in full on 31 December 2013 and as such the Group did not have any hedge reserve at year-end.

Hedge reserve

Voting rights

There are no restrictions on the voting rights attached to the ordinary shares. The preference shares will not have the right to vote except in circumstances set out in the articles 44 to 46 (1) of the Company Act. In addition, holders of preference shares will have the right to vote in the same manner as other Shareholders at all meetings, if, despite the existence of profits available for that purpose, the Preference Dividends at the Preference Dividend Sterling Equivalent are not paid entirely for any reason whatsoever for a period of one financial year and until Preference Dividends at the Preference Dividend Sterling Equivalent have been received in full. Warrants do not carry any voting rights. Voting rights to each share and procedures relating thereto are described in articles 7, 8 and 26 of the Articles of the Company.

Shareholder's agreements

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

Shares and warrant transferability

Shares of the Company (i.e., ordinary shares and preference shares, as such terms are defined in the Articles of incorporation) are freely transferable subject to article 10 of the Articles of incorporation

Special Control rights

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

19. Net asset value per ordinary share

The net asset value per ordinary share is based on net assets of €39.4 million at 30 September 2014 (2013: €64.2 million, 2012: €97.5 million) and 260 million ordinary shares outstanding at 30 September 2014 (2013: 260 million, 2012: 260 million).

(1) €:£ exchange rate 1.28358 as at 30 September 2014 (2013: 1.19673, 2012: 1.2568)

(2) Exercise price of warrants of £0.29

20. Earnings per share

The calculation of the basic earnings per share for the financial year ended 30 September 2014 is based on the loss attributable to ordinary shareholders of €19.050 million (2013: loss of €34.424 million), and the weighted average number of ordinary shares outstanding during the year ended 30 September 2014.

The calculation of diluted earnings per share at 30 September 2014 is based on a diluted loss attributable to ordinary shareholders of €19.050 million (2013: loss of €34.424 million), and a weighted average number of ordinary shares outstanding during the year ended 30 September 2014 after the adjustment for the effect of all dilutive potential ordinary shares.

21. Interest bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to interest rate, foreign currency and liquidity risk see note 28.4.

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

As at 30 September 2014, the Group had €217.9 million of outstanding indebtedness with BREDS (2013: €229.7 million with BOS). The Company's LTV (gross debt divided by market value of properties) under the BREDS loan documentation at that date was 77.3% (2013: 70.6% with BOS), against a covenant of 85.0% (2013: 70.0% with BOS). The LTV is calculated based upon the market value of the properties as at 30 September 2014.

Terms and debt repayment schedule